IndiGo promoter spat: Gangwal's criticism of CEO suggests variance with Bhatia on senior leadership

IndiGo co-founder Rakesh Gangwal's admonishment of the airline's CEO Ronojoy Dutta, on the contentious issue of related-party transactions, and asking if the CEO is 'conflicted' has brought to fore the deep fissures in the airline over the appointment of its senior leadership.

Gangwal's comments, in the EGM notice to be sent to IndiGo's shareholders, came after he talked about the 'unusual controlling rights' that co-founder Rahul Bhatia allegedly has, like in the appointment of MD and CEO.

In an interview to CNBC-TV18, Dutta had downplayed the rift between the founders and said the differences were 'administrative' and 'minutiae'.

Taking exception to that description, Gangwal says: "It is startling to hear that RPTs (related-party transactions) between the company and InterGlobe Enterprises (IGE, controlled by Rahul Bhatia) are administrative issues and not an airline issue. Moreover, to also claim that there are no compliance issues and it is minutiae, in the face of all that has been uncovered, raises troubling credibility issues."

Gangwal continues, and wonders if the CEO, who is widely believed to have been roped in by Bhatia, is 'conflicted'. He adds: "We sincerely hope that the CEO, who was nominated by the IGE Group but not classified as a 'nominee CEO of the IGE Group', is not in some way conflicted on this issue."

Dutta's appointment as Principal Consultant in December last year had raised many an eyebrow in the industry. After Aditya Ghosh, who was President at IndiGo, exited the airline, Bhatia had taken over as interim CEO.

Greg Taylor, a senior advisor, was tipped to be the next CEO. Taylor was considered to be close to Gangwal. But Taylor's unexpected exit -- sources told Moneycontrol that his appointment was not cleared by the government as is needed for foreign professionals -- cleared the way for Bhatia to appoint Dutta.

"Dutta's appointment was one among the many on which both the founders differed," a senior executive from the industry said.

Though Gangwal had signed on the shareholders' agreement that gave Bhatia more say on appointments, of late he has been troubled by the balance of power, or the lack of it.

"Rooted from a deep trust built over a decade long friendship and with no desire on my part to have any meaningful control of the company, I entered into a shareholders' agreement that allows Bhatia unusual controlling rights over IndiGo," says Gangwal.

According to the agreement, Bhatia has the right to appoint half of IndiGo's directors, can nominate the Chairman and also appoint the CEO and MD.

While Gangwal underlines that these rights are fine as long as they are 'used judiciously', it is clear that the thinks the case was otherwise. He has asked market regulator SEBI to look into the matter and 'make necessary changes.'

Read: IndiGo shareholder pact to be checked by govt for violations

This will be crucial because these rights, as Gangwal pointed out, will survive even after this coming November, when most of the provisions of the current shareholders' agreement expire, since, these rights remain embedded in IndiGo's Articles of Association.

Interestingly, the agreement required Gangwal's RG Group to vote in favour of IGE's nominees. "Given the actions of the IGE Group on governance issues, the RG Group is extremely uncomfortable at being forced to vote alongside them and, especially, if it is not in the best interest of the company," says Gangwal.

His hope now rests on SEBI, which has asked Bhatia's InterGlobe Aviation for a reply by July 19.