Updated

ishoni.jpgRemember the backlash that began two years ago over outsourcing?

You know, the drum-beat of cautionary tales about how India is riddled with corruption, fails to crack down on intellectual property thievery and in general, gives U.S. venture capitalists a bad case of heartburn?

Well, we haven’t done enough reporting to really comment on all of those claims. But we do want to update on a case we wrote about two years ago, that of Santa Clara’s Ishoni Networks. Following several other reports about Ishoni’s problems in India, we too joined in the telling of it — of how a U.S. executive at Ishoni had made a surprise visit to India to find that several of Ishoni’s engineers in India had fled to…

start a competing firm. And when, a few months after his supposed visit, we found a blue padlock hanging from the doors of a deserted Ishoni headquarters in Santa Clara, it seemed like a relevant tale of caution about outsourcing.

Here is our update in the Merc today (scroll down to second item). Basically, it turns out the story was not as clear cut as it seemed.

Satish Mugulavalli, one of the chief software architects in India for Ishoni, tells us he started Amplewave with other employees only after it was clear Ishoni was headed for bankruptcy.

Now, he tells us, Indian authorities have completed an investigation “and completely cleared myself and my other colleagues of any violation.” Meanwhile, the other side seems to have fallen silent.

UPDATE: We’ve removed a comment below which accused someone of fraud, and which used other personal slurs we were uncomfortable with. We accept fact-based comments, even when they are critical, but please do keep comments fact-based.