Module-1: Legal Support to Whistle Blowing

 

The Corporate Governance Voluntary Guidelines 2009 insisted on Institution of a mechanism for employees , Establishment of adequate safeguards against victimization of employees and direct access to the Chairperson of the Audit Committee.

The provisions of the act may not apply to- Jammu and Kashmir Armed forces of the union, being the special protection group constitute under the special group act, 1988. The aim of the bill is to protect the whistle blowers that make a Public Interest Disclosure [PID]. The PID can be made in act of – Power misused, Corruption, Criminal offence by a Public servant .The PID must be in writing or electronic mail and in accordance with the procedure defined. The PID may be made to the competent authority as defined by the bill. Then the enquiry is made by the competent authority without revealing the identity of the whistle blower and verifies his/her facts. The competent authority has the authority to ask documents from any person who shall be able to furnish any useful information. The whistle blower if is being victimized or likely to be victimized he may file an application to the competent authority to look into the matter and protect him/her. The bill penalizes the person who make a PID and the PID is deemed to be mala fidelity and knowingly that it was incorrect shall be punishable with imprisonment for a term which may extend to 2 years and a fine extended to 50,000 INR.

Laws Applicable to Public Servants

Whistle blowers Protection Act 2011 is “an act to establish a mechanism to receive complaints relating to disclosure on any allegation of corruption or wilful misuse of power or wilful misuse of discretion against any public servant and to inquire or cause an inquiry into such disclosure and to provide adequate safeguards against victimisation of the person making such complaint and for matters connected therewith and incidental thereto.”

Whistle Blowers Protection Act, 2011 (renamed as Whistle Blowers Protection Act, 2014 by the second schedule of the Repealing and amendment Act 2015) is an Act of the Parliament of India which provides a mechanism to investigate alleged corruption and misuse of power by public servants and also protect anyone who exposes alleged wrongdoing in government bodies, projects and offices.

The wrongdoing might take the form of fraud, corruption or mismanagement. The Act will also ensure punishment for false or frivolous complaints

It was enacted with the intent to establish a mechanism to:

·         Receive complaints relating to disclosure of any allegation of corruption, willful misuse of power/discretion against any public servant;

·         Inquire or cause an inquiry into such disclosure; and

·         Provide adequate safeguards against victimization of the person making such complaint

 

Whistleblower Protection Act 2014- The main motive behind the incorporation of this act is to provide a platform where any person can disclose any information regarding the malpractices or illegal activities present in a company or they can file a complaint against the public servants who were misusing their powers. This act provides us the opportunity to disclose any information through public interest disclosure before the competent authority. The person who is disclosing any information through public interest disclosure has to reveal his identity before the authority and no complaints should be entertained if the person is not revealing his identity. The identity of the complainant is needed only to cross check that whether the complaint is filled by himself or any other person is using his name without his knowledge. If the identity and the facts of the complaint are established then after that the authority will investigate into that matter discreetly. If the identity of the complainant is disclosed by any means then there should be an internal inquiry in that manner and the person responsible for disclosing the identity should be punished according to the law. This act also protects the person against any victimization, if the authority thinks that there is a need to protect the complainant then they will do the necessary arrangements to protect the complaint from any threats.

The Whistle Blowers Act may be utilized by any person to make a public interest disclosure. An amendment to the aforementioned Act was proposed in the form of the Whistleblowers Protection (Amendment) Bill, 2015 (“Amendment Bill”). The Amendment Bill sought to, inter alia, incorporate necessary safeguards against disclosures which may prejudicially affect the sovereignty and integrity of the country, security of the State, etc. However, the Amendment Bill was not passed by the Rajya Sabha and consequently, it lapsed

However, the Act does not allow anonymous complaints, raising concerns about how protection would be accorded to whistleblowers if their identity is known. There are enough instances of retaliation against whistleblowers in corporations and government driven organizations including some where whistleblowers are known to have lost their lives in their fight against fraud and corruption.

Whileleading private sector organizations allow anonymous complaints and are putting in place processes to safeguard the identity of the whistleblowers, as well as ensuring confidentiality of the investigation process, there is an urgent need for the government to focus on these areas.  The government can perhaps consider including some of the measures prescribed by the US Whistleblower Protection Enhancement Act, 2012.

 Law applicable to Listed Companies

The Companies Act, 2013, as well as SEBI (through revisions of Clause 49 of the Listing Agreement) have made it mandatory for certain classes of companies to establish mechanisms to receive complaints related to such grievances or concerns raised by Directors or employees of a company.

The Companies Act, 2013, and rules thereunder, provide that certain companies should establish a ‘vigil mechanism’ to report genuine concerns. Further, the Companies Act states that such mechanism should be accompanied by adequate safeguards against the victimization of persons who use the mechanism. There is an additional requirement of publishing the details of the mechanism on the company’s website and in the report of the board of directors.  The Companies and (Meetings of Board and its Powers) Rules, 2014 further provides that in case of repeated frivolous complaints being filed by a director or an employee, the audit committee or the director nominated to play the role of audit committee may take suitable action against the director or the employee including reprimand.

The Securities Exchange Board of India (“SEBI”) has mandated that every listed company should have a whistle-blower policy and make employees aware of such policy to enable employees to report instances of leak of unpublished price sensitive information.  With effect from December 2019, the SEBI has also introduced a reward mechanism for incentivizing ‘Informants’ to report violation of insider trading laws to SEBI.

Listed companies are required to make a disclosure of material events to the stock exchange(s) pursuant to Regulation 30 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”).

Recently, the Companies (Auditor’s Report) Order, 2020 was issued (“CARO 2020”) by the Ministry of Corporate Affairs, in line with its objective of strengthening the corporate governance framework under the Companies Act, 2013. The Order applies to every company, including a foreign company as defined in the Companies Act, 2013. CARO 2020 necessitates enhanced due diligence and disclosures on the part of auditors of eligible companies and has been designed to bring in greater transparency in the financial state of affairs of such companies. The revisions have also put greater onus on companies to share information with the auditors, especially on whistleblower complaints received during the course of the year, for the consideration of the auditor, who usually then seeks to know the manner in which the company has dealt with such complaints, including nature of complaint and quantum involved.

The Indian companies (Amendment) Act, 2017 – There is a concept of whistleblowing that is provided by this act, but this term is nowhere expressly mentioned in the act. Under chapter 14th of the companies’ act 2013, that is inspection, inquiry, and investigation the concept of whistleblowing is given. Under the act, it is said that whistleblowing is not an individual job to do but it is an obligation of everybody who is working for an organization to look at its functions and report if he thinks that the organization is not working properly. Under the section 218 of the act, protection is given to the employees while the investigation, this act promotes that every individual who thinks and has reason to believe that the company is using any malpractices or not doing the work by the companies act 2013 then he/she can make an official complaint of the same to the registrar of the company. 

Components of an Effective Whistle Blowing Policy

  Companies normally publish on their website the whistleblower policy and guide stakeholders to report violations encountered

 

Private Employers:

There is no specific law on whistleblowing applicable to private employers in India. Some progressive companies (especially subsidiaries of MNCs) have incorporated a whistleblower policy as part of extending their global policies which includes individual employees or group of employees and in some cases even third parties. The purpose of any whistleblower policy is to encourage employees (or any other person for that matter) to report matters without the risk of subsequent victimization, discrimination or disadvantage.

 

 

Those who read this also read Ethics Audit Mechanisms

Some of the companies which have a whistleblower policy are Infosys, Wipro, which has adopted an ombudsman process policy, where employees are “encouraged to report questionable accounting matters, and reporting of fraudulent financial or other information to the stakeholders, any conduct that results in violation of the company’s code of business conduct and ethics, to management (on an anonymous basis), if employees so desire.

Tata Motors has one and is time-bound. The investigation has to be completed in 45 days, while TCS, SAIL and Reliance Industries are the other top corporate houses which have a whistleblower policy.

A large number of whistleblowers have been RTI activists who believe that by doing this they can
reform the government and end the malpractices that are present in the system.

 

The main reason why people think of this option is the anonymity of their identity. Many people want to expose the malpractices present in the system but they avoid doing that because they have to give their identity and that puts their lives into danger. These people want to expose the malpractices so the only option left with them is to take the help of these online sites to bring all these data in public. It is a lot easier option to expose anything via Internet because here we don’t have to get the print out of all the documents. Nowadays all the government offices have also become digitalized, so it is very easier for low-level employees to get secret data that is enough to expose any malpractices present there. 

The act in our country doesn’t allow anonymous compliant to be filed and if any such complaint is filed it is rejected straight away and the complainant has no other option than using the online tools for disclosing information.

The RTI act 2005 is an effective tool for whistleblowers, because of this act only they can obtain any information about activities which they think are illegal or unethical. 

Lack of anonymity of the information seeker raises the chances of getting threats from the people who were at discomfort because of information. People use to harass or give threats to the person to take the request back and if the person did not do so then they even kill the person. Some of such examples Are the killing of Rajendra Prasad in Bihar who exposes the local government for corrupt practices in the police recruitment process and the public health sector as well in another case an RTI activist named as Amit Jethwa who exposes the illegal mining in the Gir forest area of Gujarat also gets killed. In the year 2003, an engineer named Satyendra Dubey in Bihar shot dead after he exposes the malpractices present in the golden quadrilateral project. After this, a call for an act that protects the whistleblower in India arises. After the wait of so many years in the year of 2014, a whistle blower protection act is enforced. Under this act, it is the government’s responsibility to ensure the protection of the whistleblower against the victimization and to conceal their identities. But even after the introduction of this act the number of death of the RTI activist continue to increase in our country.

Forewarned is forearmed – or so the saying goes. While many a battle may have been won by applying this logic, it seems that the world of business is yet to properly cotton on.

According to the 2015 Ethics at Work survey by the Institute of Business Ethics (IBE) roughly half (45%) of employees who notice misconduct would not raise concerns. Of those who spoke out, 61% said they were not happy with the outcome, more than double since the previous survey in 2012.

Logic should dictate that senior management has a vested interest in discovering a problem before it becomes a scandal. However, the continued fear of persecution, such as experienced by former Olympus chief executive Michael Woodford, and more recently the Barclays whistleblower whose identity the CEO attempted to uncover, would suggest that some management teams still perceive speaking out as an act of disloyalty rather than a chance to learn about, and deal, with any potentially damaging problems.

 Whistle Blowing - The missing links

•      Ineffective mechanism

•      Failure to Impart Proper confidence

•      Lack of Independent ombudsmen

•      Non maintainability of whistle blower confidentiality

•      Ineffective Security of whistle blower

•      Improper Inquiry and investigation procedure

•      Inappropriate punishment

•      The Fear of Isolation

Barriers to Whistle-Blowing:

•      A lack of trust in the internal system

•      Unwillingness of employees to be “snitches”

•      Belief that management is not held to the same standard

•      Fear of retaliation

•      Fear of alienation from peers

The Whistleblowers Protection Act, 2014, notified on May 12, 2014, has not been implemented so far(Oct 25, 2019). 

The whistleblower does not have enough protection in India. “It is incumbent upon theDirectors (usually the top management) of a company to investigate complaints of wrongdoing by the erring top management, which usually defeats the purpose, primarily because of lack of appropriate legislation.”