This Article is written by Adv. Ishank Goswami.
Where do the evils like corruption arise from? It comes from the never-ending greed. The fight for a corruption-free ethical society will have to be fought against this greed and replace it with ‘what can I give’ spirit. – A. P. J. Abdul Kalam
Whistleblowing refers to an act where a person or an employee discloses or demonstrates a piece of information or exposes an illegal activity, fraud, misconduct, unethical behavior within an organization. The disclosure made by the person should be in the public interest and should not be influenced by personal grudges or grievances. Secondly, the person must believe that the disclosure should be a past, present, or future wrongdoing. The disclosure made should be related to a criminal offence, failure to comply with a legal obligation, miscarriage of justice, fraudulent activity within an organization, endangering someone’s life health, and safety, damage to the environment, and activity that covers wrongdoing. The individual who discloses such information is known as a whistleblower. In the case of Indirect tax practitioners ‘Assn. v. R.K. Jain the Supreme Court determined who is a Whistleblower. The Court said that a whistleblower is an ordinary employee of a public authority who raises concern over wrongdoing or corruption of such Authority. Further, the court defines the types of whistleblowers viz. internal whistleblowers and external whistleblowers. Internal whistleblowers are those within an organization and external whistleblowers are those who are not directly associated with the organization.
“Whistleblower’s protection is a policy that all government leaders support in public but few in power tolerate in private”
– Thomas M. Devine
WHY DO WE NEED WHISTLEBLOWING LAWS IN INDIA?
The act of “blowing a whistle” comes with a price, whistleblowers are harassed, forced to leave the organization, incarcerated, and even murdered. These incidents create a need for a robust mechanism required to safeguard against victimization.
SOME INCIDENTS OF WHISTLEBLOWING
- In 2003, Satyendra Dubey, a project engineer in the National Highway Authority of India was shot dead for exposing corruption in a golden quadrilateral project in Bihar.
- Series of questionable deaths happened in the vyapam scam. Vyapam disclosure focuses on the dangers faced by the whistleblowers.
- Recently, a shareholder exposed an alleged loan fraud by addressing a letter to the Prime Minister and the Finance Minister. It was alleged that the Managing Director of a private leading bank granted a loan to a company whose chairman had a business connection with her husband.
THE LEGAL FRAMEWORK IN INDIA FOR THE PROTECTION OF WHISTLEBLOWERS
LAW APPLICABLE ON PUBLIC AUTHORITIES
Government of India incorporated Whistleblowers Protection Act, 2014, which applies to public servants. This Act was enacted to establish a mechanism to receive complaints relating to disclosures on any allegation of corruption or willful misuse of power or willful misuse of discretion against any public servants and to inquire into such disclosures and to provide safeguards against victimization of person who made such disclosure and for the matters connected therewith and incidental thereto. As per this Act, any public servant or any other person may file a complaint on the Central or State vigilance commission. At the time of filling, the complainant shall disclose his identity but his identity will not be disclosed to anyone except the head of the department if it is necessary to do so.
CENTRAL VIGILANCE COMMISSION
Central Vigilance Commission (CVC) is an apex body that monitors all vigilance activity of the central Government. CVC also advises various authorities in planning, executing, and reforming their vigilance mechanism. CVC is free of control from executive authority and is not controlled by the Ministry or Government Department. CVC receives a complaint from the Central Government, Lokpal, whistleblowers and gets their investigation done through the CBI or Chief Vigilance Officers in government offices.
LAWS APPLICABLE ON LISTED ENTITIES
- Section 177(9) of Companies Act 2013, provides that every listed company or such class or classes of companies as may be prescribed in this behalf shall establish a vigil mechanism for directors and employees to report genuine concerns in the manner as may be prescribed. Vigil mechanisms established under sub-section (9) shall provide adequate safeguards against victimization of a person who ‘blows the whistle’ and provisions shall also be made that chairman of the audit committee can directly access the case in appropriate and exceptional cases. The details of such a vigil mechanism shall also be published on the company’s website.
- The Securities and Exchange Board of India has notified SEBI (Listing Obligations and Disclosure Requirements) Regulation, 2015. Regulation 4(2)(d)(iv) of SEBI (LODR), 2015 provides that the listed entity shall formulate an effective Whistle Blower Mechanism that enables the stakeholders and employees to report their concerns about illegal and unethical behavior.
- Regulation 30 of SEBI (LODR) Regulations, 2015 provides that listed entities shall disclose any events or information which is material, in the opinion of the Board of Directors of the listed company.
ARE INDIAN LAWS ADEQUATE OR IS THERE A LACUNA IN THE INDIAN LAWS?
The Whistleblowing laws and policies in India are at the embryonic stage. There are inevitable flaws in the Indian Laws, some of them are mentioned below:
- The Whistleblower Protection Act, 2014 includes Individuals who blow the whistle on Central and state government employees, regulatory authorities, and members of parliament. The Act does not apply to private companies and corporations. Non-inclusiveness of the corporate sphere has left a dollop of the players out of the regulatory mechanism. Further, no Incentive scheme or award has been notified in the act for the whistleblowers.
- Complaints made with the malicious intention or frivolous concern raised can cause irreparable damage and tarnish the image of an organization or the individual against whom the complaint has been made. People may use this tool to settle personal grudges. Such instances give rise to the demand for action against those who make a false allegation to settle their dispute. These complaints discourage the person charged with the power to take necessary action on whistleblowing complaints when there is no authentic information with proof. Further, the whistleblowing mechanism can also be misused by filling petty complaints.
- There are no mandatory rules notified to bring private and unlisted companies to constitute any whistleblower policy. The provisions are voluntary in nature and certain multinational companies have voluntarily adopted them.
- Whistleblower often faces retaliation from the company or senior directors or executives. Employees who disclose information face adverse consequences related to their They often receive demotions, pay cuts or replacements, and other disadvantageous treatment.
- Though Companies Act 2013, SEBI (LODR) 2015, provides to establish a whistleblower mechanism it is unclear how the complaints will be investigated. No process/ procedure has been notified for an internal investigation, protection of whistleblowers, and safeguarding them against retaliation faced by them. However, CARO (Companies Auditor’s Report order), 2020 is one such step towards addressing this as it ensures that a statutory auditor is required to check how each whistleblower complaint is addressed.
It is observed that as Indian legal regime for whistleblowers is still at a nascent stage. Scams and deceit have become a regular feature of the government and corporate sphere and whistleblower complaints are rising, whistleblowing mechanisms and policies are still unsettled. India needs a robust whistleblower mechanism and policies for investigating and resolving whistleblower complaints. Companies have to provide the right level of sensitization towards concern raised by employees, support of top-level management, and leadership for whistle-blowing. The Government of India not only formulates laws but ensures that they are operative and adhered to in letter and spirit. Adequate safeguards shall be provided against the victimization of whistleblowers. Though it is difficult to balance whistleblower policies as there are possibilities of frivolous and malicious complaints, it is obligatory on the part of corporate leadership and management to create a culture of compliance and reporting, strengthening anti-retaliation policies. The procedure to investigate whistleblowing complaints should be such that whistleblowers feel safe to blow the whistle. Whistleblower laws should not be just paper tiger but proper rules should be formulated to give better effects and force to Whistle-blowing Protection Laws.
- Bhavana Sunder, Payel Chatterjee & Sahil Kanuga, Whistleblowing in India: Are we there Yet? http://www.nishithdesai.com/information/research-and-articles/nda-hotline/nda-hotline-single-view/article/whistleblowing-in-india-are-we-there-yet.html?no_cache=1&cHash=b5747c0cd8db654635cb5ee27689aca
- Central Vigilance Mechanism Portal
- Companies Act, 2013
- Dipak Mondal, Chinks in the whistleblower armor, March 8, 2020 https://www.businesstoday.in/magazine/policy/chinks-in-whistleblower-armour-complaints-against-unethical-practices/story/396398.html#:~:text=Two%20anonymous%20whistleblower%20complaints%20sent,accounting%20fraud%2C%20among%20other%20things.
- Jayshree P. Upadhyay, Just how safe are whistleblowers under Indian Law, October 22, 2019 https://www.livemint.com/news/india/just-how-safe-are-whistleblowers-under-indian-law-11571763505941.html
- SEBI (Listing Obligations and Disclosure Requirements), 2015
- Whistleblower Protection Act, 2014