Effective corporate governance in a company can be ensured by having complete transparency in internal and external dealings of the corporate. Transparency can be cemented in the company’s affairs through active management and strong policies in place. A disclosure system needs to be employed to detect internal fraud and corruption in the company and have a quick mechanism to deal with it. However, when a company does not have such a mechanism in place, it may have to deal with whistleblowing in the future.
What is Whistleblowing?
Whistleblowing means when an employee makes fraud, corruption, and wrongdoing in an organization known to the public. A whistleblower in India is a current or ex-employee who exposes information regarding what is believed to be fraud, corruption or deviation from the company rules and company law India. The employee discloses what they believe to be the unethical or illegal behavior of higher management.
The whistleblower policy in India is aimed to safeguard the interest of the general public. Employees who reveal fraud, corruption or mismanagement to the senior management are called internal whistleblowers. Employees who report fraud or corruption to the media, public or law authorities are external whistleblowers. Indian whistleblowers are protected under the Whistleblower Protection Act India.
Law dealing with whistleblowing in India
Laws relating to whistleblowing and protection of whistleblowers are inadequate in India. However, the Companies Act, 2013 lays down provisions for whistleblowing and corporate governance in India and the elimination of fraud by establishing adequate vigil mechanism. Sections 206 to 229 of the Companies Act, 2013 lay down laws relating to Inspection, Inquiry, and Investigation incorporate.
Section 208 of the Act empowers an Inspector to inspect company records and furnish any recommendations to conduct investigations. Section 210 states that the Central Government may order an investigation into the affairs of the company in the following cases:
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On receipt of a report by Registrar or Inspector of the company.
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On intimation of a Special Resolution passed by a company that the affairs of the company must be investigated.
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To uphold the public interest.
The Serious Fraud Investigation Office (SFIO), a statutory body is created under Section 211 of the Act which has the power to arrest any person for fraud in the company. The auditors have the responsibility to report to the Central Government if they have reason to believe a fraud committed or being committed to the company.
Draft Rule 12.5 of the Companies Act, 2013 and Section 177(9) makes it compulsory for listed companies, companies accepting deposits from public and companies borrowing more than Rs. 50 crore from banks or public financial institutions to have a whistleblowing policy and establish a vigil mechanism for directors and employees to report their genuine concerns. A vigil committee has to be set up to ensure the vigil mechanism in the company and whistleblower policy is effectively implemented in the company.
Additionally, 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. A company may establish a mechanism for employees to report concerns regarding unethical behavior, actual or suspected fraud or violation of the company’s code of conduct or ethics policy. However, it is currently not mandatory for companies to have a whistleblowing policy in place.
The Whistleblower Protection Bill, 2011 which replaced the Government Resolution, 2004 has not come into force yet. The bill aims to balance the need to protect honest officials from undue harassment with protecting persons making a public interest disclosure.
Shortcomings or wrongdoings in a company may lead to a loss of the company’s goodwill and capital. It is important for every company to have a whistleblowing policy in place for both the organization and employees. To encourage employees in raising their voices against wrongdoing and reach the appropriate authority, a company must get a tailored whistleblowing policy through an experienced corporate lawyer.
The whistleblowing policy must include stipulations that will ensure confidentiality and anonymity of the informant. The policy must also include provisions for the establishment of an internal committee of members from each level of management to deal with potential whistleblowers.
For more queries or confusion regarding the whistleblowing policy in India, ask for expert legal advice from us now!
The formulation of concrete policy and its effective implementation can tremendously reduce the risk of corruption and fraud in the internal dealings of a company. The whistleblower policy must ensure that not only the company’s interest is protected, but a chain of free communication is established in an organization where the employees don’t feel afraid in coming forward to put forth their grievances and concerns over the internal organization.
However the challenges of whistleblowing in India are that even if a whistleblower reports a fraud or even if there is a whistleblower policy in place the perpetrators of the fraud or the higher management generally try to shut down the whistleblower and they also have this apprehension that if they report the fraud they will be at the risk of losing their job as most of the frauds in an organization are done by the higher management or board members. Though there are certain enactments for the protection of whistleblower they always find themselves in the dilemma of choosing between professional responsibility and organizational responsibility.
There have been instances of whistleblower cases in India wherein not only the employees but the middle management and higher management has also been a whistleblower and reported the fraud in the organizations. Whistleblower policy and protection of whistleblowers help and motivate the whistleblower to come forward and report the incidents of fraud. If the incident is reported in time it can stop the company from a big failure.
Need to get a whistleblowing policy made in India? Talk to the best Corporate lawyers at MyAdvo. Email us at info@myadvo.in or call now at 9811782573.
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