Infosys office. (File Photo: IANS). Image Source: IANS News

Mumbai, Oct 23 : Infosys management's decision to not disclose the whistleblowers' letter has cost the investors and the company heavily. And it now comes across that the company showed blatant disregard for the guidelines under which the "materiality" of information has to be disclosed.

Market regulator Sebi's policy mandates the disclosure of any information "which in the opinion of the board of directors is material". However, the regulation is often misused by the boards as they have the discretion to determine what act or information constitutes "material." This is what seems to have transpired in the Infosys case where the management took recourse to this loophole in regulations to ignore a serious issue raised by the whistleblowers over the veracity of the company's accounts.

Despite having the knowledge of the whistleblowers' letter, its contents and charges were kept a closely guarded secret until the letter went public, forcing Infosys Chairman Nandan Nilekani to come out clarifications.

The Sebi guidelines, while giving discretion to the boards over the disclosure of information pertaining to the company, also puts responsibility on the bourses to see that any material fact that is likely to result in significant market reaction does not escape its scrutiny.

Interestingly, the last few exchange filings by Infosys were on how the company accelerated digital transformation for enterprises with Oracle Cloud and its achievements, saying "Infosys selected as one of the main suppliers to deliver digital transformation services to Volvo cars" and "Infosys Instep recognised as the best 'overall internship programme' in the world".

In Infosys, recent disclosures are a trend that can be seen in the information shared by several other companies with the exchanges. There is a flurry of non-serious disclosures that may be aimed at boosting shares prices. Such market manipulation largely remain undetected and go unnoticed.

The BSE on Wednesday sought a clarification from Infosys over the non-disclosure of the whistleblowers' complaint which alleged that the company's top brass was involved in "unethical practices" for several quarters.

The exchange has asked for a clarification following Infosys Chairman Nandan Nilekani's statement, which indicated that the company was aware of the whistleblowers' letter since September 30, however, it chose not to disclose the same with the exchanges.

"Infosys Ltd vide an announcement dated October 22, 2019 titled "Statement", submitted statement attributable to Nandan Nilekani, Chairman of Infosys Limited, wherein it is mentioned that Infosys Ltd had received whistleblower complaints," BSE said.

"However, it is observed that Infosys Ltd has not made any disclosures under Regulation 30 of SEBI (LODR) Regulations, 2015, w.r.t. receipt of whistleblower complaint mentioned in the announcement," the exchange said.

Post the revelation of the whistleblowers' letter, Infosys on Tuesday saw its worst day on the bourses in over six years. Its scrips settled nearly 17 per cent lower despite assurances from the company's top brass.

Anonymous Infosys employees with the name "ethical employees" had earlier alleged that CEO Salil Parekh and CFO Nilanjan Roy have been resorting to "unethical practices" for many quarters.

"Critical information is hidden from the auditors and board. In large contracts like Verizon, Intel and JVs (joint ventures) in Japan, ABN Amro acquisition, revenue recognition matters are forced, which is not as per the accounting standards," said the letter.

Nilekani on Tuesday tried to assuage angry investors by assuring that the company will ensure that the allegations are investigated to their "fullest extent".

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