He was earlier sacked from Infosys on similar charges.
"The Board's decision was made as a result of an investigation by outside legal counsel, engaged by the Board, of the facts and circumstances surrounding a relationship Murthy had with a subordinate employee and a claim of sexual harassment," iGATE said in a statement.
The investigation, which is ongoing, has reached the finding that Murthy’s failure to report this relationship violated iGATE's policy, as well as Murthy’s employment contract, it said.
Meanwhile, the board has appointed Gerhard Watzinger as President and CEO on an interim basis. All changes are effective immediately.
It is to be noted that Murthy was earlier sacked from Infosys on sexual harassment charge.
He faced a sexual harassment charge from his personal secretary which was settled by Infosys in May 2003.
The statement further said, a Search Committee within the Board of Directors has been created, which will oversee the process for the identification and selection of a new President and CEO.
The Committee will select an experienced industry veteran to take over as the permanent President and CEO and drive long-term growth for iGATE, while upholding the highest ethical standards, personally and professionally, it said.
Watzinger has taken himself out of consideration for the role of permanent President and CEO, but he will serve as Interim President and CEO until the selection process is complete, it said, adding, the company does not expect to make any additional structural or executive leadership changes in the near future.
Murthy denies harassment charges
Murthy has denied the charges of sexual harassment against him and claimed that it was a case of extortion.
In an audio conference, he said that all the charges against him were "completely false". "This is without doubt a case of extortion. The same lawyer who had represented the woman in 2002 is representing the woman this time as well. You can spot the difference," said former CEO of iGate.
Regarding his relationship with a female employee, he claimed that he had informed the company about it. "There is no parallel between the 2002 sexual harassment case and this one," said Murthy.