Phaneesh invites more trouble

Vilasini Bharadwaj

BANGALORE: When Infosys came out openly on the lawsuit settlement, every one thought this was the end of the story. There are remote chances of the case being far from over. What’s more it has triggered off a verbal battle of allegations, assertions and refutations between the software bellwether and its former director, Phaneesh Murthy.

After prolonged settlement talks that went on for almost a year, between the company and the plaintiff, the bargained settlement amount is pegged at $ 3 million. In a response to this, Phaneesh asserted to the media that since the settlement was not his preferred route, he did not contribute to the settlement amount. Further adding that the settlement was done in haste in the wake of the upcoming ADR offering.

Reacting to Phaneesh’s assertions, Infosys came down heavily. R. Nithyanandan, Corporate Counsel and Head — Legal, terms every one of these assertions as being blatantly false. He said, " Infosys settled this matter because it believed it was in the best interests of the company to do so. The company has disclosed in all its SEC filings as early as October 2002 that the case with Reka may materially impact the earnings of the company. As the company had already disclosed the risk in its filings there is no connection between the settlement and the proposed ADR offering." This case was settled on April 25, 2003.

All attempts to contact Phaneesh Murthy failed. It is learnt that he is on his way to Europe to participate in the Global Insight Forum at Brussels. " It is very unlikely that he is aware of Infy’s reactions to his statement, " informed his PR representative in India.

Going back in history, Reka Maximovitch had filed the charge of discrimination and a restraining order in November 2001. "But the lawsuit was brought to the company’s notice only in July 2002, when Phaneesh mentioned it casually to me in January 2002," alleged Nandan Nilekani, MD of the company. After the initial talks with the legal counsel of the company, the board decided to accept Phaneesh’s resignation on July 22, 2002, and started preparing itself to face the charges by itself.

In August 2002, it was reported that Infy along with Phaneesh Murthy were in talks over an out of court settlement of the lawsuit. "The talks failed as the board could not ‘confer’ on the settlement amount, which reportedly was a higher multiple of $ 3 million, stated N R Narayana Murthy, Chairman and Chief Mentor of the company.

The company also came heavily on Phaneesh’s claim that he was an unwilling party to the settlement. Abiding by its decision to fight the case by its own, the company issued the following pointers, as pre-condition for Phaneesh Murthy to be a part of the settlement.

• He must agree to Infosys having the right to sue him for all his actions and lack of contribution.



• He would have no recourse to the insurance company, in case Infy sued him for his actions, including for breach of his fiduciary duties and indemnification.



• The company is bound by any term of confidentiality with respect to this settlement or the case.

Initially, Phaneesh refused to participate in the settlement on these terms. When Infosys confirmed to him that the company was anyway going ahead with the settlement alone, Phaneesh came back voluntarily and signed the settlement and agreed to every condition that Infosys had set. As the company retained its right to sue Phaneesh for his actions and lack of contributions, it went ahead with the settlement without any contribution from Phaneesh.

"If Phaneesh believed he was innocent and wanted to clear his name, he should have stayed in the lawsuit by himself and defended his position. We had given him this option. Instead of fighting to clear his name, he elected to settle," refuted the company counsel. Commenting on Phaneesh’s claim that Infosys is withholding his shares and that he has initiated legal action to retrieve them, Infy says it has not received any such notice.

In all probability, Phaneesh has irked the company in more than one way and might soon see legal ramification. This was asserted by the Chairman of the company when he said, " We retain the right to take action against Phaneesh for lack of contribution and causing disturbance to the company. Besides draining ‘precious’ management time, the lawsuit, became a risk, as it put the company directly under the purview of Californian law."

If all goes well, by the law, Infosys will be in a win-win situation, standing to gain more than what it shelled as a settlement to Reka Maximovitch.