UPDATE 1-Nilekani returns to Infosys as chairman as board tries to end feud with founders

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MUMBAI, Aug 24 (Reuters) - The board of Indian IT services company Infosys Ltd appointed one of its founders and former CEO Nandan Nilekani as chairman on Thursday, seeking to end a feud between management and founders that prompted its CEO to step down last week.

Nilekani, one of the seven engineers who founded Infosys in 1981, was its CEO from 2002 to 2007 and will take over as non-executive chairman and non-independent director with immediate effect, the company said in a statement to stock exchanges.

Infosys said chairman R Seshasayee, co-chair Ravi Venkatesan, CEO Sikka, Jeffrey S. Lehman and John Etchemendy had also resigned as part of the board shake-up.

The appointment of Nilekani comes days after Sikka resigned, saying he was unable to serve as chief executive amid a "continuous assault" by founder Narayana Murthy.

"It's a good development as the company has got a credible face on the board who will act as a guide, and assure clients and shareholders that critical functions and strategies will continue," said Harit Shah, IT analyst at Reliance Securities.

Murthy and a few former Infosys executives have for months waged a public battle against the board of Infosys, accusing it of corporate governance lapses.

Disagreements between the two sides included the rise in Sikka's compensation, the acquisition of Israeli automation firm Panaya for $200 million and a severance package offered to a former finance chief.

The clamour for a change at the Infosys board had grown louder after Sikka's departure with a group of 12 major institutional investors urging the company to invite Nilekani to the board. (Reporting by Sankalp Phartiyal and Abhirup Roy, additional reporting by Promit Mukherjee; Editing by Susan Fenton and Elaine Hardcastle)