The recent spotlight in India has been shone on the needs to bolster protections for corporate whistleblowers and extend the requirement of vigil mechanisms to large private firms.
The Present Landscape
The Delhi High Court is presently evaluating a writ petition that challenges the constitutional validity of the current provisions of the Companies Act 2013. As it stands, the Act only mandates listed companies, firms that accept public deposits, and companies with loans amounting to over Rs. 50 crore from banks or public financial institutions to establish a vigil mechanism for addressing whistleblower complaints.
Concerns Raised
The absence of explicit guidelines concerning the operation of vigil mechanisms has resulted in companies failing to respond promptly to whistleblower complaints. Whistleblowers are also at risk of retaliation, including termination of employment. Following through with civil suits against such actions can be prohibitively expensive and time-consuming, as fees often equate to around 1% of the claimed damages.
Suggested Improvements
Experts recommend that private sector firms that meet specific thresholds, either in turnover or employee numbers, should be required to create a vigil mechanism. The law should also mandate the formation of a permanent internal committee and provide explicit directions regarding its operations. This might include guiding principles on reporting to and reviews by the audit committee, setting timelines for addressing grievances, board consideration of open and resolved matters, and more. However, there is a fine line between effective regulation and over-regulation, which could lead to micromanagement.
To protect whistleblowers, the mechanism should incorporate safeguards against victimization, provide direct access to the chairperson of the audit committee in exceptional cases, and deter frivolous complaints.
Understanding Whistleblowing
Defined by the Companies Act, whistleblowing refers to activities intended to alert stakeholders about unethical practices within an organization. Whistleblowers can be anyone aware of such practices and possessing supporting evidence. They could be current or former employees, shareholders, external auditors, or lawyers. In India, the Whistleblowers Protection Act, 2014, safeguards these individuals’ identities and sets strict regulations against their victimization. The Securities and Exchange Board of India (SEBI) also unveiled a system in January 2020 offering rewards to whistleblowers providing insider trading intel.
The Path Forward
Appropriate legislation should be enacted to further protect innocent whistleblowers. Strengthening the whistleblower protection mechanism is vital to preserving the integrity of democracy. It is equally important that laws empower citizens with evidence of unethical conduct within an organisation to speak up.
