“The World will not be destroyed by those who do evil, but by those who watch them without doing anything”
Very often, individuals commit wrongs in order to fulfill their selfish motives at the cost of public interest. Additionally, those who see such individuals commit wrongs often fail to report the same owing to social pressure or a threat to job security or a threat to their life. The term ‘Whistleblower’ originates from a German word ‘whistle’ which means to expose wrongdoing in the hope of bringing it to a halt. Whistleblowing refers to the act of reporting such wrongdoings and frauds within an organization to the appropriate authority in order to keep such wrongdoings under check.
Whistleblowing is an action aimed at drawing the attention of stakeholders to instances of unethical practices in an organization. Any person who exposes malpractices in an organization is termed as a whistle-blower. Whistle-blowers in India are given protection under the Whistle Blowers Protection Act, 2014. This Act gives them the protection of identity in order to avoid victimization of such persons. However, this act is applicable only to public servants. Further, the Whistleblowers (Amendment) Bill, 2015 was not passed by the Rajya Sabha and therefore lapsed. A similar approach was adopted in the Companies Act, 2013 read with Companies (Meetings of Board and its Powers) Rules, 2014. All listed companies and companies accepting deposits from the public and those borrowing in excess of Rs. 50 crores from banks or public financial institutions are required to have a whistle-blowing policy coupled with a vigil mechanism in place. This mechanism is aimed to prevent victimization of employees or directors who report their concerns.
Prior to the formation of law in this regard, there were multiple cases where the whistleblowers were shot to death or brutally murdered for exposing the illegal acts. One such case was of Satish Shetty who was an RTI activist in Pune who had exposed land scandals. He was murdered by men on his morning walk routine. Similarly, in 2003 Satyendra Dubey (a project engineer with NHAI) exposed corruption in the Golden Quadrilateral Project in Bihar and was subsequently shot dead.
In addition to the aforementioned provisions of the Companies Act, 2013, the Securities and Exchange Board of India (SEBI) has mandated every listed entity to have in place a whistle-blower policy. SEBI has, with effect from December 2019 introduced a reward mechanism for incentivizing ‘Informants’ to report a violation of insider trading laws to SEBI. Further, the recently introduced Companies (Auditor’s Report) Order, 2020 (‘CARO’) is aimed at strengthening the corporate governance framework by way of increased due diligence and disclosures as a part of auditors of eligible companies. One of the disclosures to be made in this regard is in relation to the whistleblower complaints received during the year by the company.
Despite the adequate amount of laws in the country with regards to whistleblowing, there are a number of other complexities that hinder the smooth functioning of this framework. The substantial gaps in the framework in this regard pertain to unethical practices like bribery and private sector kickbacks. Additionally, a number of private and unlisted public companies, under their whistleblower mechanism impose an obligation on employees to disclose wrongdoings but take no corrective measure once the disclosure is made.
Even in large companies where whistleblower policies are in place, whistle-blowers are often at risk of losing their jobs and their life. In 2010, Rajan Nair (head of security at Cadbury India) alleged that the company had illegally built a unit in Baddi in order to avoid taxes. When the top-level management did not respond, he approached the Securities Exchange Commission where the company settled the matter by way of bribery and neither admitted nor denied the charges. However, Nair faced enormous problems while trying to seek employment thereafter.
Whilst victimization of employees is a major threat, another major challenge with respect to the whistleblowing framework pertains to frivolous complaints. Often, employees in an organization register baseless allegations and frivolous complaints which pose a great threat to the brand image of the company that takes years to build. One such example is in the case of Infosys in 2019, where, owing to a complaint filed by a whistle-blower from the finance department against the CEO Salil Parekh, the stock of the company fell by 16% on the day the letter was leaked to the media. The letter alleged that Mr. Parekh was bypassing reviews and approvals for large deals. It added that the CEO & CFO were pressuring the finance team to show more profits than in the treasury management by taking risks and making changes to the policy. The Audit Committee of Infosys conducted a detailed investigation and concluded that the aforementioned complaint was “without substantial merit”. When such complaints gain public attention, they entail largescale speculation which often leads to a large amount of loss of goodwill for the company. The current legal framework with regards to whistleblowing is based upon the assumption that whistleblowing is always done in a bonafide manner. There is absolutely no remedy available to a company that is a victim of malafide complaints.
It is important to acknowledge that a dilemma always exists at the time of framing a whistle blower policy which lies in making a choice between professional responsibility and organisational responsibility. The management will try to cover up the deficiencies in the company to prevent degradation of the brand image of the company, even if they have to sack responsible employees for this reason. On the other hand, it is highly probable, that vindictive employees would try to file frivolous complaints in order to get back at their senior level employees which could cost the organisation billions of rupees. While ensuring victimization of the whistle blower does not occur, it is also extremely important to ensure that victimisation of the organisation does not take place. It is also important to note that whilst specific classes of companies prescribed under Companies Act, 2013 are required to lay down a whistle blower policy/vigil mechanism, the remaining private, unlisted companies have no such requirement. CARO 2020 is a step to fill this lacuna in the law. Whilst the Companies Act, 2013 and rules thereunder prescribe the requirement for a mechanism, clarity on the manner of implementation of the mechanism and investigation would be welcome.