Zenith Infotech executives including CEO Akash Saraf have been barred from India's stock exchange. The decision, handed down by the Securities and Exchange Board of India (Sebi), raises new questions about how Zenith Infotech executed the sale of its managed services software business in 2011. Of the $48 million gained from the sale, Sebi alleges that nearly $34 million was "diverted for the purposes that were not even remotely connected to the authorization of the shareholders," according to The Economic Times. So what's the upshot here?

It sounds like Zenith Infotech has 30 days to furnish nearly $34 million in bank guarantees. Sebi has said such guarantees should be created without using the funds of Zenith Infotech or creating any charge on assets of Zenith Infotech, according to the Economic Times report.

MSPmentor has reached out to Zenith Infotech for comment but received no reply.

The Back Story

Zenith Infotech defaulted on a major bond payment right around the time it sold the MSP software business to  Summit Partners in September 2011. Summit Partners has since rebranded the MSP business as Continuum Managed Services. I believe Continuum is not caught up in Zenith's spat with Sebi, which is India's equivalent of the SEC.

Zenith Infotech has spent the past 18 months or so trying to negotiate a bond payment settlement with its debt holders, but so far no agreement has surfaced. At the same time, Zenith Infotech has been working overtime to promote a portfolio of cloud and virtualization solutions -- including TigerCloud and BDR-G12 -- a backup and disaster recovery platform.

Some MSPs have had good results with TigerCloud and BDR-G12, but the Sebi decision could raise new questions about Zenith Infotech's overall business prospects.

The Bigger Picture

Meanwhile, the overall backup and disaster recovery (BDR) market has suffered from a few setbacks over the past 18 months or so. In addition to Zenith Infotech's debt default, Doyenz pulled out of the European market before getting acquired a few months ago, and Intronis recently cut a significant portion of its sales staff.

In some ways, it's as if too many storage players are battling each other for market share, rather than finding blue ocean opportunities for their established and aspiring MSP partners. MSPmentor ultimately believes the next BDR market inflection point -- involving giants like Amazon.com -- has arrived.