Corporate Governance and Whistle Blowing Policy

Sneha

Introduction

The terminology ‘whistle blowing’ is a moderately ongoing passage into the lexicon of corporate and money related issues, even though the idea itself isn’t new. Whistle-Blowing can be understood as raising a worry of bad behaviour in an association. A Whistle Blower in a common man’s dialect can be attributed as a human personality (worker/previous representative) who helps to discover data with respect to what he accepts to be bad behaviour, extortion, debasement, deviation from the prescribed standards or mismanagement.

Furthermore, there is a huge ongoing debate whether the demonstration of whistle blowing, is a demonstration of worker aberration. Albeit a few associations may see whistle blowing as analogous, this impression can’t be summed up. The advisable is not to consider whistle blowing as an activity of discrepancy till information which is against, is provided in the matter. The companies should motivate their employees to raise an alarm in case they find any violation of rules and procedures and do intimate about any possible harm to the interest of the organization and society.

Corporate Governance (Cg) & Whistle Blowing

According to The Institute of Company Secretaries of India (ICSI), Corporate Governance is described as “The application of best management practices, compliances of law in letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders.”[1]

Whistle blowing can be viewed as peculiar corporate governance. Whistle blowing is of primary importance and plays a demanding role in Corporate Governance Practices. Initially, whistle blowers were left alone by social groups not only were they assumed to be big mouths, but their mind frame was also considered sceptical and revengeful. Since numerous corporate scams were unearthed by corporate employees, the perspective of the public towards whistle blowers gradually turned positive. Whistle blowers are held in high esteem and they inject energy into restructuring the Central Government. Once Macey states, “Whistle blowers are now thought of as an integral component of the recently regulated system of corporate governance that is supposed to result in better monitoring and control of managerial misconduct (agency costs) in large publicly held corporations.”[2]Looking at recent malpractices committed by managers and cooperative entities, it is argued that employees are the most efficient device to do internal control and to detect corporal illegitimacy when the scheme of corporate administration has fallen. Employees involved in whistle-blowing, for sure, have an important function to discover corporate misbehaviour.

Meaning of the Expression Whistle Blowing

US Academicians Miceli and Near (1984)[3] defines Whistle blowing as “the disclosure by organizational members (former or current) of illegal, immoral, or illegitimate practices under the control of their employees, to persons or organizations that may be able to effect action”.

International Labour Organization (ILO) also defines whistle blowing as “the reporting by employees or former employees of illegal, irregular, dangerous or unethical practices by employers”.

In fact, whistle blowing is the manifestation, in respect of some representative or previous worker, of unveiling some piece of data/information which he accepts to be deceptive /unlawful conduct, to upper level administration (referred to as internal whistle blowing) or to an outside expert or people in general (referred to as external whistle blowing).

The definitions altogether convey the notion that whistle blowing involves at least four elements:

  1. the individual who is blowing the whistle;
  2. the complaint or the misdeed to be reported;
  3. the corporation, person or group of people who is/are committing the malpractice; and
  4. the superior or entity who receives the complaint.

Simply put, whistle-blowing is a practice and isn’t to be an individual occasion. What one can make out is that this activity has four critical facets which include the informant, the objection or disclosure, the gathering to whom the protestation or disclosure is made and the association against which it is made.

Whistle blowers: “A Cognizant Class of Persons”

A Whistle Blower is anyone who has and reports insider knowledge of illegal activities occurring in an organisation. They can be employees, suppliers, contractors, clients or any individual who becomes aware of the illegal conduct taking place within the company.

Many times the Whistle Blowers are within the organization and they report the misconduct of a fellow employee or a superior. He/she may communicate the illegal activities to their supervisor. The supervisor then follows the laid down protocol and takes up the matter with the relevant authorities. This type of Whistle Blowing is termed as internal. Such a system can prosper if there are complaint systems that keep the identity of the employee confidential.

External or outside whistle-blowers address the corrupt practices to outside entities or people not directly associated with the company. Depending upon the severity of the data or the information to be reported, whistle blowers may contact lawyers, media houses, watchdog agencies or other local state or national governmental bodies. To a certain extent, external whistle blowing is promoted by offering pecuniary benefits.

This aspect cannot be overlooked due to its negative impact on both workers and organization. “For instance, in one recent review of whistle blowing incidents it was found out that among the whistleblowers surveyed, 62% lost their jobs, 18% felt that they were harassed or transferred, 11% had their job responsibilities or salaries reduced, 51% of the incidents resulted in external investigations of the companies involved, 37% in management shake-ups, 22% in criminal investigations, and 11% in indictments.”[4]

A whistle blower communicates the wrongdoings as he /she is neither empowered adequately to rectify the reported organisation’s actions. Personal temperament of an individual determines to a very great extent, whether he/she would blow the whistle or not. Observers with low revere may be callous about most of the corporation’s activities thereby they are less likely to blow the whistle than with persons with profound self-esteem[5]. People with the high inner locus of control see an illicit movement as a demonstration that they don’t endorse and will probably blow the whistle dissimilar to people with the high outer locus of control that see the flaw go about as controlled by intense bosses who can’t be hindered.

Corporate employees can be used as an effective measure to monitor company’s operation and oversee the management. However, observing recent corporate corruption, the lower or middle level of employees indeed plays a significant role in disclosing employers’ misconduct due to their familiarity of business operation.  Professional employees are able to perceive and recognize erroneous data immediately and detect whether corporate actions have fallen outside the legal ambit.[6] Hence, it can be said that employees are the persons to judge the mismanagement and any illegal actions committed by the management.

Exigency for Incorporating a Whistle Blowing Policy

Corporate whistle blowing globally considered as one of the best tools to ensure good corporate governance.  As per a recent study released by ASSOCHAM-Ernst & Young[7], whistle-blowing is being used in a very limited manner by India Inc for fraud prevention. The report said, “Most frauds result in some form of business disruption as well as reputational and financial losses. Whistle-blowing is still at a nascent stage in India, and most Indian companies do not use it as an effective tool against fraud.”

“Whistle blowing is an important aspect that has the inherent power to mitigate a crisis-like situation. The whistleblower’s revelation needs to be handled correctly and promptly for sustained value creation in the organization.” says Kumar Bimal, Vice President, Marketing, Sonalika Group[8]. All business entities often face difficulties while adopting an appropriate level of segregation of duties making a whistle blower policy a good mitigating tool. The Whistle blower policies effective implementations not only reduce the fraudulent activities but also send a signal to both internal and external agencies that organisations exercise good corporate governance which is beneficial to the organization as well as all the stake holders. It cannot be disputed that many large corporate frauds have come to limelight only through an insider’s revelation or a confession, and not through an audit report or a regulatory investigation. It thus becomes very essential to provide to the whistleblower a smooth route for his revelation through an efficient whistle blower policy. The association needs to guarantee that there is a simple course to raise concerns, generally either the work force will wind up a quiet, or if the outrage turns out in the general population, it will turn out in the most dangerous way.

The formal policy of an organization essentially consists of its responsibility to develop an effective whistle blowing policy. The main aim behind this whistle blowing policy is to analyze risk and to remove it through an efficient process. The kind of risks here would include malpractices, fraud or corruption, illegal offences, etc.

The authors try to assess the viability of whistle blowing policies by taking examples of such policies established by two prominent corporations. The whistle blowing policy as formulated and applied by Berger Paints, India is a well-developed and channelized whistleblowers policy. It does not just coordinate any grievances with respect to the infringement of the Code of Conduct of the organization, yet in addition, determines the outcomes and states that inability to report is additionally an infringement of the strategy. Most whistle blowers rank amongst the most productive, valued, and committed members of their organizations. Several studies show that most whistle blowers are normal people who have a strong conscience pragmatic evidence and most whistle blowers are committed to the formal goals of their organization, they identify with the organization, and they have a strong sense of professional responsibility.

The entire hierarchy of leadership, from an employee to director, is permitted to report any infringement of the strategy. Cheats, harassment’s, separation, misappropriation of cash are a couple of the numerous sorts of infringement that can be accounted for.

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One of the key precepts of viable corporate governance is the capacity of an organization to propagate transparency. Accountability and transparency are fortified not simply by effective administration and extensive disclosure mechanisms, yet in addition by the making of frameworks and procedures to identify and address internal instances of misrepresentation, fraud and other corrupt practices.

Whistle blowing has constantly assumed an unmistakable part in influencing organizations to take caution and be aware of employee’s behaviour and also keep a vigil on the internal processes and procedures that are being adopted. The presence of this class of facilitators is well perceived in the Indian Legislative Arena. Under Section 177(9) of the Companies Act, 2013, it is required for each listed company to set up a cautious system for Key Managerial Persons (KMP) and employees. Besides it, the revised provision 49 of the Listing Agreement, makes it obligatory on the company to establish an effective and efficient whistle blower mechanism with enough safeguards and protective rules against exploitation of the victims.

While companies have a whistle blowing policy, they are still unable to utilize it effectively to detect frauds. The primary reason is a poor response from employees. For most companies today, whistle blowing is perceived as ‘yet another measure to implement’ as part of the larger fraud risk management efforts and, hence, it gets relegated to a tick in the box. Organisations must understand that whistle blowing is, perhaps, the only tool that comes close to pointing out fraud in its nascent stages. It is, therefore, important to build, monitor and nurture this channel continuously. Data from the whistle-blower hotline needs to be continuously monitored and integrated into the larger fraud risk management systems so that even small irregularities can be detected early.Majority of Indian companies usually invest little time and resources on building robust whistle blowing systems or training employees on the existence and use of such a system. Often, hotlines are either not functional or available through multiple access points. What is worse, hotlines fail to promise confidentiality to users and in several instances, there are no dedicated teams to run these hotlines. Often, the person managing the hotline either has a full time administrative or human resources responsibility.

Whistle Blowing Policy and Relevant Legislations in India

The Companies Act, 2013 whilst Whistle-Blowing

Although the enactment in India particularly identifying with whistle blowing and insurance of whistle blowers is insufficient, the making of Companies Act, 2013 is a stage toward powerful corporate administration. With the development of the Companies Act, 2013, the push has been towards fraud elimination and constituting of a compelling corporate vigil mechanism. The Companies Act, 2013, was formulated in the aftermath of various corporate scandals. It aimed at eliminating loopholes by prescribing stricter compliance and disclosure norms than were being earlier imposed.

Pertinent Sections of the Companies Act, 2013

Sections 206-229 of the Companies Act incorporate in detail all the provisions under a single head relating to “Inspection, Inquiry and Investigation”. Section 208 of the Act requires the registrar or the inspector to submit a report to the Central Government after inspection of books of accounts and such report may include recommendations that further investigation into the affairs of the company is necessary giving reasons in support.

Section 210, on the other hand, empowers the Central Government to order an investigation into the affairs of the company either on the report of the registrar or on a special resolution passed by a company or in public interest. But where an order is passed by a Court or Tribunal stating that the affairs of a company ought to be investigated the Central Government shall order an investigation into the affairs of that company. Besides, The Serious Fraud Investigation Office (SFIO) is currently a statutory body built up under Sectiont 211 of the Act with the ability to capture for offenses determined as a fraud. Also, it is important to note that previously, auditors did not have to legally ascertain whether fraud had occurred or not. They were to primarily report material related to fraudulent reporting and/ or misappropriation of assets. There is now onerous responsibility on auditors to act as whistleblowers by reporting directly to the Central Government if they have reason to believe fraud is being or has been committed against the company by its officers or employees.

The Companies Act, 2013 under draft rule no. 12.5 read with Section 177(9) has made it mandatory for, a) listed companies; b) companies that accept deposits from public; and c) companies which have borrowed money from banks or public financial institutions in excess of rupees 50 crores to establish a vigil mechanism for directors and employees to report their genuine concerns. As per the said provisions, the companies which are required to constitute a vigil committee shall operate the vigil mechanism through its audit committee and in case of other companies, the board of directors is obligated to nominate a director to play the role of an audit committee. The simple explanation for setting up of a vigil system in an organization is to discount conceivable outcomes of misappropriation of assets of an organization or some other demonstration, in which partners’ or open intrigue is included.

Schedule IV read with section 149(8) of the Companies Act, 2013 sets out the code to proficient lead for independent directors. The duties of independent director elaborated in Part III of Schedule IV include ascertaining and ensuring that the company has an adequate and functional vigil mechanism and that the interests of the persons using it are not harmed. The task of reporting concerns over improper behaviour, actual or suspected fraud or any encroachment in the company’s code of conduct or ethics policy is authorized with the independent directors. Such changes made by the Act concerning administration, straightforwardness, revelations, the situation of the genuine fraud examination office and so on under Section 211 of the Act is relied upon to influence organizations to move from being self-satisfied to assuming consistent parts.

The Companies Act, 2013 thus has mentioned the concept with respect to higher accountability standards to be maintained by companies. Further, Clause 177 (9) of the Act requires that every listed company or such class or classes of companies, as may be prescribed, shall establish a vigil mechanism for directors and employees to report genuine concerns in such manner as may be prescribed. The vigil mechanism shall provide for adequate safeguards against victimization of persons who use such mechanism and make provision for direct access to the chairperson of the Audit Committee in appropriate or exceptional cases. Within the legal framework specified above, companies should look to formulate and implement their own whistleblower policies. Several large organisations have already implemented the same. A committee set up to investigate the alerts raised by whistleblowers should investigate such disclosures. A non-executive director could act as an ombudsman and take charge of such an investigation. The whistle blower policy of the company should be under the ambit of the Audit Committee. The identity of the whistleblower and any other employee investigating the matter should be protected. If the disclosures are found to be true, suitable action should be taken and efforts should be made to protect the whistleblower. The action that it takes should be adequate and should act as a deterrent against such offences in the future. The policy should be such that it encourages such disclosures to be made but ensures that frivolous accusations do not become a means to harass senior management.

SEBI and Whistle-Blowing

The Securities and Exchange Board of India (‘SEBI’) vide its round dated August 26, 2003, altered the Principles of Corporate Governance consolidated in the standard Listing Agreement. Condition 49 of the Listing Agreement to the Indian stock trade presently likewise says the plan of a Whistle-blower approach for organizations. Following is the text from Annexure I-D of the Clause 49 of the Listing Agreement:

“The company may establish a mechanism for employees to report to the management concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy. This mechanism could also provide for adequate safeguards against victimization of employees who avail of the mechanism and provide for direct access to the Chairman of the Audit committee in exceptional cases. Once established, the existence of the mechanism may be appropriately communicated within the organization.”[9]

At present, a listed company in India can set up as a non-compulsory prerequisite, a whistle blower component for workers to report their worries about deceptive conduct, genuine or associated misrepresentation or infringement with the organization’s set of principles.

However, it was initially not mandatory for companies to have a whistle blowing policy in place, but the market regulator has made it compulsory since 2014 to have an effective Whistle Blower Policy in place. It may be noted that MCA Voluntary Guidelines also has a similar requirement.

“The companies should ensure the institution of a mechanism for employees to report concerns about unethical behaviour, actual or suspected fraud, or violation of the company’s code of conduct or ethics policy. The companies should also provide for adequate safeguards against victimization of employees who avail of the mechanism and allow direct access to the Chairperson of the Audit Committee in exceptional cases.”[10]

Other than this, the organization additionally has a compulsory prerequisite to unveil, in its give an account of corporate administration, the degree of appropriation of such non-obligatory practice. Further, the guiding principles of corporate governance enlisted by MCA stress the need to have well laid out Whistle-Blower Policy mechanism. The need for effective legislation is essential in India with the growing number of scams related to corrupt practices in the corporate arena. There are global legislations in place, which protect whistleblowers such as The Public Interest Disclosure Act, 1998, in the UK (which protects 24 whistle blowers from victimization and dismissal) and the Sarbanes Oxley Act, 2002 (which provides for the protection of whistle blowers and is applicable even to employees in public listed companies). It is a delight to observe that number of companies have started to embrace the habit of developing a whistle-Blower Policy either chasing to uphold the highest corporate governance standards or in the fear of being regarded as late entrants to the ‘well-governed companies’ group.

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One may look at the example of HCL, which has adopted a whistle blower policy to afford appropriate avenues to the employees, contractors, clients, vendors, internal or external auditors, law enforcement / regulatory agencies or other third parties to bring to the consideration of the management any issue which is identified to be in infringement or in conflict with the essential business principles of the company. The employees are encouraged to raise any of their concerns by way of whistle blowing. All cases registered under the whistle blower policy of the company are reported directly to the CEO.[11]

The Whistle Blower Protection Act, 2014

This dialogue between Judiciary and Government lead to the framing of Whistle-blowers Protection Act, 2011 – which was passed by Lok Sabha in 2011, Rajya Sabha in 2014 and finally enacted after President’s assent in 2014. Post its enactment it has gone through few amendments in 2013 and 2015.

The act aims at providing a mechanism to encourage persons to disclose information on corruption or wilful misuse of power by public servants including ministers. Adequate protection will be given to persons reporting corruption or wilful misuse of discretion, which causes a demonstrable loss to the government, or commission of a criminal offence by a public servant. The act punishes persons making false complaints thereby protecting honest officials from undue harassment.

The Act replaces the 2004 government determination which gave the Central Vigilance Commission (CVC) the ability to follow up on grievances from informants and sets up a component to get objections of debasement or wilful abuse of intensity by an open worker. It aims to balance the need to protect honest officials from undue harassment with protecting persons making a public interest disclosure. Section 4(6) of the Act, bars capable experts from inquisitive into mysterious objections and made it required for all complainants making the divulgence to uncover their actual personality. The practice of anonymous whistle blowing was being legitimised by Supreme Court of India on 20th November 2014 as it can prove to be a great boon for unidentified whistle-blowers in India.

Comparative Analysis between Whistle Blower Protection Act 2014 and Proposed Whistle Blower Protection Amendment Bill 2015:

The proposed Bill contains certain amendments related to the grounds of Disclosure of Information where the grounds have been widened up than the Act of 2014, also based on applicability where according to the proposed amendment the disclosure cannot be made if Official Secrets Act, 1923 prohibits it.

Notable Cases of Whistle Blowing in India

  1. The Golden Quadrilateral undertaking had rigorous controls to guarantee that the building work would be carried on by experienced houses with proper. Dubey exposed the flouting of norms laid down by the NHAI regulations which involved sub-contracting and quality control. Low grade materials were being used and the local Mafia had taken control. Sensing with the possibility of high-ranking corruptness within the NHAI, Dubey wrote straight away to the then Prime Minister Atal Bihari Vajpayee detailing the fiscal and contractual abnormalities in the undertaking. He had specifically mentioned that his identity should not be disclosed but his words were not honoured. Soon after writing the letter, he started facing threats and the dire consequences which he could have to face. On 27th November, while he was returning from a wedding in Varanasi, he reached Gaya railway station and was waiting for his driver. Due to malfunctioning of the battery, he could not come and hence Dubey decided to take a rickshaw. On the way, he was shot dead and his body was recovered by side of a road in some suburb of Bihar. He clearly had to pay the price for not keeping mum on the unethical and illegal activities which were surfacing in the organisation in which he was serving.[12]
  2. The infamous case of whistle blowing by the Company Secretary cum Finance Manager of Malabar Cements, against Saseendran. He was the prime witness in two vigilance cases against contractor V.M Radhakrishnan and his henchmen and had also written a complaint to the Chief Minister against them about the widespread corruption in the company. However, within a few days, he again wrote withdrawing the allegation made by him. He also quit his job. A week after the Vigilance Department had prepared the charge sheet on the basis of the complaint, he was found dead along with his two sons inside their house hanging from the ceiling fan. The charge sheet spoke of the involvement of former State Chief Secretary and former company chairman John Mathai, including the name of few officials of the company along with V.M. Radhakrishnan that had surfaced.[13] The case was initially dismissed as suicide until the Kerala High Court ordered a CBI probe into the case after demands by the family of the deceased. After conducting an investigation, CBI named Malabar Cements managing director Sundara Murthy, his personal secretary Surya Narayanan and businessman V.M. Radhakrishnan as accused in the suicide of V. Saseendran and his sons. This highlights the importance of the role of the company in developing and implementing a strong and robust whistle blowing policy and to ensure the safety and confidentiality of the employee thereby ensuring his safety.[14]
  3. Same was the fate of S. Manjunath, an A Grade Officer (Marketing Manager) with Indian Oil Corporation Ltd (IOCL) who had brought into light the adulteration of petrol in the LakhimpurKheri Area, Uttar Pradesh and ordered the sealing of a corrupt petrol pump. Not obeying the orders, the petrol pump was started to function again. A sudden raid was conducted by him whereby he was shot dead by his assailants.[15]His body was recovered from his own car which was being driven by two people who were aids of the petrol pump owner. All of them were arrested for the Murder of S. Manjunath.[16]

Challenges Being Faced by the Whistle Blower Policy

Professional Responsibility v. Organisational Loyalty

The moral dilemma faced by the whistle blower is acute and he must make a choice, risking his job, relations and sometimes even his life. Blowing the whistle is a serious action with equally serious consequences. The activity involves a decision to be made among conflicting moral, legal, personal and career demands and choices. Because of Sharmila Chowdhary, a qualified radiographer who was terminated by her organization for uncovering that an immense segment of NHS cash was going into advisor’s pockets as opposed to going to NHS patient care. Although she awarded an interim relief and was adequately compensated, yet she lost her job and was diagnosed with cancer which the doctors said was the ill effects of her extreme fight as an ardent whistle blower against the powerful and the influential people.

There has been a lot of discourse about whether whistle blowers violate a prima facie duty of loyalty towards their employers or not. Sissela Bok in Whistle blowing and Professional Responsibility[17] confronts the fact that a person’s morality holds an edge while dealing with matters where the public interest is endangered. She has suggested three arguments which one faces while overcoming such situations:

  1. A person must decide whether standing and speaking out is in the interest of the public.
  2. He must weigh his responsibility to serve the public interest against the responsibility he owes to his colleagues and his institution.
  3. He must be ready to confront retaliation, as blowing a whistle on an employer, is in the end, a breach of loyalty.

Ronald Duska on the other hand in whistle blowing and Employee Loyalty[18]lays down a completely contrary point of view arguing that there are no obligations of loyalty to profit-making corporate enterprises. He states that adherence is important in those groups which are formed for mutual enhancement of their members. Self-interests must be kept aside while being faithful to somebody. While companies profit through the representatives and there is nonappearance of any shared improvement. Thus, there is no loyalty owed by the employee to the employer. The very fact that an employee joins a corporation to full fill his interests negates the notion that an employee owes loyalty to his employer. Additionally, the essential capacity of a company is to make benefit and individuals in such organizations are headed together for the same and not for common satisfaction and support. Hence, loyalty exists in relations where people are without expectations of rewards and there is a feeling of sacrifice for each other. At present where commercialization of work has been on the demand, one cannot expect loyalty to existing in any employer employee relationship. Hence, whistle-blowing is not only permissible but is expected when the public is being harmed.

The Reluctance of the Corporate Sector

Although after Narayan Murthy’s report on corporate governance making a Whistle Blowing Policy mandatory which says that an official of a company who observes an unethical or improper practice can approach the audit committee of the company without necessarily informing his supervisors for corporations, there still seems to be a certain kind of indifferent attitude towards its implementation. For a country that has encountered various marker scandals where hard earned money of various investors has been lost, the questions still loom that why hasn’t the norms and the provisions which are formulated by SEBI and other regulatory bodies being followed. Many senior Company Secretaries have argued that if implemented, would be instrumental in breeding indiscipline as most likely the audit committee would be flooded with frivolous complaints and minor issues. Many complainants might go by their personal likes and dislikes and thus the possibility of the right of access to the audit committee being misused would always be there.[19]

Lack of Holistic Powerful Legislation

The efforts of both Companies Act 2013 and SEBI regarding the formulation of adequate structure for whistle blowing in the wake of increasing corporate scandals and scams cannot be neglected. While the Companies Act 2013 gives for enforcement of a vigil mechanism, SEBI by its Clause 49 of the Listing Agreement mentions as a non-mandatory requirement the provision for a whistleblower mechanism. But with lacunas in the Whistleblower Protection Act 2014, the absence of holistic powerful legislation is deeply felt in all aspects of governance. Till the time there is no arrangement of rules and prerequisites given by enactment or a statute indicating what precisely an informant approach must contain, ambiguity will remain. Absence of a holistic law clarifying all vagueness with respect to the establishment of a whistle blower mechanism is an extremely significant obstruction in the method for accomplishing effective corporate administration.

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Right to Information Act – Whether a Threat to Whistle Blowers

One aspect of the dilemma faced by whistleblowers is paradoxical because of the Right to Information Act! Recently it was reported about an employee of a government of India public sector enterprise who tried to expose corruption amongst his superiors. He approached the chief vigilance officer of the organization. The vigilance officer told him that while he may initiate action on his complaint, his identity as a whistleblower could not be protected because this may have to be revealed under the provisions of the Right to Information Act.

Misuse of the Policy

All know that one telephone call to the media, one video on YouTube, one letter to the right public official; a corrupt company can be brought to its knees by a whistle blower . There are two sides of the coin. In the system where we have Dubeys, Saseendaram and Majumdars who blowed the whistle against the illegalities being practiced around them and became heroes of the country, there is a concern regarding Reddys[20] who utilize the whistle-blower policy for their personal gain and a ground for satisfying personal vendetta. Thus, CVC is the designated authority to filter the malicious troublemakers and spot the genuine whistle blowers. There is a need to keep a vigil on the frivolous complaints and impose significant fines to instill confidence in the mechanism.

Concluding Remarks

One of the key tenets of effective corporate governance is the ability of a corporation to promote transparency. Transparency and accountability is strengthened not just by efficient management and robust disclosure policies, but also by the creation of systems and processes to detect and address internal instances of fraud and corruption and therefore Whistle blowing has always played a distinct role in making companies alert to, and mindful of, employee conduct as well as internal processes and procedures. The existence of this class of facilitators is well recognized in the Indian legislative framework.[21] 

Therefore, to rise above corporate scandals and scams, associations other than joining a productive whistle blowing component, additionally need to soak up in their exceptional definition the supremacy of morals over the unpredictable rate of cash making. The Companies Act, 2013 having acquainted arrangements with battle the developing rate of cheats must be effectively executed if the organizations recognize the need to teach and prepare autonomous directors and audit committees. Setting up powerful interior controls to recognize and report fake exercises, utilizing innovation for checking exercises, utilizing inward evaluators to reinforce inside control frameworks are different strategies through which an association can control whistle blowing activities

There’s no denying that whistle-blowing and a culture which promotes whistle-blowing will not only be extremely beneficial to the organization and its employees but also to its shareholders, society and nation at large. There have been various instances of informant exploitation that have stunned the heart of the nation everywhere except then sober-mindedly supposing the reality of the matter is that defilement must be limited and can’t be completely determined out of any public.

Enforcement of specific, holistic laws and effective formulation of such laws alone can lessen the increasing levels of corruption and malfeasance. It is only organization-employee compliance together with Government and legislation acting as a benefactor that can not only ensure the viability of a whistleblower policy but also a corporate world and society free from frauds and scams.

The subject of the practicality of an informant approach isn’t estimating the size of prompt results as it doesn’t have a notorious Midas contact. We need to recognize that a voyage of thousand miles begins with a solitary advance. The seed has already been sown and only active participation in nurturing will blossom into the flowers of a corruption free society.

Recommendations for a Worthy Whistle Blower Policy

Deficiencies or bad behaviors in an association when remained unblown eventually prompt brand interruption and monetary misfortunes to the organization. The present world which is pervaded with tricks and deceitful exercises, the inception of a whistle blowing strategy isn’t just the call of the day yet additionally extremely basic, both for the company and for the employees. Still, apt whistle blowing legislation and the means to administer it are crucial to support a culture of commitment, openness, and integrity.

There can although be no specific kind of a whistle blowing policy since it is to be made keeping in mind the type of organization and the industry. Still for a company to urge representatives to talk against bad behavior and to enable them to achieve the correct specialist with a specific end goal to uncover a demonstration, it must join in its arrangement certain fundamental highlights. Above all else, the whistle blower strategy must guarantee and particularly say that it will keep up the obscurity of the source to the degree that the whistle blower feels sheltered and secure. Individuals fear uncovering wrongdoings in associations since classification is either not ensured or not executed in real life. Casual correspondence channels ought to be engaged in any event for primer examination. Therefore, the topic of anonymity won’t emerge. Almost certainly this will open the channel for unwarranted dissensions, however since the simple motivation behind a whistle blowing approach is to kill deceptive practices which are consuming the economy and ethical quality like growth, at that point, it is worth to swallow the severe pill of the additional weight of fundamental investigation into trivial objections as well. In the meantime, a solid message should achieve the representatives that trivial allegations are not to be utilized to badger senior administration. The suspicion of innocence can’t be made until the point that disclosure is adequately demonstrated. Thirdly, the creators recommend that for better execution of the strategy, associations ought to likewise constitute an interior council of individuals from each level of administration that will particularly manage matters concerning people who are potential whistle blowers. It is fundamental to propagate the whistle blowing arrangement inside an association at all levels. Commencement of two-way correspondence channel for workers dispenses with questions as well as produces trust. The authors support the recent proposal of SEBI, the market watchdog to make mandatory the incorporation of a whistle blowing policy by all listed companies. The arrangement will come as a significant answer for a ton of representatives who mean to reveal the wrongdoings seen by them at a fitting stage.

A noteworthy Whistle Blowing Policy should be drafted and implemented and should be submitted to the audit committee and the Board of Directors. The key aspects which should be kept in mind are:

  1. Clear definition of individuals covered by the policy.
  2. Non-Retaliation provisions.
  3. Confidentiality.
  4. Smooth Process.
  5. Communication

It is also crucial to acknowledge that though a whistle blower policy might be incorporated on paper, whether its spirit is assimilated or not depends on the organizations. Except if the association’s theory and initiative decidedly empower morals and respectability, employees will more likely than not expect that supporting in expanding incomes for the association is a need over morals. It is thus essential that the management clearly conveys organizational philosophy, values, and code of conduct of the organization to its employees.


[1] Definition of Corporate Governance as per ICSI

[2] Jonathan R. Macey, Corporate governance: promises kept, promises broken 46 (Princeton University Press, 2008)

[3] Marcia Parmerlee Miceli & Janet P Near, The Relationships among Beliefs, Organizational Position, and Whistle-Blowing Status: A Discriminant Analysis, 27(4) Acad.Man.J. 687 (1984).

[4] Tim Barnett, Why Your Company Should Have a Whistleblowing Policy 37-42, Sam Ad.M.J. (1992)

[5] Janet P Near and Marcia P Miceli, Organizational Dissidence: The case of Whistle blowing,4(1) J.Bus.E, (1985)

[6] Richard Alexander, The Role of Whistleblowers in the Fight against Economic Crime, 12 J. Fin. Crim. 131, 131 (2004)

[7] Whistle- Blowing not used often by coporates for fraud prevent, says E& Y study, Assocham India (December 12, 2019), http://assocham.org/newsdetail.php?id=4119

[8] Mithila Mehta, Whistleblowing Policy in a Company, Mumbai mirror, ( Sept 9, 2013), http://timesofindia.indiatimes.com/life-style/relationships/work/whistleblowing-policy-in-a-company/articleshow/22433696.cms

[9] SEBI, www.sebi.gov.in/commreport/clause49.html

[10] Ministry of Corporate Affairs (December 12, 2019), http://www.mca.gov.in/Ministry/latestnews/CG_Voluntary_Guidelines_2009_24dec2009.pdf Pg. No 22

[11] Corporate Governance at HCL, HCLTechnology (December 12, 2019), http://www.hcltech.com/investors/corporate-governance-hcl.

[12] Satyendra Dubey, A case study on Whistle Blowing, PREZI (December 12, 2019), https://prezi.com/kfm0mt3xtpqd/satyendra-dubey-a-case-study-on-whistle-blowing/.

[13] Kerala whistle-blower’s death mystery deepens, IBN Live (December 12, 2019), http://ibnlive.in.com/news/kerala-mystery-over-saseendrans-death-deepens/142353-3.html

[14] Malabar Cements Chief drove Whistleblower to Suicide: CBI, Yahoo News (December 12, 2019), https://in.news.yahoo.com/malabar-cements-chief-drove-whistle-blower-suicide-cbi-20110321-015057-095.html.

[15] TAPMI remembers slain whistle blower, The Hindu (Nov. 20, 2010) http://www.hindu.com/2010/11/20/stories/2010112063920300.htm

[16] Hari Narayan, The Extraordinary Tale of An Ordinary Man, The Hindu (Jan. 5, 2013) http://www.thehindu.com/features/magazine/the-extraordinary-tale-of-an-ordinary-man/article4269047.ece

[17] Sissela Bok, New York University Education Quaterly, 11(4), 2-10 (1980)

[18] Joseph Desjardins and John McCall, Contemporary Issues in Business Ethics, 295-300 (1985)

[19] RabindraNath Sinha, Narayana Murthy panel report on corporate governance — Is whistle blower policy practical?,Hindu on net (December 12, 2019), http://www.hinduonnet.com/businessline/2003/04/08/stories/2003040802200400.htm. They noted that the committee had not said anything on providing evidence in support of a complaint, disclosure of the identity of the complainant and the maximum number of complaints that an employee could make in a year.

[20] Reference is made to recent news report where a deputy general manager, calling himself a whistleblower, recently wrote a letter to the SEBI chairman making serious allegations against several senior executives. This manager, G S Reddy, is part of the secondary market division and in charge of depository services; he has been levelling wild allegations against senior officials for over four years. In April 1994, he had been suspended and charge-sheeted for impropriety and dishonesty when he claimed official allowances after demanding hospitality from a company under investigation. He was reinstated six years later after an inquiry led to an official censure and lost promotion. The CVC had concurred with this penalty and directed that he should not be put in charge of sensitive departments. Finally, an inquiry by the CBI revealed that one of the experience certificates submitted by him, at the time of his appointment was allegedly forged. He again tried to bluster his way out of punitive action by leveling charges against senior officials, which he described as an act of ‘whistleblowing’, Sucheta Dalal, Whistle-blowers And Troublemakers,(May 10, 2004) http://www.financialexpress .com/news/whistle-blowers-and-troublemakers/59675/0

[21] Kunal Gupta &Shruti Rajan, Who can hear the Whistle Blow? Whistleblowing and its Impact on Corporate Governance in India, Cyril Amarchand Mangaldas, (Aug,11, 2018 12.10 AM) https://corporate.cyrilamarchandblogs.com/2017/01/can-hear-whistle-blow-whistleblowing-impact-corporate-governance-india/