Warring IndiGo promoters interpret EY report to support their claims
He raised a series of questions regarding the EY report.
While co-founder Rakesh Gangwal has raised many questions over the scope, objective and nature of the confidential report commissioned by board chairman M Damodaran, the other co-founder Rahul Bhatia has been toting the report as a clearance chit and building a legal context.
After joining the board in January, Damodaran had directed the IndiGo management to engage a forensic expert to conduct an independent review of the company’s relatedparty transactions for the past five years.
The review was to investigate procedures and processes of approvals for related-party transactions between Bhatia’s various companies and the airline, and to study if the said transactions were at fair price.
EY was chosen to conduct the review after a bidding process, and the firm handed over its report to the airlines’ management in March.
In the next board meeting, Damodaran, who also heads the airline’s audit committee, cited the report and noted there was no material irregularity regarding the transactions. However, some “procedural irregularities” related to approvals from audit committees needed to be sorted, he had said.
But Gangwal has contested his interpretation, saying if approvals on some related-party transactions were not sought then the audit committee was being undermined.
Based on IndiGo’s FY18 annual report, there were related-party transactions in real estate, air transport, simulation services, ticket sales, crew accommodation and transportation, and software. In most cases, a promoter’s company was leasing/ renting out services to the airline.
In a letter to stock markets regulator Sebi, Gangwal alleged that he hadn’t contemplated that over the years Bhatia had started building an ecosystem of other companies that would enter into dozens of related-party transactions with IndiGo.
He raised a series of questions regarding the EY report: “What were the scope, objectives and full nature of this confidential EY report? Why did the EY report not flag the glaring violations of the code by the IGE (Bhatia’s InterGlobe Enterprises) nominee? Why did EY not reach out to Gangwal to understand his concerns regarding RPTs?”
Using the report, Gangwal alleged the company continued to use and characterise the related-party transactions as merely “procedural irregularities” while they were reflective of a “deep corporate governance malaise”.
A questionnaire sent to EY did not elicit any response as of press time on Wednesday.
In the annual report, auditors BSR & Co, a KPMG affiliate that has the primary responsibility for reporting related party transactions, has duly recorded that all transactions were made on terms equivalent to those that prevail in arm’s length transactions and within the ordinary course of business.
However, to deal with the issue, Damodaran had also suggested that all such transactions be reviewed and towards that end he had constituted an internal committee comprising the CEO, CFO, company secretary and general counsel to examine all related-party transactions and make its recommendations to the audit committee within a period of four months.
The Bhatia family owns a little over 38 per cent of IndiGo, while Gangwal family holds nearly 37 per cent equity.