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Blowing The Lid Off Corporate And Financial Scams: How The Whistleblower Protection In India Could Be A Key Factor In Tackling Bribery And Corruption

Disclosure of information in good faith and in the interest of the public is colloquially termed as ‘whistleblowing’. The information reported by a former or current employee about the act of bribery and corruption or any other wrongdoing committed by an employer, to the relevant authority is known as whistleblowing.

Although viewed negatively, this act of disclosure of information provides the primary source for detection of fraudulent behaviour in enterprises. The information exposed can pertain to any fraudulent activities, corruption, deviation from the company laws and rules, an unethical or illegal activity within a private, public or third sector companies.

Whistleblowing can be broadly categorised into two, i.e., internal and external. Although not a definite coined term, generally speaking internal whistleblowing is when an employee from an organisation discloses information about illegal activities, misconduct or wrong doing up the chain of command. This could be false claims, financial wrongdoing, environmental violation, discrimination or any other unethical or illegal activity.

Since, the report has been disclosed internally, the government does not intervene, i.e., there is no litigation or investigation per se. An action is taken by the said company and does not usually involve any third party. On the other hand, in external whistleblowing, the employee reports the illegal acts performed by the company to a third party such as a statutory body, lawyer or any other authoritative figure who is not a part of the organisation.

International perspective:
The act of whistleblowing is an essential factor to curb the actual wrongdoings in an organisation or federal agencies or even government offices. According to the 2016 OECD report, “Whistleblower Protection is the ultimate line of defence for safeguarding the public interest.”[1]

The United Nations adopted the Convention Against Corruption[2] which recognised the crucial need for a global adoption of whistleblower protection. This convention was signed by 140 countries and formally ratified by 137 countries. Various other conventions such as the African Union Convention on Preventing and Combating Corruption, Inter-American Convention against Corruption have supported the protection of whistle-blowers in International law.

The protection of whistle-blowers on an international regime can be seen in the OECD report, wherein countries such as Slovakia, Australia, Belgium, Hungary, Ireland, Korea, Netherlands, Canada, Japan, New Zealand, United Kingdom, Israel and United States have adopted the OECD Anti-Bribery Recommendations (2009) on public and private whistle-blowers and have rightly adopted certain laws that protect the same. The United States Congress passed what came to be known as the world’s first whistleblower protection law. Many countries later followed suit in the enactment of such protective laws.

The scope of protection in an internationally can vary. Countries protect either public employees or private employees or in some countries, both. Countries such as India only protect public employees, whereas Japan and South Korea protect both public and private employees. As nations evolved, the focus shifted on the protection of both public and private employees.

The qualification of public sector employees can also differ from each country. While in some countries only government employees qualify as public sector whistle-blowers, countries such as Norway, Portugal and Mexico follow an exhaustive list, wherein former employees, contractors, any suppliers and such, are eligible to seek protection as public whistle-blowers.

Protection under this law can vary from physical protection to protection of identity or confidentiality or sanctions against perpetrators of retaliation. The OECD report of 2014 found that the countries such as United States, Canada, Japan, Australia, South Korea, the Netherlands, New Zealand and the United Kingdom have the most comprehensive laws for the protection of whistle-blowers.

Although a lot of states have made significant progress, various studies show otherwise. “Breaking the Silence” noted that there was a major weakness in the whistleblower protection laws. It stated that whistleblower programs in many G20 countries suffered from “the lack of protected external disclosure channels, a lack of protection for anonymity, and a lack of dedicated oversight to receive and investigate disclosure.”[3] The BluePrint for Free Speech reported that most laws are poorly and erratically enforced and without dedicated agencies to advise, support and protect the whistle-blowers, the laws could not succeed in protecting whistle-blowers.” [4]

Regime in India:
The protection of whistleblowers in India dates back to 2001, when the Law Commission of India recommended ‘a law to protect the whistleblowers’ as a necessary tool to eliminate corruption. Further, in response to a petition filed after the infamous murder of a NHAI official, Satyender Dubey who unravelled the truth regarding corruption and the involvement of the mafia in the ‘Golden Quadrilateral Project’ of the then Prime Minister Atal Bihari Vajpayee, the Hon’ble Supreme Court of India gave directions to the central government to adopt an administrative machinery that would act on complaints from whistleblowers until a specific law was enacted.

The government followed suit and notified a resolution named ‘Public Interest Disclosure and Protection of Informers Resolution’ or PIDPIR in 2004. The power to act on these complaints was given to the Central Vigilance Commission. Recommendation for a specific law to protect whistleblowers was also recommended by the Second Administrative Reforms Commission in it’s 2007 report.

In the duties owed to the UN as a signatory to the United Nations Convention against Corruption, the Whistleblowers Protection Bill was proposed in 2011 and came into force as an act in 2014. The convention encourages states to safeguard individuals reporting of corruption by any public official and offer witness protection and other necessary protection against retaliation. The Companies Act as well as the Securities and Exchange Board of India mandates to take notice of such complaints.

Key Features of the Act:
After it’s enactment in 2014, the Whistleblower Protection Act is yet to com into force. The raison d'être of the legislation is to receive complaints about corruption or the misuse of power for any malicious intent, by an official of the government or public servants, as well as conduct inquiries based on the allegation of the complaint. The Act makes provisions the adequate safeguarding against any victimisation of the person along with maintaining their anonymity.

A public interest disclosure against a competent authority can be made by any individual including a public servant. This complaint is to be raised within a time frame of 7 years from the fact. Section 4 (1) of the 2014 Act, overrides the colonial legislation i.e., Official Securities Act, 1923. Unlike the 1923 Act, The Whistleblower Protection Act allows a complainant to make any public interest disclosure to a competent authority as long as the sovereignty of the nation remains unharmed. This being said, the Act does not provide any provision for anonymous complaints. Section 4 (6) of the Act states that ‘no action shall be taken on public interest disclosure by the competent authority if the disclosure does not indicate the identity of the complainant or the public servant making such disclosure.’[5]

Draft Rule 12.5 of the businesses Act, 2013 and Section 177(9) makes it compulsory for listed companies, companies accepting deposits from public and corporations borrowing over Rs. 50 crore from banks or public financial institutions to enact a whistleblowing policy and establish a vigil mechanism for directors and employees to report their genuine concerns[6]. A vigil committee must be established to make sure the vigil mechanism within the company and whistleblower policy is effectively implemented within the company.[7]

Furthermore, the Securities and Exchange Board of India (SEBI) amended the Principles of Corporate Governance in 2003. Clause 49 of the Listing Agreement now includes the formulation of a Whistleblower policy in Indian companies. an organization may establish a mechanism for workers to report concerns regarding unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy. However, it's currently not mandatory for companies to adopt a whistleblowing policy in situ .

2015 Amendment Bill:
The 2015 amendment bill which sought to amend the Whistleblower Protection Act, 2014 , was introduced and passed by the Lok Sabha on May 13, 2015. The bill along with some key provisions mainly focused on the prohibition of disclosure of information under 10 categories. The 10 categories include information related to: economic, scientific interests and the security of India, Cabinet proceedings, intellectual property, that received in a fiduciary capacity, and the like.[8] The bill also states that any disclosure regarding these 10 categories will be received by a competent authority and will further be referred to a government authorised body.

Analysis:
The whistleblowing policy must include stipulations which will ensure confidentiality and anonymity of the informant. The policy must also include provisions for the establishment of an indoor committee of members from each level of management to take care of potential whistleblowers.

It is interesting to observe that while there's no legal protection afforded to whistleblowers who make disclosures in connection within the private sector, most companies tend to offer such protection to whistleblowers through their internal policies and programmes. However, certain large multinational companies have adopted international best practices and included whistleblower policies[9]. Such policies are voluntary in nature, and a failure to form or adhere to such policies wouldn't normally attract any legal repercussions.

It is to be noted that, while companies ought to have a sturdy mechanism in situ for investigating and resolving whistleblower complaints, the organizations must ensure adequate protection to whistleblowers in the form of non-retaliation policies and anonymity. The policy should also take into consideration the varied jurisdictions within which today’s global companies operate and ensure compliance with laws in each of such jurisdictions.

Additionally, while the intention of the legislations and regulations are commendable, the mode of investigation into whistleblower complaints and ensuring compliance with regulations is unclear. For instance, it is unclear as to when, or at which stage of investigation, a disclosure concerning whistleblower complaint must be made before the stock market .
It is also unclear on what the procedure for conducting an internal investigation into whistleblower complaints should be. Although the Companies Act, 2013 provides that a vigil mechanism must be in situ and adequate safeguards must be taken to safeguard whistleblowers, there's no structural prescription of how such a mechanism should operate and the way investigations into complaints are required to be done.

Conclusion:
The wrongdoings within a company may result in the loss of a company’s goodwill and capital. It’s pertinent for a company to adopt a whistleblowing policy in situ for both the organization and employees. To encourage employees in raising their voices against wrongdoing and reach a said authority, a corporation must get a tailored whistleblowing policy in place.

The challenges faced by whistleblowers in India are that albeit, a whistleblower reports a fraud or perhaps if there's a whistleblower policy in situ, the perpetrators of the fraud or the upper management generally try and shut down the whistleblower and apprehension of losing their job, since most of the frauds in a company are done by the upper management or board members. Though there are certain enactments for the protection of whistleblower they always find themselves within the dilemma of selecting between professional responsibility and corporate responsibility.

Although there have been instances of whistleblower cases in India wherein, not only the workers but the middle management and higher management have also partaken in whistleblowing and reported the fraud within the organizations. Whistleblower policy and protection of whistleblowers help and motivate the whistleblower to return forward and report the incidents of fraud. If the incident is reported in time it can stop the corporate from an enormous failure.[10]

The formulation and implementation of a concrete policy can tremendously reduce chances of corruption and fraud within the internal dealings of an organization. The whistleblower policy must make sure that not only the company’s interest is protected, but a chain of free communication is established in an organization where the workers don’t feel afraid to come forward and place their grievances and concerns over the organization.

End-Notes:
  1. OECD report on Combatting corruption and promoting business integrity in state-owned enterprises: Issues and trends in national practices
  2. National Whistleblower Centre.
  3. Report by the National Whistleblower Centre (NWC)
  4. BluePrint for Free Speech
  5. The Whistleblower Protection Act, 2014 text
  6. Whistle-blowing: “50% professionals think complaints won’t be addressed” The Indian Express,
  7. Whistleblowing Policy in India: The Law and Challenges MyAdvo.in
  8. PRS Legislative Research.
  9. Nishith Desai Associates: Whistleblowing in India: Are we there yet?
  10. Whistleblowing Policy in India: The Law and Challenges

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