Introduction: nuanced progress
India has witnessed a significant increase in the reporting and prosecution of white-collar offences in recent years. While the cases of Satyam Computers (2009) and Sahara Group (2011) attracted a large amount of publicity, recent shocks include the Nirav Modi case (where the Indian diamond businessman was accused of defrauding a public sector bank of about US$2bn). It has been suggested that this is the largest banking scandal in Indian history. There have been some high-profile investigations into corporate governance practices as well, including the recent Infosys Technologies investigation.
The founder group/family-driven nature of a large number of successful Indian companies has been one of the oft-cited reasons for the challenges involved in enforcing strict corporate governance practices and compliance mechanisms in India. That said, the Securities and Exchange of India (SEBI) and the Ministry of Corporate Affairs (MCA) have been introducing several compliance obligations and measures. These measures include:
- including increased disclosure obligations;
- the introduction of a strong vigilance mechanism;
- auditors' reporting of fraud complaints; and
- according statutory recognition to the Serious Fraud Investigation Office (SFIO).
The Reserve Bank of India (RBI) has introduced several regulations to detect and prevent frauds/corporate governance lapses in regulated entities, such as banks and non-banking financial companies. Furthermore, there have been recent amendments to the Prevention of Corruption Act 1988 (PCA), wherein the provision of bribes by a commercial organisation to a public servant has also been made an offence. Similarly, the Prevention of Bribery in Private Sector Bill 2018 has been introduced in the Indian Parliament. This formulates a standalone legislative framework to deal with acts of bribery in the private sector. On a related note, the Whistle Blowers Protection Act 2014 was also enacted with the aim of preventing the victimisation of public servants who report the commission of offences or wilful misuse of power or discretion, through which demonstrable wrongful gain accrues to the public servant. While the date of enforcement has not been notified yet, the statute only relates to the protection of public servants as whistleblowers.
While India has regulations for fraud detection, prevention and investigation, it does not yet have a comprehensive legislation on whistleblower investigations. In light of this, and recognising that vulnerabilities could be varied (eg, private and public bribery, corruption, inflation of expenses, forging of invoices, embezzlement, kickbacks from distributors, conflict of interest, misuse of company assets, data theft and abusive behaviour), several Indian companies are consequently emphasising the enforcement of a robust whistleblower policy. The purpose of this is to both demonstrate their commitment to the organisation's code of conduct, values and statutory law (for public companies), and to thoroughly addressing any and all issues internally before handing them over to external authorities, if required.
Internal investigations and Employment Law issues
Today, while most organisations have clear internal guidelines with respect to disciplinary processes, there is nevertheless an increased push (guided by global best practices) to have rigorous policies and frameworks with respect to: anti-bribery and corruption, gifts to suppliers, distributors and government officials, misconduct, grievance redressal and so on. Typically, organisations also specify a hotline number and/or email address (this could be global coordinates or India-specific coordinates) wherein employees, directors, shareholders, consultants, vendors and any other third party acting as a whistleblower can (anonymously, if they wish) lodge their complaints/grievances.
While formulating any whistleblower framework with respect to internal inquiries, organisations have no option other than to be mindful of certain employment law requirements in India, as well as certain general principles, as set out below.
Depending on the nature of the company and its location, certain state-specific laws and requirements must be taken into account. These include provisions of the concerned shops and commercial establishments' legislation and rules under Industrial Employment (Standing Orders) Act 1946. These legislations have stipulations regarding action that constitutes misconduct, as well as the process of conducting internal inquiries.
India has standalone legislation, the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013, that prescribes a detailed framework with respect to addressing issues relating to sexual harassment in the workplace. Accordingly, if such complaints are received through any global hotline, they must nevertheless be necessarily referred, under law, to a specific committee entrusted with the investigation. This committee is termed the 'Internal Complaints Committee' under Indian law.
The policy must be clear and detailed but, at the same time, it would do well to offer enough flexibility to the organisation with respect to timelines and the process itself. For instance, the policy must clearly specify what kind of complaints may be raised by a whistleblower. While employees must, of course, be encouraged to raise any suspicion or allegation of malpractice or misconduct, they must also be made aware that the whistleblower process cannot be used to escalate inter–personal conflicts and/or vested agendas at the workplace. Typically, organisations are often urged to conduct exhaustive training for employees to educate and socialise the firm objectives of the whistleblower framework. Practical examples should be provided, along with an explanation of the kind of complaints that may be raised and the supporting evidence that may be required.
Any and all investigations conducted under a whistleblower complaint must be in accordance with the principles of 'natural justice'. At the definitive end of an investigation, the accused individual(s) must be provided an ample opportunity of being heard by neutral person(s), with no presumption of bias. This is crucial because, if the employee's employment is terminated pursuant to an inquiry and that person challenges the decision, the courts may easily overturn the employer's decision on the grounds that principles of natural justice were not observed. The composition of the investigating committee is also important; typically, it may consist of a mix of internal members, as well as external consultants with the necessary expertise, depending, of course, upon the nature and severity of the alleged offence.
Principles of confidentiality and non-retaliation must be complied with at all times, without any exception. This is a sacrosanct necessity to preserve the sanctity of the whistleblower process, because often there are related issues at stake, such as the reputation of the organisation and the accused individual(s) and the sensitivity and importance of the matter at hand. It is also important to avoid any presumption of guilt (owing to which the conclusion of the inquiry may be challenged before Indian courts). To ensure that these principles are observed, the investigating officer/inquiry committee often chooses to conduct a part of the investigation outside the office premises, over video-conferencing. If there is a fear of retaliation, it may recommend interim measures, such as the transfer of the whistleblower/respondent, and may, occasionally, even encourage the respondent to go on gardening leave. The whistleblower must also be encouraged to report any retaliation and should he/she wish to remain anonymous, they should not, at any point, be compelled to reveal his/her identity.
The life cycle of a typical investigation in India
Receipt of a complaint
Upon receipt of a complaint, the concerned representative(s) is/are duty bound to acknowledge it, assess the severity and nature of the concern and thereafter determine whether or not a fact finding/internal investigation is required. One key challenge that the investigating representative(s) may face at this juncture is that the complaint may not have disclosed sufficient information. For example, details of the accused individual(s) or any specific information about the alleged act(s) of wrongdoing may be entirely missing.
Conduct of the preliminary investigation
To ensure that the process is fair, the investigating representative(s) is/are well within their rights to engage external professionals (eg, legal and/or forensic experts) to carry out the investigation on the ground and conduct interviews, or correspond with all relevant parties, until there is sufficient clarity as to the nature of the allegations, and their substantiation (if any).
Issuing the charge-sheet or a show-cause notice:
Once the nature of the allegations is clear and comprehensive supporting information/documentation has been produced, a detailed and specific charge sheet/show-cause notice should be issued to the relevant employee(s). This would officially commence the disciplinary proceedings set out under law against the employee(s). It is recommended that the charge-sheet/show-cause notice captures, in detail, all the allegations and that the employee(s) are given sufficient opportunity to respond and provide evidence and supporting documentation to disprove the allegations.
Upon completion of the investigation, it is essential that the exercise concludes with the submission of an exhaustive and 'reasoned' report — that is, one that not only captures the nature of the allegations and a summary of witness statements and the evidence on record; but also provides sound and verifiable reasons for the proposed recommendations.
In the absence of a specific and standalone Indian law with respect to whistleblower investigations, the nature of an internal inquiry undertaken pursuant to a complaint attains immense significance. This is especially true if severe disciplinary action, such as suspension and/or termination of employment, is being recommended. There have been enough instances where Indian courts have struck down an employer's decision for lack of due process if, in their view, 'justice was not done or was not seen to be done'. This risk of court intervention is also significantly higher if the respondent qualifies as a 'workman' (non-managerial employees) because this category of employee is afforded far greater statutory protection than non-workmen. The connection between a whistleblower complaint (with possible regulatory exposure and/or any pre-existing employer-employee disputes) is also considered by the courts. It is imperative that companies implementing a whistleblower framework ensure that this is used to uphold standards of discipline and good conduct in the workplace, with the help of extant employment legislation, rather than being accused of perpetuating any unfair labour practices.
Originally published in International Bar Association
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