Bangalore: IT bellwether Infosys Technologies Ltd on May 11 said it had entered into a $ 3 million out-of- court settlement with its former employee Reka Maximovitch in connection with a sexual harassment lawsuit she had filed against the company and former Infosys director Phaneesh Murthy.

Infosys chairman and chief mentor N R Narayana Murthy told reporters that Infosys will contribute $ 1.5 million and the balance $ 1.5 million will be paid by insurance companies, under the company's directors' and officers' insurance cover.

Murthy said under the terms of the settlement, Infosys retains all rights to proceed with legal action against Phaneesh Murthy.

He said there was no monetary contribution in the settlement from Phaneesh Murthy but added that Infosys retained the rights to take legal action against its former head of sales and marketing.

The settlement with Maximovitch was done on April 25, Murthy said.

He said the settlement would not materially impact the earnings guidance of Infosys for the first quarter or the whole financial year.

Virtually blaming Phaneesh Murthy, Narayana Murthy said, "Phaneesh did not disclose to the company management as an important functionary that he had a relationship with Maximovitch and also of the fact that she had filed in the court for a restraining order against him."

Infosys, Narayana Murthy said, had paid $ 5,70,000 to Phaneesh Murthy as a total settlement when he resigned.

Explaining reasons for the settlement, he said allegations of Maximovitch were serious and the compensation demanded was in multiples of what had been settled. Also, under the California Law, the company was also liable for the conduct of Phaneesh Murthy because he was an officer and a member of the Board.

Infosys Managing Director and Chief Executive Officer (CEO) Nandan M Nilekani said Maximovitch had filed the case in November 2001 but Phaneesh Murthy told him in January 2002 that there was a possibility of a sexual harassment case against him and that he was innocent.

"Subsequently... he did not tell me about the relationship or charges," Nilekani said, adding that Phaneesh Murthy opened up and gave him more information when he came for the Board meeting on July 10.

Narayana Murthy said Infosys had taken further steps to strengthen its internal process and improve the checks and balances to handle similar situations.

"Besides checks and balances, we have made additional changes in the code of conduct and trying to explain what sexual harassment is and how to handle the situation. We have held training courses to all our management and other staff," Nilekani said.

PTI