End of shareholder pact may set IndiGo owners 'free'

MUMBAI | NEW DELHI: The warring founders of InterGlobe Aviation, the company that runs Indi-Go, could have the freedom to sell their shares to any suitor after the shareholders’ agreement (SHA) between them expires in October.The shareholders’ agreement between Rakesh Gangwal and Rahul Bhatia — which is to remain valid for four years after the company’s initial public offering (IPO) in 2015 — conferred on the founders the right of first refusal (RoFR) for each other’s shares in case one of them wanted to sell. The agreement also contains a ‘tag-along’ clause, which stipulates that the other promoter has the right to join any share-sale transaction and sell his stake along with the one who is exiting.The RoFR and ‘tag-along’ clause are also enshrined in the company’s Articles of Association (AoA). However, the SHA says the provisions of the agreement will ‘expire on the fourth anniversary of the (company’s IPO)’ except the clause that gives Bhatia controlling rights over the airline. This clause will survive in the AoA. Legal experts said the AoA will need to be amended to reflect the expiry of the shareholders’ agreement.70404602 A person close to Bhatia said no thought has been given to this matter yet. “Not aware of how it will work. The articles have specified clauses, but we will have to look into it,” said the source, who did not want to be identified.Gangwal declined to comment.Both the founders have, on many occasions, insisted that they have no plans to sell stakes. But after the SHA expires, they will have the option of selling stakes to a third party. The Bhatia family and Inter-Globe Enterprises (IGE) together own 38.23%, while Gangwal, his wife and a trust hold 36.65%.Bad Blood PersistsDifferences between the two promoters became public a while ago when Gangwal wrote to the Securities and Exchange Board of India (Sebi), raising concerns over corporate governance issues at InterGlobe Aviation and related-party transactions between the company and Bhatia’s IGE. Subsequently, the company has decided to finalise a new policy to regulate related-party transactions and to expand its board.Nevertheless, bad blood persists between the two sides. Sources close to Bhatia’s IGE claim Gangwal’s real intent is to get the controlling rights of the former diluted, and that raising the issues of related-party transactions and corporate governance at the airline are just a ‘smokescreen’.The Gangwal camp, on the other hand, says its complaints are with the markets regulator and other government agencies, and that an inquiry will reveal the truth.While sources close to Bhatia believe that Gangwal has no plans to sell his stake as the company has substantial growth potential, they feel it is possible Gangwal wants Bhatia’s controlling rights to be diluted as that would help him fetch better value at a later date in case he wants to monetise his shareholding.Legal experts said the AoA will override the SHA once it expires. “If there are no expiry rights in the articles of association, it will continue until they are amended. The AoA will override the shareholders’ agreement,” said Sanjay Asher, partner at law firm Crawford Bayley & Co.The AoA says the exiting promoter will have to notify the other shareholder about a sale. The non-transferring shareholder will have to exercise the RoFR or the ‘tag-along’ right within three business days of the receipt of the transfer notice.Investors and market experts expect the two promoters to show sagacity in ensuring the airline’s interests are protected.Raamdeo Agrawal, joint MD at Motilal Oswal Financial Services, described the tussle as “unfortunate”.“... it is an issue that can be solved if the two promoters put their minds to it. The personal differences are significant, but they need each other. Their skill sets are different, and together they have grown this airline to become the market leader. They will find a solution,” Agrawal said.Agrawal’s asset management company was once a shareholder in InterGlobe Aviation, but sold its holding subsequently.

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