They are also taking a view that if whistleblower complaints are disclosed without verifying the veracity of the charges, they would hurt the company and also the interests of minority investors.
The development comes as Infosys stock plummeted 16% after the whistleblower report was leaked to public in October.
The issue pertains to a whistleblower letter addressed to the Infosys board and US market regulator the Securities Exchange Commission (SEC) dated September 21. The letter didn’t come into public domain until a month later, when it was reported in the media.
Stock exchanges pulled up Infosys for not disclosing the particulars of the whistleblower report to the public shareholders. Indian market regulator the Securities and Exchange Board of India (Sebi) too took cognizance of the letter and initiated an independent probe into the matter. Sebi is said to be probing Infosys for at least four violations including disclosure lapses and insider trading.
Infosys declined to comment for this report.
A senior lawyer representing the Bengaluru-based company said Infosys couldn’t have disclosed the whistleblower letter until its own audit company verified the accuracy of charges.
“Jumping the gun in the issue has only eroded the wealth of Infosys investors. We have already given a reply to stock exchanges explaining our position. We are also planning to take up the issue with Sebi in the next few weeks,” the lawyer said.
Sebi regulations on the matter are overarching and prescribe only broad guidelines as to how whistleblower complaints need to be handled. Listed companies are expected to formulate their own whistleblower policy and address the complaints based on such policy. In such policy, the board of the company also has the discretion to decide whether an issue is a ‘material development’ or not. If found to be so, the company goes ahead and discloses the issue to public shareholders.
“Whistleblowers are increasingly sending their letters directly to regulators. Unless or until the charges involve insider trading or fraudulent trade practices, such allegations should first be taken up with the company,” said another lawyer from the company’s team, adding that the notices sent by stock exchanges could set a bad precedent for listed companies since they could be forced to disclose all frivolous and baseless allegations against companies to the stock exchanges.
However, some legal experts are taking an opposite view on the matter saying Infosys should have disclosed the letter to public shareholders.
“In legal parlance, a company is obliged to consider if withholding any particular development will have implications on the stock in the future. Given the serious nature of allegations made against the company, the audit committee should have considered disclosing the complaint at a before date,” said a leading securities lawyer.
Infosys refutes charges
Experts said Sebi should come out with more specific principles in terms of disclosure of whistleblower complaints. The regulator could prescribe a format for disclosure of whistleblower complaints in the company annual reports. Listed companies already disclose key litigations and workplace harassment complaints in their annual reports.
In a letter dated September 21, an anonymous whistleblower alleged that Infosys top executives broke rules with regard to accounting of revenue from large deals and may have overstated the financials. Earlier this week, the company received another whistleblower letter alleging unethical practices by its top officials including its chief executive officer.
Last week Infosys chairman Nandan Nilekani said the company’s processes were very strong and that ‘not even God’ could change the reported numbers and that the board supported the IT firm’s management in executing its strategy.
Responding to this statement, Sebi chairman Ajay Tyagi said “You have to ask him (Nilekani) or you can ask God. Investors should draw their own conclusions. Whatever we have to do, we are doing.”
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