Infosys settles case out of court for $3-m, Phaneesh protests

Under the terms of settlement, Infosys will contribute $1.5 million and the balance $1.5 million will be contributed by insurers under the company directors and officers liability insurance cover. There is no contribution from Phaneesh towards this settlement.

Infosys Chairman and Chief Mentor N R Narayana Murthy told reporters here on Sunday that the settlement would not have any impact on the earnings guidance that the company gave for the April-June quarter as well as for financial 2003-04. The settlement was reached on April 25, 2003, and the company had 35 days to make the payment.

However, under the terms of settlement, the company retains all rights to proceed with legal action against Phaneesh Murthy, ‘‘should we (Infosys) deem it necessary’’.

But even as the sexual harassment case came to an end, the battle of words between Infosys and Phaneesh Murthy seems to have taken centrestage. In a statement from Fremont, California, Phaneesh said he would not have taken the out-of-court settlement route and that was the reason that he was not a party to the pay-out. He also alleged that the right to take legal action against him was retaliatory in nature.

‘‘I feel this is in retaliation to the fact that my lawyers have initiated action to retrieve my vested and paid-for shares which Infosys is withholding and as a result of which I have suffered significant financial losses,’’ he said in the statement. Phaneesh’s statement was given a terse reply by Infosys when it said: ‘‘Our reacting to statements from Phaneesh Murthy will cause him acute embarrassment. Hence, at this point, we do not want to respond.’’

Though Phaneesh said it was time to move ahead, the Infosys’ decision to bring an early end to the whole issue would have been prompted by its forthcoming issue for American Depository Receipts (ADRs). Earlier, Narayana Murthy had said the ADR issue was awaiting certain approvals from the Indian government and once the approvals came, the Infosys board would take an appropriate decision on it.

Earlier in the day, Narayana Murthy made his displeasure known on the way Phaneesh Murthy operated very clearly and came down heavily on him. Narayana Murthy said Phaneesh had failed to disclose some ‘‘important facts, including the fact that he had a relationship with Reka Maximovitch’’.

He further said that ‘‘unknown to the company, she (Maximovitch) had filed a charge of discrimination against him (Phaneesh Murthy) and the company. That she had previously filed with the court a request that it issue a restraining order against Phaneesh Murthy’’.

Narayana Murthy also said this was inconsistent with the duties of Phaneesh as an officer and a director of the company and this increased the company’s risk. ‘‘The allegations were serious… demanded compensation was in excess of several multiples of what we finally paid,’’ Narayana Murthy said citing the reason behind the company’s decision to go for an out-of-court settlement. Besides, the distraction caused to the management was ‘‘significant’’ and ‘‘the law suit was draining management time and attention’’.

Nandan Nilekani, Chief Executive Officer, said the first time the company came to know of the case was in January 2002, though the restraining order was taken out sometime in November-December 2001. He said Phaneesh ‘‘shared a lot more details’’ on the night of July 10, 2002, after the company announced its earnings for April-June period. Subsequently, he held confabulations with lawyers and the management including the Chairman, leading to Phaneesh’s resignation on July 22, 2002.

Narayana Murthy said the company paid $570,000 to Phaneesh when he quit, including his bonus as the sales and marketing head. The company also paid $900,000 as legal fees towards this case, of which 80 percent would be reimbursed by the insurers. The total pay-out from Infosys would amount to $1.68 million.

‘‘We have take the good with the bad and the ugly. After all, we are all humans. Let us look forward to new challenges, but not of this kind,’’ Narayana Murthy added.