Name –Suraj Singh

System Id – 2022002955

Section –A

LEGAL ASPECTS OF BUSINESS

Assignment
1) Provide a summary of what happened in the scandal in Infosys.

Infosys has hired accounting firm EY and law firm Shardul Amarchand Mangaldas &
Co. to investigate allegations of accounting malpractices that led to a 16.2% drop in its
shares. The company's audit committee began consultations with internal auditors on
terms of reference for an investigation after its October 11 board meeting, while
Shardul Amarchand Mangaldas was retained to conduct a separate independent
investigation.Nilekani has recused Salil Parekh and Nilanjan Roy from a matter,
ensuring an independent probe. The board will consult with the audit committee on the
investigation's outcome.

Investors cancelled Infosys shares, causing a $7 billion market loss. The company's
share price plummeted 16.2%, marking its steepest drop since April 2013.

Infosys is regarded as India's gold standard for corporate governance. The law firm is
investigating potential securities claims against Infosys shareholders due to allegations
of materially misleading business information to the investing public.Analysts predict
Infosys stock will remain volatile until the company clarifies its allegations, according to
brokerage firm Motilal Oswal.

Analysts are concerned that allegations of unethical accounting practices could

potentially result in a stock de-rating. Jefferies alleges that recent large deals have
negligible margins and revenue and cost recognition have not complied with accounting
norms, posing an overhang pending clarity. In 2017, Infosys faced allegations of
irregularities in its $200 million acquisition of Panaya, leading to the resignation of CEO
Vishal Sikka. In 2013, Infosys settled a US government lawsuit for visa fraud and
employee immigration errors.

Hetal Dalal, CEO of proxy advisory firm Lias, stated that the impact of allegations will be
assessed as their materiality has not yet been quantified. The disclosure of a complaint
depends on the materiality of the information, and the current allegations are unclear.

The current board has experience handling whistleblower letters, but other proxy
advisory firms argue that disclosures should not be restricted based on allegations'
materiality, as they highlight important company policies. JN Gupta, founder and
managing director at Stakeholders Empowerment Services, argues that materiality is
not the most accurate measure of policy matters, as accounting practices may be
questioned.

Infosys employees shared insider information, leading to a significant profit of 73 crore.

SEBI accuses eight entities, including Infosys employees, of colluding to profit of 73
crore using insider information, alleging market manipulation and a few bad actors
attempting to escape.

Infosys has been accused of insider trading, with the Securities and Exchange Board of
India (SEBI) finding evidence that an employee helped traders make a profit of 73 crore
by trading shares before public announcements. Eight entities, including two Infosys
employees, have been banned from the capital markets until further notice. The
company's employees engaged in multiple futures and options transactions.

SEBI has accused Pranshu Bhutra, a senior employee at Intosys, of sharing insider
information with Amit Bhutra, a director at Mahrishi Alloy Private Limited. The
watchdog believes Bhutra likely obtained the information from another Infosys
employee, Venkata Subramaniam V. In June 2020, Bhutra transferred 81.1 crore to
Mahrishi on four separate occasions, and around 71 crores to Bhutra's mother, Shyama
Devi Bhutra. All six individuals had access to insider information and used it to take
market positions for profit. Infosys has been accused of unethical accounting practices,
following allegations against its IT major. The company will cooperate fully with SEBI
and initiate an internal investigation.

2) Suggest ways for industries to avoid having such frauds in the future.

• Establish a Strong Ethical Culture:

Foster a corporate culture that emphasizes ethical behaviour, transparency, and
integrity from top leadership down to all employees.

• Whistleblower Protection Program:

Implement a robust whistleblowing policy that encourages employees to report
concerns without fear of retaliation. Ensure confidentiality and provide protection for
whistleblowers.

• Independent Hotline:

Establish an independent and confidential reporting mechanism, such as a hotline or

online portal, where employees can report concerns anonymously.

• Regular Ethics Training:

Provide regular training on ethical conduct, compliance, and the company's code of
conduct to all employees.

• Strong Corporate Governance:

Strengthen corporate governance practices with an independent and diverse board of
directors. Ensure that board members are actively engaged in overseeing the company's
activities.

• Internal Controls and Audits:

Implement robust internal controls to detect and prevent financial irregularities.

Conduct regular internal and external audits to ensure compliance with accounting
standards and regulations.

• Ethical Leadership:

Leaders should set an example of ethical behaviour. Promote a culture where leaders
are accountable and act with integrity.

• Risk Management Framework:

Develop and implement a comprehensive risk management framework that identifies,
assesses, and mitigates various risks, including fraud and compliance risks.

• Background Checks:
Conduct thorough background checks on employees, especially those in positions of
trust and responsibility.

• Regular Reviews of Financial Statements:

Ensure that financial statements are reviewed regularly by internal and external
auditors to identify any discrepancies or irregularities.
 • Whistleblower Investigation Process:
Establish a clear process for investigating whistleblowing reports. Investigations should
be prompt, impartial, and conducted by individuals with the necessary expertise.

• Transparent Communication:
Promote open and transparent communication within the organization. Encourage
employees to speak up about concerns and provide channels for constructive feedback.

• Compliance with Regulatory Requirements:

Stay abreast of and comply with all relevant regulatory requirements, ensuring that the
company operates within the legal framework.

External Oversight:
Consider engaging external auditors or consultants periodically to assess the
effectiveness of internal controls and corporate governance practices.
By proactively addressing these areas, companies can significantly reduce the risk of
fraud and create an environment where employees feel empowered to report concerns
without fear of reprisal. It's important for companies to continually assess and update
their strategies to adapt to evolving risks and regulatory landscapes.