Sebi to conduct fresh probe into Infosys-Panaya deal

In June, the regulator gave a clean chit to the IT major after a preliminary inquiry

The Securities and Exchange Board of India (Sebi) will conduct a fresh probe into corporate governance complaints against Infosys in connection with the Panaya acquisition. Sources said the role of several board members of the information technology giant could also come under the market regulator’s scanner.

In June, Sebi had conducted a preliminary probe into the allegations levelled by an anonymous whistle-blower on the acquisition of the Israel-based Panaya, which Infosys bought in February 2015 for $200 million. However, the regulator had closed the probe saying there was no merit in the charges made. The change in Sebi’s stance could be due to the recommendations received from the government, sources familiar with the developments said.

The decision to re-examine the matter comes against the backdrop of an ongoing spat between the company’s promoters led by N R Narayana Murthy and the board at the IT major. Vishal Sikka resigned as the company’s MD and CEO on August 18, citing constant interference from its founders. The board backed Sikka and said the co-founder had put the CEO under “continuous assault” and made “inappropriate demands”. 

Top regulatory sources said Sebi had received several representations regarding the ongoing crisis, including about allegations and counter-allegations from various sides, according to news agency PTI.

Murthy had raised corporate governance issues at the company, specifically with regard to the Panaya acquisition, following the whistle-blower’s complaint that procedures were not followed during the acquisition. Following this, Infosys appointed an international law firm to conduct a forensic investigation, which gave a clean chit to the company. Murthy asked for the report to be made public, which the Infosys management refused. Murthy also wanted explanations for the then CFO Rajiv Bansal’s objection to the deal and his subsequent exit. 

Earlier this year, an Infosys whistle-blower had written to Sebi, alleging corporate governance lapses by Sikka and other board members. 

The whistle-blower, in a letter to Sebi and the US Securities and Exchange Commission (SEC), had alleged that Infosys had overpaid for the acquisition of Panaya. 

The letter also raised the issue of the severance pay-out to Rajiv Bansal.

The regulator in the initial findings concluded that requisite procedures and disclosures were in place for both the acquisition and Bansal’s severance pay. Hence, the probe did not find any corporate governance violations by the Infosys management. 

The whistle-blower’s letter had stated that Panaya was struggling to raise money and employees were leaving the company when the acquisition took place, and the Infosys board overlooked the decision to buy the firm at a premium.

It alleged that Bansal received 30 months’ salary, which was not as per his contract, which allowed only a three-month severance. The whistle-blower alleged Bansal’s contract was changed purposely to keep the deal a secret.