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Stronger safeguards the need of the hour, extend whistleblower provision: Experts

Current provisions of the Companies Act only require listed companies, firms that accept public deposits and firms that have loans from banks or public financial institutions of over Rs 50 crore to have a vigil mechanism.

Written by Karunjit Singh | New Delhi | Updated: December 20, 2020 2:11:09 am
Experts also note that the 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. (Representational Image)

India needs to strengthen safeguards for corporate whistleblowers and extend the requirement of a vigil mechanism to large private companies, as per experts. Current provisions of the Companies Act only require listed companies, companies that accept public deposits and companies that have loans from banks or public financial institutions of over Rs 50 crore to have a vigil mechanism to address whistleblower complaints.

The Delhi High Court is currently hearing a writ petition, which has challenged the Constitutional validity of the existing provisions of the Companies Act. Experts noted that large private sector companies, including subsidiaries of large multi-national corporations, should also be required to have vigil mechanism.

“… for the benefit of employees and stakeholders, the regulators may consider expanding the coverage of entities for vigil mechanism compliance to a section of private companies based on some criteria such as number of employees or turnover, etc,” said Madhu Sudan Kankani, partner at Deloitte India, adding there was a growing view that large private sector companies needed to be regulated differently from small private sector companies.

Ankit Singh, lawyer at Corporate Professionals, also said the government should consider requiring private sector companies above a certain threshold of turnover or employees to set up a vigil mechanism, noting: “It is important that the law empower citizens to come forward if they have evidence of unethical conduct within the organisation.”

The Corporate Affairs Ministry, in a response to the petition seeking extension of the requirement of a vigil mechanism to private companies, stated in an affidavit before the Delhi High Court that corporate governance voluntary guidelines issued in 2009 provided that companies should ensure the institution of a mechanism for employees to report concern about unethical behaviour, actual or suspected fraud, or violation of the companies code of conduct or ethics policy. These guidelines are not, however, binding on companies.

Experts also note that the 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.

Tishampati Sen, a lawyer representing the petitioner, said the law should require a permanent internal committee and specify directions on the functioning of the committee. Current provisions do not provide any guidelines on the functioning of the vigil mechanism for companies, but state that the mechanism should provide for “adequate safeguards against victimisation of persons who use such mechanism and make provision for direct access to the chairperson of the audit committee in appropriate or exceptional cases.”

Madhu Sudan Kankani of Deloitte India said regulating the functioning of vigil mechanisms posed a risk of over-regulation and micro-management. He added the government should consider “issuing guiding principles on the framework of the vigil mechanism such as internal reporting to and review by audit committee, timelines for addressing grievances and consideration by the board on nature and number of open matters and outcomes of resolved matters etc.”

Experts noted that 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 for the whistleblower to pursue. Parties filing civil suits are required to first pay court fees, typically amounting to around 1 per cent of damages claimed.

“There are enough avenues for whistleblowers to seek redressal including through the Indian Penal Code, civil suits and anti-corruption branches,” said a CII spokesperson, adding while the industry was in favour of protecting genuine whistleblowers, there was a need for a deterrent against frivolous complaints.

The Corporate Affairs Ministry did not reply to emailed requests for comment.

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