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SEBI Lets Off TCS With A Warning For Inadequate Disclosures In A Four-Year Old Case 

SEBI warns TCS over untimely disclosure in Epic Systems Case  

Employees stand near a signage for Tata Consultancy Services Ltd. (TCS) at the company’s Synergy Park campus in Hyderabad, India. (Photographer: Namas Bhojani/Bloomberg)
Employees stand near a signage for Tata Consultancy Services Ltd. (TCS) at the company’s Synergy Park campus in Hyderabad, India. (Photographer: Namas Bhojani/Bloomberg)

The Securities and Exchanges Board of India has sent a warning letter to Tata Consultancy Services Ltd. for inadequate disclosures made by the company four years ago relating to a jury verdict against it.

The letter by the market regulator says that while the tech giant did disclose that there has been a verdict in the case, which is against the company, it did not disclose the amount of damages TCS was ordered to pay.

The damages are substantial, more so when seen in comparison to Rs 24,292 crore net profit of TCS (consolidated) for FY16. The disclosures made by TCS to Stock Exchanges on April 16, 2016 should have prominently displayed the extent of damages to enable investors to assess the impact of the jury’s verdict on the financials of the listed entity.  
Warning letter by SEBI to Tata Consultancy Services

The damages were in a suit filed by EPIC Systems against TCS involving allegations of intellectual property theft. The jury verdict asked TCS to pay $940 million in 2016 which was later brought down to $420 million by a Wisconsin court in 2017.

In its disclosure of April 16, 2016, TCS had informed the exchanges that it had received the jury verdict and the trial judge has announced he is almost certain the damages will be reduced.

The jury's verdict will not have any impact on the TCS fourth quarter and FY16 financial results to be announced on Monday, April 18, 2016, the company had said.

While the disclosure did not mention the damages worth $940 million at the time, the financial results declared two days later showed it as contingent liabilities. However, the reduction of damages to $420 million in 2017 was specifically mentioned in the disclosure made by the company on October 1,2017.

‘’You are hereby warned to be careful in dealing with disclosure of material information in the future and to ensure that the disclosures provide adequate, accurate, explicit, & timely information to the investors. You are advised to exercise proper due diligence in future and avoid recurrence of such instances,” the regulator told TCS in the letter.

TCS has also been asked to place the warning letter in front of the board and to disseminate the letter to the stock exchanges.