Whistleblower Protection Laws in India: Whistleblower Protection Act

Who is a Whistle-blower?

The term & lsquo whistle-blowing' is a rather recent entry into the vocabulary of corporate and financial affairs, although the concept itself is not new. A Whistle-blower in a layman's language can be defined as an individual (employee/former employee) who exposes information or practice of wrongdoing, fraud, corruption, deviation from the set rules, or mismanagement.

What are the different types of Whistleblowers?

• Internal: When the whistle-blower reports the wrongdoings to the officials at a higher position in the organization. The usual subjects of internal whistleblowing are disloyalty, improper conduct, indiscipline, insubordination, disobedience, etc.

• External: Where the wrongdoings are reported to the people outside the organization like media, public interest groups, or enforcement agencies it is called external whistleblowing.

• Alumni: When the whistleblowing is done by a former employee of the organization it is called alumni whistleblowing.

• Personal: Where the organizational wrongdoings are to harm one person only, disclosing such wrongdoings it is called personal whistleblowing.

• Impersonal: When the wrongdoing is to harm others, it is called impersonal whistleblowing.

• Government: When a disclosure is made about wrongdoings or unethical practices adopted by the officials of the Government.

• Corporate: When a disclosure is made about the wrongdoings in a business corporation, it is called corporate whistleblowing.

What is the importance of the Whistleblowing policy?

Many large corporate frauds have come to the limelight only through an insider's revelation or a confession, not through an audit report or a regulatory investigation. It thus becomes very essential to provide the whistle-blower a smooth route for his revelation through an efficient whistleblower policy. The organization needs to ensure that there is an easy route to raise concerns, otherwise either the workforce will become silent, or if the scandal comes out in the public, it will come out in the most destructive way.

Laws governing Whistle-blowing practice in India?

The Companies Act, 2013

Sections 206 to 229 of the Companies Act 2013 incorporated in detail all the provisions relating to inspection, inquiry, and investigation under the head of a single chapter. Section 208 of the Act, empowers an Inspector apart from the Registrar to inspect records unlike the provisions of the old act of 1956. Also, the Registrar/Inspector may furnish any recommendations to conduct investigations in such a matter. Section 210 on the other hand states that the Central Government may order an investigation into the affairs of the company either: a) on the receipt of a report of the registrar or inspector of the company or b) on intimation of a special resolution passed by a company that the affairs of the company ought to be investigated or c) in the public interest. But where an order is passed by a Court or Tribunal stating that the affairs of a company ought to be investigated the Central Government shall order an investigation into the affairs of that company. Moreover, The Serious Fraud Investigation Office (SFIO) is now a statutory body established under section 211 of the Act with the power to arrest for offenses specified as fraud.

Also, it is important to note that previously, auditors did not have to legally ascertain whether fraud had occurred or not. They were to primarily report material related to fraudulent reporting and/ or misappropriation of assets. There is now onerous responsibility on auditors to act as whistle-blowers by reporting directly to the Central Government if they have reason to believe fraud is being or has been committed against the company by its officers or employees. The Companies Act 2013 under draft rule no. 12.5 read with section 177(9) has made it mandatory for a) listed companies b) companies that accept deposits from the public and c) companies that have borrowed money from banks or public financial institutions in excess of rupees 50 crores to establish a vigil mechanism for directors and employees to report their genuine concerns. As per the said provisions, the companies which are required to constitute a vigil committee shall operate the vigil mechanism through its audit committee, and in the case of other companies, the board of directors is obligated to nominate a director to play the role of an audit committee. Schedule IV read with section 149(8) of the Companies Act 2013 lays down the code of professional conduct for independent directors. The duties of the independent director elaborated in part III of schedule IV include ascertaining and ensuring that the company has an adequate and functional vigil mechanism and that the interests of the persons using it are not harmed. The independent directors are also entrusted with the task of reporting concerns over unethical behavior, actual or suspected fraud, or violation of the company's code of conduct or ethics policy. Such changes made by the Act with regard to governance, transparency, disclosures, the position of the serious fraud investigation office, etc. under section 211 of the Act are expected to make companies shift from being complacent to playing compliant roles.

SEBI

The Securities and Exchange Board of India (& lsquo SEBI') vide its circular dated August 26, 2003, amended the Principles of Corporate Governance incorporated in the standard Listing Agreement. Clause 49 of the Listing Agreement to the Indian stock exchange now also mentions the formulation of a Whistle-blower policy for companies. Following is the text from Annexure I D of Clause 49 of the Listing Agreement: “ The company may establish a mechanism for employees to report to the management concerns about unethical behavior, actual or suspected fraud, or violation of the company's code of conduct or ethics policy. This mechanism could also provide for adequate safeguards against victimization of employees who avail of the mechanism and also provide for direct access to the Chairman of the Audit Committee in exceptional cases. Once established, the existence of the mechanism may be appropriately communicated within the organization.”

The Whistle Blowers Protection Act, 2011

Whistle Blowers Protection Act, 2011 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, under section 3, provides that any public servant or any other person including a non-governmental organization may make a public interest disclosure to a Competent Authority. According to the Act, the term “ Public Interest Disclosure” is meant to be any disclosure by a public servant or any other person including any non-governmental organization before the Competent Authority notwithstanding anything contained in the provisions of the Official Secrets Act, 1923 in Public interest. Any disclosure made under this Act shall be treated as public interest disclosure for this Act and shall be made before the Competent Authority and the complaint shall be received by such authority as may be specified by regulations made by the Competent Authority. The Competent Authority has been empowered to give proper direction to the concerned authorities for the protection of the complainant or witness either on an application by the complainant or based on its own information. It can also direct that the public servant who made the disclosure may be restored to his previous position. The Vigilance Commission has to protect the identity of the complainant and related documents, unless it decides against doing so, or is required by a court to do so. Furthermore, the Commission is empowered to pass interim orders to prevent any act of corruption from continuing during the inquiry. If any person is being victimized or likely to be victimized on the ground that he/she had filed a complaint or made a disclosure or rendered assistance in the inquiry then he/she may apply to the Competent Authority seeking redress in the matter, and such authority shall take such action, as deemed fit and may give suitable directions to the concerned public servant or the public authority, as the case may be, to protect such person from being victimized or avoid his victimization.

The Whistle Blowers Protection (Amendment) Act, 2015

The Act amends the Whistle-blowers Protection Act, 2014. The Act provides a mechanism for receiving and inquiring into public interest disclosures against acts of corruption, wilful misuse of power or discretion, or criminal offenses by public servants. The Act prohibits the reporting of a corruption-related disclosure if it falls under any 10 categories of information. These categories include information related to (i) economic, scientific interests, and the security of India (ii) Cabinet proceedings, (iii) intellectual property (iv) that received in a fiduciary capacity, etc. The Act permits disclosures that are prohibited under the Official Secrets Act (OSA), 1923. The Bill reverses this to disallow disclosures that are covered by the OSA. Any public interest disclosure received by a Competent Authority will be referred to a government-authorised authority if it falls under any of the above 10 prohibited categories. This authority will take a decision on the matter, which will be binding.

How can a lawyer help you?

One of the first and most important steps you should start with is to hire a good criminal lawyer , as he is aware of the legal processes and nitty-gritty involved in the criminal case. A criminal lawyer has the legal knowledge and experience necessary to handle and draft necessary documents related to the offense. He will be able to guide you and draft relevant documentation for you according to your special circumstances and facts, and the necessary things to be involved. A criminal lawyer is aware of good legal techniques. Hiring a lawyer will help you in more ways than one. You can also ask a lawyer online a free legal question using LawRato's Ask a Free Question service.

Advocate Chikirsha Mohanty

4.0 | 2+ user ratings Greater Kailash - 1, Delhi
5 years

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