According to a New York Times report, the Department of Labour has opened an investigation against TCS and Infosys for "possible violations of rules for visas for foreign technology workers under contracts they held with an electric utility, Southern California Edison". This is based on the allegations that many of the 500-odd technology workers laid off by Southern California Edison were made to train their replacements, who were immigrants on temporary visas and brought in by these Indian companies.

"Senators Richard Durbin of Illinois, a Democrat, and Jeff Sessions of Alabama, a Republican, announced the investigation after these were notified by the department," the report said.

This is perhaps the first time that both Indian IT services majors are likely to be probed together. Infosys had been investigated by the US authorities earlier, too, on allegation of abusing visa norms. But the Bengaluru-based company had settled the issue with the US department by paying $34 million. This settlement did not require the company to admit any wrongdoing.

Recently, an American national and former employee of TCS had filed a lawsuit against the Mumbai-headquartered TCS in a California court alleging the company was biased in recruitment and allocation of work and favoured workers of Indian descent.

On the latest issue, Infosys said in a statement on Friday: "Infosys is committed to complying with US immigration laws. The US Department of Labor regularly selects a percentage of visa and labour condition applications for extra scrutiny in this industry, and we work closely to assist it in its activity in the ordinary course of our business. We have received no indication of any broader investigation of Infosys visa practices.

In another statement, TCS said it fully complied with the regulatory requirements in the US. "TCS maintains rigorous internal controls to ensure we are fully compliant with all regulatory requirements related to US immigration laws, including those related to H-1B visas."

According to Poorvi Chothani, an immigration lawyer based out of Mumbai, the problems at TCS and Infosys could have been triggered because of the government agency suspecting some wrongdoing, or complaint from an employee unhappy or laid off, or a complaint from any other interested party, among other possibilities.

"We often hear of disgruntled employees making complaints to the US Department of Labor or the US Citizenship and Immigration Services, alleging visa misuse. Defending an audit from a government agency in the US is a very expensive affair; it requires dedicated company staff working on the cases, and the huge costs involved cannot be estimated in advance. Given the man hours involved, the repetitional risks that linger though a trial, etc, often induce accused companies to go for out-of-court settlements. So, we usually don't get to see whether the accused company was really guilty or not."

Indian IT outsourcing services companies are heavily dependent on US visas, including the most-sought-after H1-B ones, to transition work from clients' location to offshore locations. The US, which accounts for over 60 per cent of the Indian IT services sector's revenue, continues to be its largest market.

Nasscom, the apex body representing India's IT industry, said the country's IT firms had always complied with the US visa regulations. "It is unfortunate that despite these facts, attempts are being made in some quarters to portray the contribution of Indian IT companies in a negative light, and to create negative sentiment about them by appeal to emotion rather than to facts and logic," said Nasscom President R Chandrashekhar. "Such efforts would have a serious detrimental impact on the strategic partnership and mutually beneficial economic and trade relationship that the two countries are striving to nurture."

Reacting to the US Department of Labour's move, IT stocks tumbled on BSE on Friday. While the BSE IT index closed 1.6 per cent lower than its previous close on BSE, at 10474.24, both Infosys and TCS scrips fell, too. While the Infosys shares lost 1.26 per cent, TCS declined 2.29 per cent.

"Although the visa misuse issue is only an accusation at this stage and the results of the investigation will prove if TCS and Infosys are truly guilty, market sentiment seems to have prematurely passed the verdict and eroded shareholder wealth overnight," said Sanjoy Sen, a former analyst and doctoral research scholar at Aston Business School in the UK. He said "increasing globalisation of work and global delivery models surely bring in an element of ambiguity to immigration rules", which were not crafted to address global delivery models that continue to evolve today.

According to industry experts, with the US going for Presidential elections next year, issues of this nature are expected to be raised more in the days to come.