by Mr Suprotik Das, 2nd year, BA LLB (Hons) Jindal Global Law School
Whistle-blowing as the term suggests is a practice by which employees or directors of a company can raise issues pertaining to misconduct, violation of compliance mechanisms and fraud to internal committees in an organisation or to an external body, such as the government or law regulatory bodies.
Around the world, mainly in the United States and in the United Kingdom, whistleblowing provisions are mandatorily followed by the private sector and whistleblowers are protected. The US has the Sarbanes-Oxley Act of 2002 and the recent Dodd-Frank Act. Some of the features of the Dodd-Frank Act are –
- Financial rewards to the whistleblower;
- Strong confidentiality provisions for whistleblowers;
- Whistleblowers are allowed to report fraud anonymously; and
- By law, employers are not allowed to terminate, demote, threaten or coerce a whistleblower.
Further, the Securities and Exchange Commission Office of the Whistleblower was established under this Act to help, guide and handle complaints. Unlike the UK, India does not have a law to protect whistleblowers and most people who expose alleged fraud within companies are often victimised, threatened, terminated or even murdered.
The 2013 Act has expanded its safety net to whistleblowers by including a number of provisions.
Firstly, companies must have a strong vigil mechanism with specific policies against victimisation of people using that mechanism as described under Sections 177(9) and 177(10) of the Act.
Secondly, the vigil mechanism should operate through the internal audit committee comprising of its Board of Directors, and a minimum of three directors with independent directors forming a majority as per Sections 177(1) and 177(2) of the 2013 Act.
Thirdly, in exceptional situations, other than the requirement of displaying the mechanism on the website and including it within the board report, direct access to the chairperson of the audit committee must be granted.
However, it is crucial to observe that the 2013 Act does not define the term ‘genuine concern’ and neither delves into the procedure to be followed in ensuring this mechanism under Section 177(9). Standard practice by companies usually involves having a hotline number to report grievances or reporting grievances through email or websites.
A strict adherence to vigil guidelines have led to a greater reduction in fraud as per the KPMG India Fraud Survey, 2012. Incentivising whistleblowers for exposing potential hazards can be another mechanism by which whisteblower policies can be taken a step further.
As a conclusion, I leave the reader with some questions-
- Will a whistle-blowing protection law like the Dodd-Frank Act in the United States have an effective implementation in India?
- Would it be advantageous or detrimental to merely ‘import’ laws from the United States?
- Is it pragmatic to induce a law of a developed nation into a developing nation, wherein corruption is so rampant?
Thank you Suprotik as well as Professor Majumdar for raising these concerns. From the little that I know about whistle-blowing, I would like to contribute another additional facet of this venture, which is the political side, with respect to the functioning of the 15th Lok Sabha, which was held in February. I believe that while it might be pragmatic to bring in some the protection laws especially for people that are trying to expose corruption, what do we do about parliamentary debate that is wasted on petty issues and very little time spent on actual business issues? I think we also need reforms to make the legislature more accountable. In addition, with respect to implementation, this is a good move but we always have the risk of people in village areas (especially RTI activists such as Ram Kumar Thakur and Shimbu Ram Bishnoi who died recently) who can get killed if they get on the wrong side of the politically powerful within the village - mukhiyas and what not!. So mixed feelings on that. People that are named on the FIR of such cases don't end up getting arrested. So do we now need police reforms as well? Often the skeptical will say wait a minute, this is about corporate whistle-blowing. Why are you bringing these arguments forward? I feel this is the backdrop with which whistle-blowing operates. If the village has no justice, why would a company be any different, especially if it is connected to the politically powerful? The company cannot harass the employee, fine, but some goon hired by a political friend of the company certainly can. Satyendra Dubey was an engineer employed with the National Highways Authority who was murdered after he tried to expose corruption in road projects under his watch. In fact, Jack Palmer, the IT head of Infosys alleged that the company had been involved in visa fraud, and the parties agreed to a "settlement" with him of $35 million. Even Palmer was harassed and sidelined by the top management within the company! So can we hope for any protection for private individuals exposing corporations in a country where we can quietly dispose off people such as Ram, Shimbu and Dubey? Can Section 177(10) exactly define what a "safeguard" will be? It doesn't do enough to get rid of the whislte-blower-as-a-casualty phenomenon we have going here. Indian conditions demand something different to ensure that a company is hyperactive to a person who may being harassed or receiving threatening calls as the definition as well as the functioning of harassment takes a very different definition when it comes to India. Import laws if you will, just don't make them so vague, please.
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