Infosys Technologies Ltd, the Bangalore-based global IT major, on Sunday announced that it had reached an out-of-court settlement in the sexual harassment lawsuit against the company's former board member Phaneesh Murthy, who was based in the United States.

The lawsuit was filed by Phaneesh's executive secretary Reka Maximovitch, a Bulgarian American national, complaining of sexual harassment and wrongful termination of her employment. 

Under the terms of the settlement, the company retained all rights to proceed with legal action against Phaneesh Murthy.

Giving details of the settlement, Infosys chairman and chief mentor N R Narayana Murthy told mediapersons in Bangalore that the company would be paying $3million to the plaintiff.

Of this, Infosys would contribute $1.5 million while insurers would cough up the remaining $1.5million under the company's directors and officers liability insurance cover.

"The settlement was entered into with Maximovitch on April 25, 2003, and the final agreement on the entire deal, including formalities were completed on Saturday (May 10)," Murthy said.

Maximovitch will be paid the amount ($3 million) by the end of May as part of the settlement, which stipulates a 35-day limit.

"Thereafter, the plaintiff is expected to withdraw the case from the local county court in the state of California within three days of receiving the amount," Murthy stated.

"The litigation with the plaintiff is behind us. We have taken further steps to strengthen our internal processes and improve the checks and balances to handle similar situations," he said.

Explaining the reasons for going for an out-of-court settlement with Maximovitch, Murthy said the allegations were serious and the compensation demanded was in multiples of what had been settled for.

He said under California law, the company was also liable for the conduct of Phaneesh because he was an officer and a member of the board.

Murthy said the company's senior management's time would also be drained if the legal case continued, which could have been utilised for Infosys.

"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," he said.

The company had paid $570,000 to Phaneesh Murthy as part of the final settlement of his dues when he resigned in July 2003 as head of Infosys' worldwide sales and marketing and from the company's board of directors.

Infosys CEO Nandan Nilekani also said the company's earnings and guidance for the current first quarter and the fiscal year 2003-04 remain unchanged.

"The settlement does not materially impact the earnings guidance," Nilekani added.

The insurers will also pay about 80 per cent of the legal fee of $900,000 incurred by the company to deal with the case.