Whistleblower in Indian Law

There are innumerable instances when companies fail to take appropriate action against illicit activities due to lack of information about them. From potential fraud to other forms of wrongdoings, many things go unnoticed by senior authorities of an organization. However, the only way they would know about this is through individuals who are willing to take a stand against anyone or anything that is in the wrong around them. Such individuals are commonly known as whistleblowers.

Who is a Whistleblower?

A person, who may be an employee of a company or a government agency, disclosing details of any wrongdoings, such as any form of fraud, corruption, data leaks, etc. to the public or some higher authority is known as a whistleblower.

The wrongdoing informed about by the whistleblower may be taking place in the entire company or just a specific department of the organization.

Provisions for a legal mechanism to report illegal, illegitimate and unethical practices of the members of an organization are provided in the Whistle Blowers Protection Act, 2014.

Note: The scope of the Whistle Blowers Protection Act is limited to public servants and public sector undertakings.

The Act aims to enable anyone (a whistleblower) to reveal acts of corruption, deliberate misuse of authority or discretion or any criminal offence(s) committed by any public official. Public officials included in this Act cover, amongst others, ministers, members of Parliament, the lower judiciary, regulatory agencies, federal and state government workers.

Provisions of Whistleblower Protection Act, 2014

• The Act aims to safeguard individuals who disclose deeds of corruption, intentional misuse of power, or the commission of a criminal offence to the authorities or the public.
• The proceedings to safeguard a whistleblower’s identity are stated under the Act.
• The legislation protects the complainant and anyone who assists the investigation from any potential harm
• On the other hand, the laws of the Act enable the necessary authorities to provide whistleblowers with protection, which may include police protection and retribution against those who attempt to victimize them.
• The Act provides a mechanism to receive complaints from whistleblowers against any public servant who is conducting any illicit activity like corruption, misuse of power, etc
• As per the laws stated under this Act, no anonymous complaints are to be submitted to the authorities. It states that no action shall be taken against a complaint if the complainant does not disclose their identity.
• The complaint can be filed within a period of 7 years.

Special Protection Group (SPG) personnel and officers formed under the Special Protection Group Act, 1988 are exempted from the provisions stated under this Act.

• If anyone is unsatisfied with the order of a Competent Authority, they may appeal to the concerned High Court within a period of 60 days from the date the order is passed.
• Anyone, who through negligence or due to malicious intentions, discloses the identity of the complainant shall be punishable with imprisonment up to 3 years and a fine that may extend up to INR 50,000.

Note: If the identity of the complainant is disclosed with malicious intentions knowing that it was incorrect, false or misleading, the individual shall be punishable with imprisonment up to 2 years and fine, extending up to INR 30,000.

• The Competent Authority shall prepare a consolidated annual report of their proceedings and submit the same to the State Government. This report shall further be presented before each House of Parliament or State Legislature, depending upon the case.
• The Whistleblowers Act overrides the Official Secrets Act, 1923 allowing the complainant to disclose any illicit activities even if they violate the latter Act but do not harm the sovereignty of the country.

 

Issues faced by Whistleblowers

• Whistleblowers often face legal action, criminal accusations, social disgrace, and the potential of being fired from their position, office or job.
• Such individuals may fall to vindictive strategies such as character assassination, official reprimand and legal actions that aim to make their working experience unbearable and/or insignificant.
• Whistleblowers are often stuck in a complicated situation as such cases usually involve a complex combination of facts and job history.

What is the Way Forward?

• The details and processes of the Whistleblowers Protection Act must be spread across the country, with seminars being held in both government and private businesses to educate all individuals and employees about the Act’s value.
• Employees must be informed of the different ways they can file a complaint under this Act.
• While the Act provides for anonymous disclosures, it does not really address anonymity. It also allows the name of the complainant to be revealed, which may be dangerous for the complainant and subject them to victimization.
• It is important to broaden the definition of ‘competent authorities’ and include various agencies/organizations, such as the lower judiciary, that do not fall under its definition yet.
• The Act should create a Protection Agency that would not only protect existing whistleblowers but also encourage others to raise their voice against any illicit activity being carried out around them.
• The state should build an effective screening system that helps deal with frivolous complaints. Removing the option to file anonymous complaints complicates the whistleblowing process and discourages more people from filing concerns.

How are whistleblowers protected in the Non-Govt. Sector?

Provisions under the Companies Act, 2013

• The following companies are mandated to establish a vigil mechanism in their company under Section 177 of the Companies Act, 2013 when read with Rules made thereunder:

                      -Listed company.
                      -Every company that accepts deposits from the public.
                      -Every company that has borrowed money from Banks and Public Financial Institutions in excess of INR 50 crores.

• Companies that are required to form an Audit Committee shall manage the vigil mechanism through the Audit Committee.

Note: If anyone on the Committee has a conflict of interest in any given case, they must recuse themselves and let the other members deal with the issue at hand.

• For companies that are not required to form an Audit Committee, the Board of Directors shall elect a Director in place of the Audit Committee, who shall be responsible to manage the vigil mechanism.

Note: All issues and concerns shall be reported to the appointed Director.

• Vigil mechanism policy of the company shall provide for ample defense against victimization of director(s)/employee(s) who avail of the Vigil Mechanism and make provisions for direct access to the Chairman of the Audit Committee or the Director elected to play the role of the Audit Committee (as the case may be).
• The details of establishment and framing of Vigil Mechanism Policy shall be disclosed by the company on its website, if any, and in its Board’s report.
• The Independent Directors of the company (wherever applicable) shall ascertain and ensure that the company has an adequate and functional vigil mechanism and that the interests of a person who uses such mechanism is not prejudicially affected on account of its use.
• In case of repeated frivolous complaints being filed by a Director or an employee, the Audit Committee or the Director elected to play the role of Audit Committee shall have the power and right to take appropriate action against the concerned Director or employee.

Under SEBI (LODR) Regulation, 2015

The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 have similar requirements to establish a vigil mechanism termed ‘Whistleblower Policy’.

• The provisions mentioned under Regulation 4(2)(d)(iv) of SEBI (LODR), 2015 state that the listed entity must form an effective Whistleblower mechanism enabling stakeholders, including employees and their representative bodies, to freely communicate their concerns about illicit and unethical activities.
• The activities and proceedings of the whistleblower mechanism shall be reviewed by the Audit Committee.
• The listed entity shall use their functional website to disseminate details of Vigil Mechanism/Whistleblower Policy.
• The Corporate Governance Report of the company shall contain details of the establishment of the vigil mechanism or whistleblower policy and affirmation that no personnel has been denied access to the Audit Committee.

Conclusion

It is imperative to come up with ways to safeguard anyone that steps forward and speaks against illicit activities being conducted around them. The laws should not only be able to protect a whistleblower but safeguard their identity at all times and prevent them from being victimized.