Nilekani Defends Infosys Hiding Whistleblower Complaints

Infosys chairman Nandan Nilekani has stated that the company was absolutely right in concealing whistleblowers’ complaints from regulators like the Securities & Exchange Board of India (SEBI), the United States Securities and Exchange Commission (SEC) as well as the media.

“It is not the job of companies to take a whistleblower's complaint coming every morning and issue a media release on it. That is going to create a new set of issues. So, we did absolutely the right thing,” Nilekani told the media which had red-flagged such complaints in October 2019.

Nilekani said that a report was made regarding the whistleblower’s complaint after due diligence and investigation by an internal audit committee, set up to probe the charges against its Chief Executive Officer (CEO) Salil Parekh and Chief Financial Officer (CFO) Nilanjan Roy.

Based on the findings of an internal audit committee, Nilekani claimed on January 10, 2020 that there was no wrongdoing by Parekh or Roy in financial dealings with its global clients.

Infosys' internal audit committee arrived at this conclusion after investigating 77 people, including some employees, through 128 interviews about myriad allegations.

The company entrusted 46 custodians to collect relevant documents and electronic data which ran into 2,10,000 documents, amounting to 8 terabytes data, the company has claimed.

Among the internal audit committee’s key findings, explaining an unnamed large deal, the report stated the reasons for choosing Percentage of Completion (POC) cost method were neither discussed nor disclosed to the audit committee. It said that no evidence was found to say that the POC method was forced for recognition of application maintenance revenue.

“The company notes that it has historically applied the straight line method (SLM) of revenue recognition for substantial majority of its fixed price maintenance contracts,” said the audit committee report.

It also said that POC method adheres to the company's accounting policy and therefore, no specific disclosure was required to be made to the audit committee.

“Revenues from such maintenance contracts where this method has been applied are not material and hence, a separate disclosure in the financial statements was not considered necessary,” the company’s internal audit report has claimed.

Before briefing the media about the company's third quarterly results, Nilekani absolved Parekh and Roy of all charges since the internal audit commitee gave a clean chit to them on the grounds that all allegations were unsubstantiated or not backed by evidence.

“I am pleased that after rigorous investigation, the audit committee has found no wrongdoing by the company or its executives,” reiterated Nilekani.

The internal audit committee had roped in legal counsel Shardul Amarchand Mangaldas & Company as well as Pricewaterhouse Coopers to inquire into the whistleblower allegations.

Nilekani also asked the media what evidence it had that whistleblowers were indeed company's employees, since one of them had claimed to be working in the company’s finance department.

When asked about the safety of employees who raised concerns about the lack of transparency in deals with clients, Nilekani said that Infosys has no plans to identify whistleblowers or unethical employees.

“That will vitiate the purpose. We are not going around looking for whistleblowers. We have no intention of finding them or doing anything about that,” Nilekani said.

The issue hit the media on October 21, 2019, after a whistleblower’s complaint to the company board purportedly from unidentified ‘ethical employees’ accused Parekh and Roy of serious misconduct as well as unethical practices.

Nilekani's defense for not informing regulators like Securities & Exchange Board of India (SEBI) and Unites States SEC about these complaints forced whistleblowers to share the charges with the media.

The gravity of the charges also made Nilekani admit, that an unnamed board member received two anonymous complaints on September 30, 2019 and September 20, 2019 titled ‘Disturbing unethical practices’ as well as a second undated letter with the title, ‘Whistleblower Complaint’.

On October 23, the Bombay Stock Exchange (BSE) sought a clarification from Infosys behemoth about non-disclosure of the complaint.

“It is observed that Infosys has not made disclosures under regulation 30 of SEBI (LODR) Regulations, 2015, with regard to receipt of the whistleblower complaint mentioned in the announcement,” the BSE wrote to the company on October 23, 2019.

Similarly, on October 24, 209, the US regulator Securities and Exchange Commission (SEC) initiated an inquiry into the charge of unethical business practices by Parekh and Roy.

On December 12, 2019, the Schall Law Firm, a shareholder rights litigation firm based in Los Angeles, announced the filing of a class action lawsuit against Infosys.

The Schall Law Firm said Infosys made false and misleading statements to the market and used improper recognition of revenue to boost short-term profits. It encouraged investors with losses in excess of USD 100,000 to contact the firm.

The class action lawsuit against Infosys was for violation of 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated there under by SEC, said the law firm.

Meanwhile, results of investigations by SEBI, the US SEC and American law firms are still awaited.