✈️ IndiGo's Fierce Founder Feud
The co-founders of IndiGo have been in a bitter feud for over two years now. What's caused this bad blood?
Do you know what Meta, Apple, Reliance and IndiGo Airlines have in common?
Yeah, all of them are super famous, of course. But, they have all witnessed bitter co-founder feuds.
Betrayal, conflicts, fights sometimes leading to courtroom drama: these companies have seen it all.
But what pits one co-founder against another? Today, let's dive into one such story of bitterness: the feud between the founders of IndiGo airlines.
The Seeds of Bitterness
The seeds of this feud were sown back in 2015.
That year, IndiGo's parent company, InterGlobe Aviation, filed for an IPO and the two co-founders Rakesh Gangwal and Rahul Bhatia signed a shareholders agreement.
The agreement had two main clauses:
Both of them could veto each other's sale shares. This means neither could sell without the other's permission.
If one of them was exiting or selling some shares, the other could also tag along.
Bhatia had controlling rights in the company. This gave him several powers including one where Gangwal would have to compulsorily agree with Bhatia on important decisions like the appointment of directors.
This agreement would expire four years after the IPO and they would be free of each other. However, Bhatia would still retain controlling rights.
Sounds straightforward? Well… here's the twist in the tale.
These clauses were added to the company's Articles of Association (AoA). Huh?
The Articles of Association is like the company's Constitution. Once something is inked in the Constitution, it can only be removed by a majority vote.
So, after four years, the AoA would have to be amended to dismiss the agreement.
Bad Blood
Fast forward to 2019. The two parties could call a meeting on one fine morning, and vote on scrapping the agreement.
But, before that, Gangwal wrote a letter to the SEBI. He claimed that Bhatia was misusing his controlling rights by engaging in multiple related party transactions (RPT). Eh?
A related party transaction is any transaction with, you guessed it, a related party. It could be a subsidiary, companies where the promoters have an important position or a company in which a director or their relatives are partners.
Now, such related party transactions could harm the shareholders' or other founders' interests (Read our in-depth article about related party transactions here).
So, was Bhatia actually using his sway at IndiGo to get business for other companies connected to him? Umm, sort of.
IndiGo's related party transactions had increased from Rs. 31 crores in 2010-2011 to Rs. 315 crores in 2018!
According to Gangwal, this caused corporate governance issues at the company. Especially because some RPTs were not approved by the audit committee or were extended without approval. He claimed that IndiGo was being run worse than a "paan ki dukaan" (betel leaf shop)!
Bhatia's Comeback
Now, Bhatia wasn't going to stay quiet. He said that there was no evidence of any foul play in the transactions as they were conducted with due diligence. Plus, IndiGo had benefited from each related party transaction, so why the fuss?
And well, Bhatia was suspicious as to why Gangwal made these accusations only now. After all, he hadn't raised any concerns about these transactions in all these years!
But now that their shareholders’ agreement was set for renewal, Gangwal was trying to highlight that Bhatia was irresponsible and dilute Bhatia's controlling rights in the company so he can have more control.
To the Courtroom
The two were in a stalemate. What now?
Gangwal called for an Extraordinary General Meeting in 2020 (any meeting other than the scheduled annual general meeting) to amend the Articles of Association and remove the (above mentioned) clauses preventing him from selling shares. He also proposed adding new safeguards to ensure better corporate governance.
But shareholders didn't side with Gangwal and no changes were made.
On the other hand, Bhatia had not forgotten the accusations laid on him. He now wanted to take Gangwal to court for defaming him.
And he did, to the London Court of International Arbitration. It ruled that Gangwal would have to pay $25,000 for defamation, but IndiGo would have to call another meeting to amend the rules.
The Way Ahead
A new meeting is scheduled for December 30, which could finally omit the rules related to selling shares. Is the end of the feud near?
Maybe, maybe not. You see, the shareholders could still vote against the amendment, bringing us back to square one. Or, even after the rules are amended, Gangwal could decide not to sell his stake and the feud could continue (forever).
Wondering how this feud affected IndiGo's performance?
It hasn’t. Yet. IndiGo is still leading the aviation sphere, with a 53% market share.
But things are about to change. An old player is re-entering the market: Tata. Will this bickering give Tata an edge over IndiGo?
Only time will tell…
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Thanks for detailing out the founder feud comprehensively. Quite helpful!
One founder one dream or company.... Investor is different category.... Company from foreign see different angle in whole and in general...