IndiGo's Gangwal Moves Court To Enforce Arbitral Award, Remove Transfer Restrictions On Shares: Exclusive
The battle between IndiGo's founders, Rakesh Gangwal and Rahul Bhatia now in the Delhi High Court.
Rakesh Gangwal, co-promoter of InterGlobe Aviation Ltd., the publicly listed parent of IndiGo, has moved the Delhi High Court to seek enforcement of an arbitral award in his shareholder dispute with co-promoter Rahul Bhatia.
While the move is pre-emptive it could also determine whether the two-year-long dispute between the founders will close amicably or fester further. The petition's success may also decide the future ownership of India's largest airline.
Gangwal's petition in the Delhi High Court, a copy of which has been reviewed by BloombergQuint, seeks to enforce two specific reliefs granted by the arbitral award:
Remove the Transfer Restriction Articles from the listed company's Articles of Association.
Gangwal to pay Bhatia $50,000 for a claim raised by him in the arbitration.
A third relief, that Bhatia has to pay legal costs incurred by InterGlobe Aviation in the arbitration proceedings, has been referred to but is not the subject of the petition.
Gangwal and Bhatia, long-standing partners, fell apart on issues pertaining to restrictions on transfer of shareholding and governance of the company. It turned into an ugly, public battle till Bhatia filed for arbitration as provided for in the shareholder agreement between the two and the airline company.
The arbitral tribunal, appointed by the London Court of International Arbitration, issued its order on Sept. 23, 2021.
Among other things, it allowed Gangwal's counterclaim seeking removal of transfer restrictions on the shareholding of the two founders.
The arbitral award directed Bhatia to, jointly with Gangwal:
Make a requisition to call an extraordinary general meeting of the airline's shareholders to vote on a resolution to remove the transfer restriction articles, within 30 days of the award.
Take necessary actions to convene and conduct the EGM at joint cost and vote in favour of the resolution.
The award also directs Gangwal to pay Bhatia $50,000 within 30 days.
But, 30 Days Not Over Yet.
The petition, news of which was first reported by the business news TV channel ET Now, acknowledges that the 30-day period isn't over yet. But, it claims, Bhatia hasn't yet responded to Gangwal's efforts to implement the award.
According to the petition, Gangwal wrote a letter to Bhatia's lawyers on Sept. 26 sharing a draft joint EGM requisition and board resolutions. Details were also sought regarding the wiring of the $50,000. So far, there has been no response from Bhatia, the petition said.
The conduct of Respondents (Bhatia) in not taking any timely action for approving amendment of the Articles by deleting the Transfer Restriction Articles and convening an EGM will cause irreparable loss and injury to the Petitioners (Gangwal).Rakesh Gangwal Petition
Hence, the petition seeks timely compliance of the directions in the arbitral award.
If that occurs, it may mark the end of the dispute between the two long-standing friends and business partners. Other concerns raised by Gangwal were addressed when InterGlobe Aviation changed its policy on related party transactions and expanded its board.
That said, there is always the chance of further litigation.
BloombergQuint was unable to reach Rakesh Gangwal. His lawyers declined to comment. Messages and an email to InterGlobe Aviation's spokesperson have yet to be answered.
To be clear, the petition doesn't include the full details of the arbitral award.
Transfer Restrictions: Back Story + Now What?
The transfer restrictions on shares owned by Gangwal and Bhatia have been a sticky issue all through this dispute.
The restrictions, as detailed in the Articles of Association of the aviation company, are in the nature of a right of first refusal and tag along rights.
Simply put, if one of the promoters wants to sell their shares, the other has the first right to purchase them or require the buyer to purchase a similar quantity from him.
The transfer restrictions also prohibit sale of shares to any competitor or person who would have to make a mandatory open offer, without prior consent of the other promoter.
These are common shareholder rights in private companies but such transfer restrictions are frowned upon in publicly listed companies.
These rights were to automatically expire in November 2019, the fourth anniversary of the company's initial public offering, as stated in the shareholder agreement and IPO prospectus. Gangwal sought an EGM to vote on the removal of the transfer restrictions but the special resolution failed as Bhatia voted against it.
Now, the arbitral award has directed an EGM be requisitioned to remove the transfer restrictions and both Gangwal and Bhatia are to vote in favour of resolution.
If and when that's done, it may spark fresh speculation on whether Gangwal is seeking to sell part or all of his 36.63% shareholding. Bhatia owns 38.20%.
In January 2020, in the thick of the dispute between the two promoters, there were indications that foreign airlines such as Qatar Airways and Delta Airlines may be interested in India's top carrier.
Much time and two phases of a pandemic have passed since then. Curiously, IndiGo shares are at the highest they've been in five years. The stock closed at Rs 1,947 apiece on Thursday.
(Corrects an earlier version that misstated Rakesh Gangwal's first name.)