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The Concept Of Whistle Blower Policy And Vigil Mechanism In India

Whistleblowing refers to the act of exposing or revealing information about wrongdoing, unethical practices, or illegal activities within an organization or government entity. It involves individuals, often employees or former employees, who come forward to report these activities to the relevant authorities, the media, or the public.

The term "whistleblowing" comes from the idea of blowing a whistle to alert others to potential wrongdoing. Whistleblowers play a crucial role in uncovering and bringing attention to misconduct that may otherwise go unnoticed. Their actions can help promote transparency, accountability, and justice within organizations and society.

The Vigil Mechanism applies to anyone who has insider knowledge of illicit activity occurring in an organisation and reports it. Employees or directors may become aware of illegal acts occurring in a corporation either through observing the behaviour or being told about it. The exposed wrongdoing can be defined in a variety of ways, including a violation of a law, rule, or regulation and/or a direct threat to public interest, such as fraud, health/safety violations, or corruption.

The main aim for introducing this concept was to safeguard the internal whistle blower in a company. This is also known as the whistle blower policy. Whistle Blower is an employee who report wrongdoing that they believe is in the public interest, it is known as whistle-blower. This policy was introduced to provide a proper safeguard to the employees or the director reporting their concerns about the wrongdoing, misconduct or violation of any code or policies in a company.

This article highlights on several aspects of the concept Vigil Mechanism like the meaning, characteristics, scope, and implementation

The main aim of this article is to understand how vigil mechanism and whistle blowing policy are carried out and followed within an organisation and how this concept is a little different from whistle blowing policy in India.

The Whistle Blower Policy is an integral part of Vigil Mechanism, which provides for adequate safeguards against victimisation of individuals who utilise such mechanism to report any concerns.

The Concept of Whistle blowing policy

It is a framework of rules and regulations for all the stakeholders of a company to report any illegal or unethical activities being carried out by anyone within the organization intentionally or unintentionally.

Who is a whistle-blower?

According to the Black's Law Dictionary a whistle-blower "An employee who turns against their superiors to bring a problem out in the open."

A whistleblower is an individual who exposes or reveals information about wrongdoing, misconduct, illegal activities, or unethical behaviour within an organization or government entity. Whistleblowers are often employees or former employees of the organization in question, but they can also be individuals with knowledge of the wrongdoing from outside the organization, such as customers, suppliers, or members of the public.

The actions of whistleblowers can lead to investigations, legal actions, reforms, or changes in policies and practices. They serve as important catalysts for positive change and hold organizations accountable for their actions.

Types of whistle-blowers:

  • Internal whistleblowing: Internal whistle-blower is a person who reports suspected misconduct, fraud, and misbehaviour up the chain of command at the person's workplace. This can involve reporting to an audit-committee. This individual is using the Vigil mechanism. This kind of whistleblowing is done by a director or an employee.
  • External whistleblowing: External whistle-blower is a person who observes any misconduct, fraud, suspected fraud, and misbehaviour who can be an employer, customer, supplier, or competitor and then reports to an outsider, a private attorney. It is the act of informing a third party, such as the police, a law office, or the media, about wrongdoing or corruption in a company is known as external whistleblowing. Whistleblowers can use a public hotline set up for exposing fraud or abuse by private enterprises or they can report directly to a government agency or prosecution.
  • Alumni whistleblowing: This kind of whistle blowing is done a former employee of the organisation or company.
  • Open whistleblowing: In this kind of whistleblowing happens when identity of the whistle blower is revealed, it is known as open whistle blowing.
  • Personal whistleblowing: When wrongdoings of an organisation harms one person only, such person disclosing the wrongdoings is called a personal whistle blowing.
  • Impersonal whistleblowing: When wrongdoings of an organisation intent to harm others, such kind is known as an impersonal whistle blowing.
  • Government whistleblowing: When information is made public about wrongdoings or unethical activities by government officials.
  • Corporate whistleblowing: Corporate whistle blowing is the practise of disclosing wrongdoings within a commercial organisation.

Characteristics of Whistle Blower Policy

  • Public Interest Disclosure - A company should work according to the interest of the public but in cases where a company goes against the interest of the public, disclosing such misconduct or suspected fraud helps people to understand the status of the company.
  • Disclosing information regarding present and past develops a sense of trust between the public and the organization.
  • Work Ethics - It is particularly important in an organization to build a sense of decent work ethics which can be encouraged by a whistleblowing policy. So that, whenever there is misconduct, misbehavior, or fraud, an individual will report immediately to save the company from undesirable situations.
  • To demonstrate to employees that the company is serious about following the rules of conduct.
  • Desired Changes - If a company does any activity that harms the employees, public, or society at large, this mechanism helps in bringing the desired changes.
  • Transparency - This policy helps in developing the sense of truth and moral values within the company and helps them achieve transparency with any decision they make.

Importance of Whistle Blower Policy:

  • This policy promotes an individual to detect a fraud or misconduct which could damage the reputation of the organisation or company.
  • This policy provides an avenue for individuals to raise concerns internally before they escalate into major problems. By allowing whistleblowers to report internally, organizations have an opportunity to investigate and rectify issues internally, potentially mitigating reputational damage or legal consequences.
  • This policy also protects the identity of the whistleblower as by assuring whistleblowers of their safety, organizations can encourage more people to speak up without fear of adverse consequences.
  • This policy promotes an individual to comply with the rules and regulations of an organisation.
  • This policy helps in ensuring that the employees working with the organisation have an ethical culture and trust towards working in the organisation.
  • This policy aids in improving an organisation's internal controls, processes, and governance mechanisms. By analyzing and addressing the root causes of reported concerns, organizations can enhance their operations and prevent similar issues from occurring in the future.

Implementation of Whistle Blower Policy

The whistleblowing policy can be approached internally and externally by:

Internal reporting:
An individual being an employee, or an outsider can report to the Committees or designated person like a compliance officer, human resources department or ethics officer made for this purpose.

Senior Management:

An individual being an employee or an outsider can report to senior management, such as the CEO or other high-level executives. This is particularly relevant when the concern involves misconduct or wrongdoing by individuals in positions of authority.

External reporting:
The policy may provide options for external reporting, allowing individuals to report concerns to external entities such as regulatory bodies, law enforcement agencies, or government authorities. This is particularly relevant when internal reporting channels are not effective or if the concern involves serious illegal activities that need immediate attention.

The Concept of Vigil Mechanism
A Vigil (Whistle Blower) mechanism provides a channel to the employees and Directors to report to the management concerns about unethical behaviour, actual or suspected fraud or violation of the Codes of conduct or policy. The provisions for vigil mechanism are given under the Section 177(9) and Section 177(10) of the Companies Act, 2013.

The main aim for introducing this concept was to safeguard the internal whistle blower in a company. This is also known as the whistle blower policy. Whistle-blower refers to an employee who reports wrongdoing that they feel is in the public interest. A genuine Whistle-blower can help a Company and its stakeholders in avoiding exposures related to fraud or misconduct. Companies Act 2013 introduced the concept of Vigil Mechanism in India.

Criminal action, such as stealing, or unethical or unjust behaviour in the workplace, such as racism, sexism, or homophobia are just a few examples of whistleblowing. For every listed company or such class or classes of companies, as may be prescribed, shall establish a vigil mechanism for directors and employees to report genuine concerns in such manner as may be prescribed under the provisions of Section 177(9) of the Companies Act,2013. A company needs to disclose details of establishment of such mechanism must be disclosed by the company on its website, if any, and in the Board's report under the provisions of Section 177(10) of the Companies Act,2013.

Characteristics of Vigil Mechanism
The process of vigil mechanism is simple a concerned director or an employee report to the compliance officer, an investigation takes place and further enquiry if made and then if the report is true disciplinary action preventive measures are taken against the person.

The vigil mechanism shall give adequate protections against victimisation of employees, directors, or whistle-blowers who use it to voice legitimate concerns or complaints. Provide the director who has been designated to serve as the audit committee for the purposes of the vigil mechanism direct access to the chairperson of the audit committee or the director acting the role of Audit Committee for the purpose of vigil mechanism. This provision also protects the whistle-blower's identity.

To the extent feasible and allowed by law, the whistle-blower's identity must be kept private. Unless the whistle blower himself has made his information public or exposed his identify to another office or authority, his identity will not be made known. The Audit Committee is empowered to take appropriate legal action in accordance with current regulations against the person or organisation disclosing the whistle-blowers identify. Confidentiality shall be maintained to the greatest extent possible.

If a director or employee repeatedly files false complaints, the audit committee or the director appointed to serve in that capacity may take appropriate action against the director or employee, including reprimand.

Scope of Vigil Mechanism

The Policy covers disclosure of any unethical or improper behaviour, malpractices, or incidents that have occurred or are suspected to have occurred involving:
  • When business ethics and integrity is violated by the authority or management.
  • When terms and conditions governing employment are not followed and are violated.
  • Deliberately occurring financial abnormalities which includes fraud or suspected fraud.
  • Non-compliance of rules and regulations.
  • Gross or Wilful Neglect endangering a material and particular risk to health, safety, or the environment.
  • When the company data or records are manipulated.
  • Theft of private or questionable information.
  • Misappropriating business funds or assets.

Implementation of Vigil Mechanism

Companies with an audit committee must oversee the vigil mechanism through the committee, and if any members have a conflict of interest in a particular situation, they must step aside and let the other members handle it. All complaints received will be thoroughly investigated by the Audit Committee. In this regard, the Audit Committee will investigate the situation and, as a result, will set the investigation's parameters and deadline. The Audit Committee has the authority to specify the specific steps of an investigation. During an investigation, the chairperson of the audit committee is entitled access any information or documents that are deemed necessary. The Audit Committee Chairman's decision is conclusive.

Companies without an audit committee must have a director appointed by the board of directors to serve in that capacity as a watchdog group to which other directors and employees can voice their concerns.

Provisions related to Whistle blower policy and Vigil Mechanism
The Whistle-blowers Protection Act, 2011:
  • This Act offers a formal procedure for members of an organisation to report any unlawful, unethical, or improper behaviour. The Act's application is, however, restricted to public employees and public sector organisations.
  • Furthermore, although being approved by both houses of the Indian parliament at the time of writing, the Whistle Blower Protection Act has not yet been implemented by the central government.
  • The Act aims to safeguard those who report acts of corruption, abuse of authority, or criminal activity by public employees in the public good.
  • Any employee of the government, as well as any other individual or group, such as a non-governmental organisation, may report such information to the Central or State Vigilance Commission.
  • The name of the complainant must be included in every complaint.
  • If it is judged essential, the Vigilance Commission may only reveal the complainant's identify to the department head. Any individual who has revealed the complainant's identity is subject to punishment under the Act.
  • For making false complaints with knowledge, the Act lays out sanctions.

The Companies Act, 2013
Section 177(9) and (10) deals with provisions of Vigil mechanism which mandates every listed company or any such class or classes of company to have a system of vigil mechanism.

According to sub-Section (9) of Section 177 of Companies Act, 2013 along with Rule 7 of companies (meeting of board and its power) Rules, 2014 following companies are required to follow these provisions and establish the vigil mechanism/whistleblower policy:
  • Every listed company;
  • Every other company which accepts deposits from the public;
  • Every company which has borrowed money from banks and public financial institutions more than Rs. 50 Crores.
  • Vigil mechanism/whistle blower policy facilitates the employees and directors to approach the chairperson of the audit committee in case of any grievance.
It provides a safeguard to such person using the victimisation of this mechanism. It also mandates a company to disclose about this mechanism on its website.

SEBI (Securities and Exchange Board of India) Regulations
Regulation 18 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations,2015 {SEBI (LODR) Regulations} inter-alia provides for a mandatory requirement for all listed companies to establish a vigil mechanism called 'Whistle Blower policy' for directors and employees to report concerns about unethical behaviour, actual or suspected fraud or violation of the company's code of conduct or ethics policy.

Further SEBI (LODR) Regulations also provides that the company should devise an effective whistle blower mechanism enabling stakeholders, including individual employees and their representative bodies, to freely communicate their concerns about illegal or unethical practices.

Need for protection to Whistle Blower in India
There have been several cases in India which proved that protection for whistle blowers is very necessary. In the case of Satyendra Dubey, an engineer working with the National Highways Authority of India was brutally murdered in the year 2003 for blowing a whistle to the Golden Quadrilateral Project of the National Highway Authority.

Few years later, in 2005 Shanmughan Manjunath was murdered as he blew in whistle screening a petrol pump that sold contaminated gasoline. He was an Indian Oil Corporation officer.

To protect such horrendous acts, the parliament provided the Whistle Blower Protection Act, 2011 which provided a safeguard to the Whistle Blower, it is framework for examining potential corruption and improper use of government workers' authority, as well as providing protection to anybody in government organisations, initiatives, and offices who reports suspected misconduct. Mismanagement, fraud, or corruption are all examples of misconduct.

Whistle Blower Protection Act, 2011 was approved by the Cabinet of India and passed by the Lok Sabha on 27 December,2014. It was assented on 9th May 2014.

This act was ought to eliminate corruption in the country's bureaucracy.

Whistleblowers can provide vital evidence and information to law enforcement agencies, helping them in their investigations and prosecution of criminal activities. By offering protection to whistleblowers, India can enhance the effectiveness of law enforcement efforts in combating corruption and other forms of wrongdoing. Protecting whistleblowers is essential for upholding good governance principles and ensuring that public resources are used appropriately and efficiently.

Whistleblowers often face the risk of retaliation, such as termination, demotion, harassment, or even physical harm. Providing legal protection to whistleblowers helps mitigate these risks, ensuring that individuals who come forward with information are not subjected to unjust treatment.

Protection of Whistleblower sends a message that reporting wrongdoing is encouraged and valued, fostering a sense of integrity and responsibility among employees, stakeholders, and citizens.

How is Vigil mechanism different from Whistle-Blowing Policy?
Vigil Mechanism and whistle-blowing policy have several similarities, but they have some difference.

Vigil Mechanism:
  • Vigil mechanism is grievance mechanism within an organisation or a company.
  • The main users for this mechanism are the directors and the employees of the company.
  • This mechanism focuses on provided a safeguard to an individual taking the victimisation of this mechanism. Can be used to report grievances like misconduct, misbehaviour, violation of any rules or regulations, working against the policies of the company and conflicts of interest, harassment, discrimination, or other workplace concerns.
  • Under this mechanism Audit committee can be approached by the director or employee and company with no Audit committee can elect one director who can act as an Audit committee for this purpose.
Whistle-blowing policy:
  • A whistleblowing policy is a formal set of guidelines and procedures established by an organization to encourage and facilitate the reporting of misconduct or illegal activities.
  • The main users of this policy need not to be an employee of the company, any outsider can also report the misconduct or misbehaviour. Whistleblowing policies often extend beyond employees and provide a mechanism for anyone associated with or having knowledge of the organization's operations to report misconduct. This can include customers, suppliers, contractors, or members of the public.
  • Whistleblowing policies are proactive measures put in place to create a culture of transparency, accountability, and ethical behaviour within an organization.
  • Under this policy Senior management, regulatory bodies, law enforcement agencies, or government authorities, Ethics Committee or Whistleblowing Committee, ethics officer, compliance officer, human resources department, or a specific hotline or email address dedicated to whistleblowing can be approached.
A vigil mechanism is a more comprehensive system or method for handling complaints and ethical problems within an organisation, as contrast to a whistleblower policy, which is a specialised policy focused on promoting the reporting of misbehaviour and unlawful actions.

Vigil mechanism, which might include a whistleblower policy, may cover a larger variety of concerns, and offer a more thorough structure for reporting and addressing complaints.

Procedure to follow Whistle-Blowing Policy or Vigil Mechanism:
  • Concerned person (only director and employees in the case of using Vigil Mechanism) shall report in writing or by an email, stating the details and relevant background with any witness in case of any misconduct, misbehavior, suspected fraud, or violation of any rules and regulations in an organization.
  • Such person shall approach the Audit committee, compliance officer, ethics officer, or any such person or committee made or appointed for this purpose.
  • After the compliance officer is informed, then an investigation takes place to investigate whether such a complaint is true or not.
  • Whistleblower will be informed of any findings after the inquiry.
  • Disciplinary action may take place after such findings, but there might be instances when no actions would take place; then, the whistleblower can contact an Executive Director, the Head of Internal Audit, or the Audit Committee Chair.
Important Cases Of Whistle Blowers In India:
Chanda Kochhar vs Central Bureau of Investigation, 2023
In the case of Chanda Kocchar and ICICI Bank, the main issue was that Kochhar family had some quid pro quo in its dealings with the now-bankrupt Videocon group. The shareholder of the company was the Whistle blower in this scenario. In addition, he made a FIR against Chanda Kochhar, the alleged perpetrator of the fraud. The Enforcement Directorate, the Central Bureau of Investigation, and the income tax authorities all started civil and criminal cases against the then-Chairman because of this, one of the most widely reported complaints in the nation. Chanda Kochhar finally submitted her resignation from the position in the year 2020.

In the case of Sun Pharma Sun's senior management, led by its billionaire founder Dilip Shanghvi, will pay a total of 2.36 crore ($323,886), the Securities and Exchange Board of India announced in a series of pronouncements, "without admitting or rejecting the findings of fact and conclusions of law." Shanghvi will cover the full 62 lakh. a whistle-blower at a major pharmaceutical firm complained to the SEBI about possible final regulatory at a firm.

Satyendra Dubey:
Satyendra Dubey, an engineer working with the National Highways Authority of India, blew the whistle on corruption and contractor fraud in the Golden Quadrilateral highway project. He sent a letter to the Prime Minister's Office detailing the irregularities. Unfortunately, his identity was leaked, and he was tragically murdered in 2003. His case brought widespread attention to the need for whistleblower protection in India.

Satyam Scandal:
The Satyam Computer Services scandal, which became known in 2009, involved the company's founder and chairperson, B. Ramalinga Raju, admitting to massive financial fraud and manipulation of accounts. The scandal was exposed by an anonymous whistleblower who sent a letter to the Securities and Exchange Board of India (SEBI) and other regulatory authorities. The case resulted in a major investigation, Raju's arrest, and significant reforms in corporate governance practices.

Vyapam Fraud:
The Vyapam fraud, also known as the Madhya Pradesh Professional Examination Board (MPPEB) fraud, involved a massive admission and recruitment scandal in the state of Madhya Pradesh. Several individuals, including whistleblowers, exposed the irregularities, cheating, and corruption within the recruitment process of government jobs and educational institutions. The case led to numerous arrests, criminal investigations, and reforms in the examination system.

Manjunath Shanmugam:
Manjunath Shanmugam, an Indian Oil Corporation officer, blew the whistle on adulteration of fuel and corruption within the oil industry. He was shot and killed in 2005 for his actions. His case drew attention to the issue of fuel adulteration and the risks faced by whistleblowers in India.

Vigil Mechanism is made mandatory in companies to have a good corporate governance. Over time many changes have been seen with these provisions and encourage employees to raise their concern regarding any misconduct or any violation of code or policies which is against the object of the company. There are several sets of rules provided under SEBI regulations to safeguard the employee or the director raising concern about a misconduct or fraud. Whistle-blower policies are useless if they are not effectively explained to employees. Workers will be informed via email and the company website.

A good whistleblowing can be serves several important purposes like encourage reporting concerns or wrongdoing without fear of reprisal, protection against retaliation, promotes accountability and corrective actions, helps in continuous improvement, and helps to establish transparency and communication. It should provide clear guidelines, robust protection for whistleblowers, and effective mechanisms to address and rectify reported concerns.

  1. Companies Act, 2013
  2. Chanda Kochhar vs Central Bureau of Investigation, 2023
  3. M/S. Satyam Computer Services vs Directorate of Enforcement, 2018
  7. The Whistle-blowers Protection Act, 2011
  8. Black's Law Dictionary
  9. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

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