SEBI’s inaction on Infy is Fishy…. Nandan Nilekani should avoid passive assistance of the fraud..

(This article is based on the copies of the Whistleblower’s letters which have now come to the public domain though they may be considered as not independently verified. In case there is any counter to the letter, we shall be glad to publish the same and make corrections as may be necessary…. Naavi)

The battle between the erstwhile CEO Mr Vishal Sikka supported by the Infosys Board on one side and Mr Narayana Murthy (NRN) supported by the erstwhile promoters of Infosys on the other side, has now reached a decisive stage with Mr Nandan Nilekani taking over as the de-facto head of the Company and Vishal Sikka leaving the Company.

Mr R.Sheshashayee the erstwhile Chairman has also resigned and Co-Chairman Mr Ravi Venkatesan has been relieved of his responsibilities. One more Director has also been relieved and Mr Vishal Sikka is being relieved immediately without waiting upto March 2018 as was originally announced.

Behind the current flare up, was an allegation of a serious mis-management and possible misappropriation of funds by Mr Vishal Sikka and a group of his close associates. This was alleged by an anonymous whistle blower who had written two letters to some of the share holders like NRN which was reportedly also copied to SEBI.  Since SEBI was aware of these letters as far back as February 17, 2017 (See report here) the reason why no action has been initiated so far is intriguing.

Mr NRN was upset that the Board had failed to exercise its due diligence and not taken action to prevent the alleged diversion of funds or necessary deterrant action after a complaint was received by the Board. After the Board released its letter accusing Mr NRN of being power hungry, interfering in management etc, it was clear that the Board was desperate and was acting childishly. It’s action was unbecoming of a professional Board of Directors. It was not difficult to speculate that this behaviour stemmed from a desperation born out of insecurity and guilty mind of the members of the Board.

The complaint had been made “Anonymously” by the whistle blower on two occassions. The complaint had alleged that the Panaya Deal in which an ailing company was taken over by Infosys, the valuation of the company was deliberately hiked to benefit Mr Vishal Sikka personally. Though the Board did order an audit subsequently, it had not made the audit findings public under the pretext that since the complaint was anonymous, there was no need for the audit report to be made public. There is a doubt that the audit itself may be a sham but the reluctance of the Board to make it public has raised further doubts.

This issue obviously became critical in the tussle etween NRN and the Board. In the meantime one of the associates of Vishal Sikka who was part of the Panaya negotiation and considered a very close confidant of Mr Sikka enjoying special privileges in the Company, resigned and walked away. Last week Mr Vishal Sikka also submitted his resignation leaving it to the Board to handle the unfinished battle with NRN and others.

Now the alleged letters written by the Whistle Blower have come to the public domain and raise serious questions not only on Mr Sikka and the Board of Infosys headed by Mr R Sheshashayee but also on regulators like SEBI which has remained silent on the issue so far.

Mr Ravi Venkatesan’s meeting of MR Arun Jaitely last week and a spate of planted stories in the media indicating a public relations exercise in favour of projecting Vishal as a victim of a greedy and haughty NRN had raised further doubt that Mr Sikka and his friends were trying to manipulate people in power. Perhaps Mr Jaitely and BJP may be facing some kind of pressure also from Israel diplomatically because one of their companies is part of the scandal.

Copy of the letters may be found here.

If one goes through the letters, it is clear that the matter is very serious and goes much beyond the “Corporate Governance” issue. It involves unfair payments to Mr Sikka both as fat salary hikes and payment of travel expenses, reimbursement of his personal security expenses etc. It also involves hiring of Sikka’s confidants and payment of huge severance compensation, approval of expenses without the approval of CFO for his select favourite employees etc.

This is certainly not only a “Corporate Governance Issue” and could be a board level fraud like Enron or Satyam and requires some immediate action from the regulators.

The first major allegation was regarding the severance pay paid to Mr Rajiv Bansal, the former CFO who left after the Panaya deal. As per the contract he was to be paid a severance pay of 3 months salary. But he was actually offered a severance pay of 30 months salary far in excess of what he was entitled to (according to the whistle blower’s complaint).

Which fool of a Corporate Director approve such deals unless there is a kickback for all the decision makers? … is a natural question that arises…..But the Infosys Board actually approved it.

This single instance was sufficient to indicate that there was a fraudulent attempt to siphon off share holder’s funds to the outgoing person in a indiscriminate fashion.

After Mr NRN raising his voice, it is reported that the actual payment made was less. Instead of Rs 17 crores proposed, Rs 5 crores was paid to the outgoing employee. But the attempt to pay an excessive amount was real and the Board approval was also real. Hence an Attempt to defraud the company was real.(As per the Whistleblower’s letter).

The speculation therefore is that Rajiv Bansal was sought to be paid “Hush Money” so that he would not go public with the irregularities in the Panaya deal which was over valued just to facilitate kickbacks. The Whistleblower’s letter has full details about what has reportedly transpired between Rajiv Bansal and the Board.

Under these circumstances, an immediate investigation ought to have been ordered by SEBI. But it has failed for reasons it needs to explain. The fact that SEBI is keeping quiet about this does not show SEBI in good light. The fact that the Finance Ministry under Mr Jaitely is also keeping its mouth shut indicates that there is a conspiracy in sweeping the fraud under the carpet and there could be a need for a Court intervention without which politicians and bureaucrats may not do justice.

Possibility of Tampering of Evidence

The whistle blower has also indicated the source of evidence to support his allegations which are a direct charge that the Board of Directors are guilty of serious corporate frauds. He says that there are many e-mails in which evidence can be found.

However since no action has been taken so far, there is every possibility of evidence having been erased compounding the financial frauds with Cyber Crimes which need immediate forensic investigation by a reliable authority.

It is presumed that the e-mails would be in the servers of Infosys only and they have to be now considered as potential evidence in a potential fraud investigation. Any deletion of the incriminating e-mails from the server would render the CTO and CISO of Infosys an accessory to the fraud for deleting and obliterating evidentiary files. Hence the IT department of Infosys should take immediate steps to archive relevant evidence in the custody of an independent custodian who would be outside the influence of the accused.

Modi Government may create another “Vijay Mallya mistake”

The two letters of the Whistle blower have been with SEBI for some time now but SEBI is not interested in taking any action. This is a deliberate inaction that assists Mr Sikka. Now that his resignation has been accepted and his severance package determined, he would not have any reasons to visit India and will remain abroad outside the jurisdiction of Indian law.

Mr Ravi Venkatesan who met Mr Arun Jaitely recently after the resignation of Vishal Sikka could have pleaded with Mr Arun Jaitely to bury the fraud, citing some reason or the other. Mr Jaitely may also be considering the “Israeli angle” as a diplomatic reason to agree not to act at least for now so that Mr Sikka can reach safe havens.

As a result, like Mr Vijay Mallya, Mr Sikka will evade legal scrutiny in India.

Fortunately however, Infy ADRs are listed in USA and there is a possibility that US authorities may move in and take action even if SEBI can be silenced in India and Indian political system is amenable to being bent as required. Already, a class suit has been filed in USA and hence it will be difficult for Mr Vishal Sikka to escape scrutiny in US courts.

However it is necessary for SEBI to show that it is honest and cannot be bribed into silence. I therefore urge SEBI to immediately take all required action including securing of evidence to conduct an independent investigation to find out if the allegations are true.

Further it is also necessary for CBI/ED/Serious Frauds Division of MOF to join in the investigation. Any attempt to tamper with the evidence as we have seen in many other sensitive cases should be stopped by not delaying action.

In the past, the Finance Ministry has shown its adeptness only in bolting the stable after the horses have fled so that it can appear that action is being taken without actually hurting the accused. Same thing may happen even in the case of Infosys fraud.

This is time for Mr Modi’s Government therefore to show that any illegal acts in a Company leading to cheating of share holders which include many public bodies such as LIC and Mutual Funds would not be tolerated.

If no action is taken immediately, it could only mean that the Government is amenable to compromising with corruption in the private sector and this would not be in tune with the image of Mr Modi.

New Management under Mr Nandan should not fall into a trap themselves

As regards the new management under Mr Nandan, I would like to place a word of caution.

There will be a temptation not to go public with all the murky things which has gone behind the scene since the the apparent problem has been removed with Mr Sikka and some Board members going out. Some corporate and legal advisers of the Company will certainly advise Mr Nandan to forget the past and focus on what needs to be done to regain investor confidence and client confidence.

There is no doubt that focusing on new business related issues are important. But it is also not possible not to take action when a Corporate fraud appears to have been committed.

But, if Mr Nandan and his team fail to take action, then they will be guilty of the same offence which the erstwhile Board was guilty of… remaining silent on fraud which is a “Passive assistance” to the fraud.

We may note that Mr Rajiv Bansal who could have been a whistle blower earlier, chose to accept a settlement and became part of the suppression of the fraud exposing himself to being considered as an accomplice to the fraud.

Similarly, not taking action on Vishal Sikka and some of the Board members either for the sake of fear of reputation loss or as a matter of courtesy etc, will make Mr Nandan and his new team  also guilty in the eyes of law of shielding the offenders.

It will also provide a good defense to Mr Sikka in the US Courts where the defense would be “Even the new management did not consider that there was any serious irregularities and allowed Mr Sikka an honorable exit without any disciplinary proceedings”.

There is therefore no alternative to Mr Nandan  but to initiate strict disciplinary action against Mr Sikka and be seen as taking all steps necessary to bring the culprits if any to book.

Any other decision would be a mistake.

We shall keep watching how the situation develops.


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About Vijayashankar Na

Naavi is a veteran Cyber Law specialist in India and is presently working from Bangalore as an Information Assurance Consultant. Pioneered concepts such as ITA 2008 compliance, Naavi is also the founder of Cyber Law College, a virtual Cyber Law Education institution. He now has been focusing on the projects such as Secure Digital India and Cyber Insurance
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