Strengthen Safeguards for Whistleblowers

• 22 Dec 2020

Why in News

Recently, experts have highlighted the need to strengthen safeguards for corporate whistleblowers and extend the requirement of a vigil mechanism to large private companies in India.

Key Points

• Background:
  
  • The Delhi High Court (HC) is currently hearing a writ petition, which has challenged the constitutional validity of the existing provisions of the Companies Act 2013.
  • Current provisions only require listed companies to have a vigil mechanism to address whistleblower complaints.
    
    • These companies are those which accept public deposits and companies that have loans from banks or public financial institutions of over Rs. 50 crore.
• Concerns Highlighted:
  
  • Absence of any specific guidelines on the functioning of a vigil mechanism has led to companies not ensuring that whistleblower complaints are addressed in a timely manner.
  • Current provisions do not provide any guidelines on the functioning of the vigil mechanism for companies.
  • Companies were able to retaliate against employees raising whistleblower complaints and even terminated their employment as any civil suit for such actions could be too expensive and time-consuming.
    
    • Parties filing civil suits are required to first pay court fees, typically amounting to around 1% of damages claimed.
• Suggestions:
  
  • Private sector companies above a certain threshold of turnover or employees should set up a vigil mechanism.
  • Large private sector companies, including subsidiaries of large multinational corporations, should be regulated differently from small private sector companies and should be required to have vigil mechanisms.
  • The law should require a permanent internal committee and specify directions on the functioning of the committee.
    
    • For that, the government should consider issuing guiding principles on such as internal reporting to and review by the audit committee, timelines for addressing grievances and consideration by the board on nature and number of open matters and outcomes of resolved matters, etc.
    • However, regulating the functioning of vigil mechanisms pose a risk of over-regulation and micro-management.
  • The mechanism should provide for “adequate safeguards against victimisation of persons who use such mechanisms and make provision for direct access to the chairperson of the audit committee in appropriate or exceptional cases.
  • There was a need for a deterrent against frivolous complaints.

Whistleblowing

• According to the Companies Act, whistleblowing is an action aimed at drawing the attention of stakeholders to instances of unethical practices in an organization.
• A whistleblower can be anyone who chooses to expose wrong practices and has evidence to support the allegations.
• They can be either from within or outside the organization, such as current and former employees, shareholders, external auditors, and lawyers.
• In India, whistleblowers are protected by the Whistleblowers Protection Act, 2014.
  
  • It provides for the protection of their identity and also has strict norms to prevent their victimization.
• In January 2020, the Securities and Exchange Board of India (SEBI) came out with a new mechanism to reward whistle-blowers and other informants for sharing information about insider trading cases.

Way Forward

• Suitable legislation must be enacted to provide protection to innocent whistleblowers and strengthening of the whistleblower protection mechanism will help in ensuring that the integrity of democracy is protected, cherished and upheld.
• It is important that the law empower citizens to come forward if they have evidence of unethical conduct within the organisation.

Source: IE