A dispute between the founders of Asia’s biggest budget airline deepened after one accused the other of dubious governance practices, roiling the company’s shares and raising concerns that the feud will drag on.

Billionaire Rakesh Gangwal informed IndiGo’s operator, InterGlobe Aviation Ltd., that he flagged some of his governance concerns about co-founder Rahul Bhatia to the Securities and Exchange Board of India, the company said in a statement late Tuesday. That prompted queries from the regulator, which InterGlobe will respond to by July 19, it said.

The complaints centered on what Gangwal described as “unusual controlling rights” held by Bhatia. That level of power paved the way for Bhatia to push through related-party transactions and major decisions without proper safeguards or protocols, according to Gangwal.

InterGlobe shares tumbled 11%, their most in almost three years, amid concerns that the power struggle will be prolonged and cause collateral damage to the company. It also comes at a bad time as Indian carriers struggle to stay in business amid higher oil prices and cut-throat competition.

“With the conflict between the two promoters coming out in the public in great detail, we do not envisage a settlement anytime soon,” Citigroup analyst Arvind Sharma said in a note to clients, reiterating his recommendation to sell InterGlobe Aviation shares. “The uncertainty regarding the final resolution could cause weakness in the stock price.”


Though Bhatia couldn’t be reached for comment, he wrote in a letter to IndiGo’s board last month that Gangwal was trying to get around the company’s shareholders’ agreement, seeking to “dilute and diminish” the other co-founder’s control. An IndiGo spokeswoman declined to comment beyond the stock exchange statement.

InterGlobe closed 168.25 rupees lower to 1,398.05 rupees in Mumbai on Wednesday, wiping out almost $1 billion in market value.

In his letter to the regulator, Gangwal said the company is at a “watershed moment” and that it’s started “veering off from the core principles and values of governance that made IndiGo what it is today.”

Gangwal, who has said he had no desire to take control of the airline, also wrote in his letter to the regulator that Bhatia is “building an ecosystem” of companies for related-party transactions. He also criticized how Bhatia’s control over the board allowed him to push through decisions “without basic governance protocols and laws being followed.”

“These unusual controlling rights seem to be the basis for the various violations of law and governance at IndiGo,” Gangwal said in his letter. “The nation can ill afford IndiGo to ever falter.”

Odd Couple

Although Gangwal and Bhatia are board members at InterGlobe, neither holds executive positions at the company. Still, Bhatia’s holding company is the top shareholder, with a stake of 38% stake as of March 31. Gangwal and his family held 37%.

The pair has always been an odd couple. Gangwal, once the chief executive officer at US Airways, teamed up with Bhatia—a former airline sales agent—to create IndiGo in 2005. After its founding, the carrier quickly outpaced rivals to grab almost half of the local market, making both founders billionaires. IndiGo is now one of the few Indian carriers with enough cash to aggressively expand, and it’s been mapping out a way to build a long-haul, low-cost business to take passengers from places like New Delhi to London.

But those expansion plans could be at threat should the feud escalate.

“This board level feud is an unnecessary distraction for IndiGo, which is best placed to benefit from upheaval in the Indian aviation market,” said Rahul Kapoor, an analyst at Bloomberg Intelligence in Singapore. “Even as we do not expect any operational or earnings impact, investors will be closely scrutinizing the related-party transactions and seek greater clarity on future strategy.”