India: Time To Blow The Whistle

Last Updated: 8 October 2015
Article by Zerick Dastur

The whistleblowing law and mechanism pushes vigilant individuals to "See the evil, hear the evil and expose the evil", writes Zerick Dastur

Lord Gautam Buddha once said that "Three things cannot be long hidden: the sun, the moon, and the truth". It is in this context that the law and regulation dealing with the concept of whistleblowing becomes important. The legislative objects and the purpose of this law are two fold. First, to provide with an access mechanism and a structured system for people to come forward and make disclosures of wrongdoing and secondly, to provide for adequate safeguards against victimization of people who do exhibit the courage to come forward and expose the wrongdoing. It can therefore be said that the law dealing with whistleblowing is both a sword and a shield. It provides for tools to combat wrongdoing by means of timely disclosures and at the same time seeks to protect and ensure the wellbeing of those who take recourse to the mechanism provided in law. Whistleblowing mechanism available in law is geared towards exposing corruption in public life and on the same footing ensuring timely detection and control of major frauds and scams which have rattled the Indian corporate sector in the recent past.

The regulatory framework dealing with the law of whistleblowing is centres around the Whistleblowers Protection Act, 2011 ("the Whistleblowers Act"), the Listing Agreement, the Companies Act, 2013 and the Competition Act, 2002. The Whistleblowers Act which was notified in 2014 provides for a statutory mechanism where any person can expose wrongdoing by public servants and public officials in their performance of public duties. India has witnessed rampant corruption allegations among public servants and the Whistleblowers Act is perhaps a reaction to the various scams India has witnessed in various sectors of the economy. The Central Vigilance Commission and the State Vigilance Commission are among the competent authorities under the Whistleblowers Act empowered to receive complaints, analyse them and take appropriate remedial measures. It is pertinent to note that anonymous complaints are not entertained by these authorities. These authorities are empowered with the power to make recommendations to the appropriate public authority to take necessary corrective measures and initiate necessary proceedings where wrongdoings complained of have been established.

The Satyam scam made headlines in early 2009. The public disclosure by the promoter of Satyam of a fraud relating to manipulation of accounts and financial statements of the company shook the conscience of the nation. The fraud was an ongoing affair spanning back a number of years. In an effort to prevent or minimise the chances of such a situation repeating itself, SEBI has come out with amendments to Clause 49 of the Listing Agreement which mandatorily require every listed company to form and establish a corporate vigil mechanism where complaints can be made and which serves as a system to provide access for disclosure of wrongdoings including manipulation of accounts and financial statements, unethical business practices and breaches of code of conduct. In addition, the Companies Act, 2013, read with the rules has specifically provided for a vigil mechanism to be established by a class of companies specified therein which shall be under the supervision of the Audit committee. Such a vigil mechanism will ensure that whistleblowers that come forward and make a disclosure are adequately protected against victimisation. The whistleblowing mechanism contemplated in law is an integral part of the doctrine of corporate governance which is geared to ensure transparency and accountability in the functioning of public listed companies where investors have invested substantial amounts and whose interests are required to be protected.

Even the Competition Act 2002 provides for a statutory mechanism embodied in Section 46 of the said Act and the rules framed thereunder which provides for a leniency regime where leniency can be granted in imposition of penalty for parties who come forward and make a true and fair disclosure which leads to establishing anti-competitive conduct by the concerned wrongdoers. The thrust of the Competition policy is aimed at preventing cartel like behavior where companies get together, fix prices and output of sale in order to make profits at the cost of the consumers. It is difficult to detect and establish presence of cartels by way of direct evidence and reliance is often placed on circumstantial evidence. A study of cases in advanced jurisdictions shows that leniency regime has in fact acted as a potent tool to combat cartels where a party who is a part of a cartel comes forward and makes a material disclosure in order to avail the benefit of leniency, which disclosure leads to the busting of a cartel.

We have often heard of the slogan of "See no evil, hear no evil and speak no evil". Perhaps, whistleblowing law and mechanism is an exception to this concept which pushes vigilant individuals to "See the evil, hear the evil and expose the evil". Edmond Burke was perhaps right when he said that "The only thing necessary for the triumph of evil is for good men to do nothing".

Previously published on Business World - Online, July 21, 2015

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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