Whistleblowing Policy and Challenges in India

Introduction

The act of an employee or individual revealing unethical, illegal, or wrongdoing in a company to the public or external authorities is known as whistleblowing. We may learn about the dangers of whistleblowing in India from the history of those who have done so. As the first informant in British India, Maharaja Nand Kumar is well-known. When the Nawab of Bengal was alive, he worked as a revenue officer. According to Nand Kumar, Governor General Hastings engaged in unethical behavior by accepting bribes from nawabs and other individuals. Nand Kumar was executed by public hanging under the supervision of a British court. The danger of blowing a whistle in India is demonstrated in this incident.

Meaning

Whistleblowing is the act of informing the relevant authority—that is, the company or the government—about unlawful activities or frauds occurring within an organisation. To put it another way, whistle-blowing refers to bringing attention to misconduct inside an institution. The term “whistleblower” originated from the German word “whistle,” which refers to disclosing wrongdoing to put an end to it. A whistleblower refers to a person who reports illegal or fraudulent activity. Whistleblowers may provide information about the following:

  • Bad behaviour done for selfish gain
  • Interest Conflict
  • Improper or unprofessional behaviour
  • Defective administration;
  • Distorting justice or accountability;
  • Workplace disputes;
  • Resource waste or mismanagement;
  • Non-compliance with rules and regulations;
  • Illegal activities

Whistleblowers fall into one of two categories:

  • Internal Whistleblowers- These are people who alert the organization’s management to unlawful activities, frauds, or other wrongdoings.
  • External Whistleblowers – People who alert the public or law enforcement to illegal activities, scams, or other wrongdoings are considered external whistleblowers.

A whistle-blower need not be a current employee of the firm; they might be an ex-employee. The goal of India’s whistleblower policy is to protect the interests of the general public. The Whistleblower Protection Act of India protects informants in India.

Whistleblowing Policy in India

  1. The Companies Act, 2013

When read in conjunction with Regulation 7 of the Companies (Meetings of Board and its Powers) Rules, 2014, Section 179(9) of the Companies Act of 2013 makes it mandatory for all publicly traded companies to establish a “vigil mechanism,” allowing all directors and employees to bring their concerns to the attention of the appropriate parties.

The vigil mechanism is required by Clause 10 to take all practical precautions to protect the complainant or whistleblower from any form of victimization or harassment. The clause also specifies the process for any complainant who wishes to bring their issues directly before the chairperson of the Audit Committee in exceptional circumstances. The Act also requires all list of firms to update reports on any such mechanisms they have employed and post those reports on their official website.

While requiring the formation of an Audit Committee, Section 177 also contains rules controlling the Audit Committee. The phrase “every listed firm” in Section 177 of the Companies Act was changed to “every publicly listed company” in 2017. Setting up a vigil system is advantageous for the firm since it gives the whistleblower a platform to reveal any fraudulent or unlawful actions used within the organisation.

The Registrar or Inspector has extra authority under Sections 208 and 210 of the Companies Act, 2013, to examine the company records and, after doing so, to submit a report to the federal government. If more is needed, they must give the government access to all pertinent records and any recommendations they may have regarding the investigation. The process that the registrar or inspector must follow while looking into a company’s business is outlined in Section 210 of the Act.

  1. SEBI

The Security Exchange Board of India has made it mandatory for every listed business to establish its surveillance mechanism and implement a whistleblower policy through clause 49 of the SEBI’s equity listing. The Section additionally mandates that all businesses make sure their staff members are aware of the policy in case they need to report any wrongdoing, fraud, or corruption, or alert the business to any sensitive information. The Section also requires the companies to take all practical precautions to safeguard the directors and the complainant from any forms of victimization and harassment. The SEBI has introduced an incentive system to incentive workers to voice their concerns.

Here are some instances of businesses that have implemented whistleblower policies:

HCL: Has adopted a whistleblower policy to give its employees, clients, auditors, contractors, regulatory agencies, and other third parties appropriate ways to bring to the top management’s attention any issues that are observed to be in conflict with or violating the corporation’s core business practices. Whistleblowing encourages workers to increase their voices. The CEO receives a first-hand report on every instance.

TATA MOTOR: Under the company’s whistleblower policy, employees are permitted to report wrongdoing to the chairperson of the audit committee or the board of directors. Such disclosure is forwarded when there is sufficient proof of the misconduct, along with a cover letter that may reveal the whistleblower’s identity.

  1. NATIONAL PAYMENTS CORPORATION OF INDIA (NPCI)

With an Audit Committee, Ombudsperson, Investigation Team, and Whistle Officer, the NPCI has a specific whistleblowing policy. On its website, it publishes details about every reporting mechanism and inquiry, and complaints can also be submitted electronically.

  1. The Whistleblower Protection Act, 2014

The Whistle Blowers Protection Act, 2014 was passed to provide a framework for looking into claims of public servant corruption and power abuse as well as to protect those who make such claims.

An effective and efficient process to protect the whistleblower’s identity as well as an effective mechanism to accept complaints were the goals of the parliament while creating this legislation. The Act’s application is restricted to the governmental sector alone, leaving the private sector out. The statute specifies how to protect a whistleblower’s identity, protecting them from victimization or harassment. This encourages workers to voice their concerns about any matter.

The Whistleblower Protection Act of 2014 has some shortcomings, one of which is that it doesn’t specify a method if the complainant wants to challenge the decision made by the relevant authorities. It was proposed in the 2015 modifications to make it necessary for the complainant or whistleblower to give their names, which meant that under this Act, anonymous complaints would not be taken into consideration. The Right to Information Act of 2005 Section 8 (1) is the foundation for the proposed modification. The previous amendment suggested limited disclosures that fit within specific categories.

  1. Companies (Auditor’s Report) Order 2020 [CARO 2020]

To improve corporate governance among Indian corporations, the ministry of corporate affairs issued an order requiring all listed companies to disclose all whistleblower complaints to the auditor and to note those concerns in the (CARO, 2020) report the auditor publishes.

Challenges

It must be acknowledged that legislation emphasizes the existence of whistleblowing because only these mechanisms or systems can respond to the inquiries that employees have or the reporting of the same. Whistleblowing, however, is neither endorsed nor practiced as such. The person coming forward to disclose instances of suspected fraud or abuse plays a crucial part in whistleblowing. However, even people who are aware of such fraud find it challenging to speak up due to their fear of social shame and losing their jobs. It also becomes very challenging for these whistleblowers to choose between their professional responsibilities and organizational responsibility because they are rejected by management.

Conclusion

Corporate governance is regarded as a sine qua non for any business operation. If a business has a strong corporate governance framework, it can operate with complete transparency and can support the principle of full disclosure to improve relations with all of its stakeholders and employees. A strong corporate governance system will guarantee the company’s stability and expansion. A strong whistleblowing framework can further encourage employees to voice their concerns to the appropriate authorities, allowing a company to effectively implement the practice of accountability while preventing wrongdoing, malpractice, corruption, or fraud in the early stages and preserving its reputation. Since many people’s lives have been harmed by scandals like the Satyam Computer, Satyendra Dubey murder, and Ranbaxy scandals during the past two decades, businesses must take precautions to prevent regular people from falling for similar tricks.

Author(s) Name: Manisha Khalkho (Campus Law Center (University of Delhi))