After Jet Airways went off radar in April, market leader IndiGo Airlines is now in the midst of a messy internecine battle. Rakesh Gangwal (36.68 per cent holding) has accused IndiGo’s other co-founder Rahul Bhatia (38.26 per cent) of violation of corporate governance norms including irregularities in related-party transactions. Bhatia has strongly refuted this, and accused Gangwal of levelling false allegations to escape agreed obligations and gain more control over the airline. The matter is now in SEBI’s court which has directed the company to respond by July 19. Meanwhile, SEBI and the Centre have reportedly started digging into the various allegations of governance lapses and violations. It is critical that SEBI and the Corporate Affairs Ministry thoroughly investigate discomfiting questions being thrown up by the high-profile feud.

One, were the related-party transactions at the airline in full compliance with the Companies Act and SEBI norms? Two, what is the legal sanctity of the shareholder’s agreement entered into between Gangwal and Bhatia that effectively gives the latter unusual, dominant and continual control over the airline’s management? Three, can the articles of association of the company have clauses that perpetuate such control and influence? Four, did the company’s management underplay the extent of the dispute between the promoters and keep shareholders in the dark? There has been much destruction in shareholder value since the outbreak of the no-holds barred hostilities. Five, going by media reports, what is the nature and implication of the “exclusive parleys” that Gangwal is reported to have had with engine provider Pratt and Whitney? The common thread connecting these questions is whether the interest of non-promoter shareholders was compromised at any stage.

This feud isn’t without a sense of irony. The promoters who now accuse each other of violations and machinations did not exactly cover themselves in glory in the run-up to the airline’s IPO in 2015. They had chosen to pay themselves a huge dividend that had turned the company’s net worth negative. Even if legal, it did not reflect well on the corporate governance front. Today, it does not help that IndiGo is the giant in the domestic skies with nearly 50 per cent market share. Turbulence at the airline will tell in a big way on the country’s aviation sector, struggling with weak passenger growth. These critical questions need to be addressed in quick time for the airline to get back on track. They relate to fundamental corporate governance norms and to the protection of the rights of public shareholders in any company. Listed domestic companies are mandated to have at least 25 per cent public shareholding and this is set to go up further to 35 per cent in the coming years. Any lapse in safeguarding the interests of this group will have a deleterious effect in their participation in capital market activities.

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