As organizations in India grow larger, management and employee fraud, corruption and similar problems have also seen a rise. This has become a major concern for organizations, as many of these cases are not reported due to fear of retaliation. Therefore, it has become essential for employers to have a mechanism in place that encourages and protects employees who report wrongdoing within the organization.
A person who raises concerns and reveals information about such cases is a “whistle-blower.” Whistle-blowers may make their allegations internally (to other people within the organization) or externally (to regulators, law enforcement agencies, media, etc.).
The law on whistle-blowing in the Indian public sector is primarily covered under the Whistle Blowers Protection Act, 2014, which details a process for receiving complaints relating to allegations of corruption or willful misuse of power against a public servant. For corporate entities, whistle-blowing is governed by internal reporting mechanisms. The Securities and Exchange Board of India Regulations, 2015, make it mandatory for listed companies to devise an effective whistle-blower process that enables stakeholders, including individual employees and their representative bodies, to freely communicate their concerns about illegal or unethical practices. Listed companies are also required to make proper disclosures in their annual reports and upload information about their whistle-blower policies on their websites. The Companies Act 2013 goes further, extending the scope of whistle-blowing protection requirements to companies that accept deposits from the public and those that have borrowed money, exceeding INR50 million, from banks and public financial institutions. The current legislative framework on whistle-blowing largely covers wrongdoings in the public sector, but it does not adequately protect the private sector. Private-sector players mostly rely on their internal policies for dealing with cases of whistle-blowing.
Anonymity of whistle-blowers
Under the Whistle Blowers Protection Act, the identity of the whistle-blower is required to be disclosed to the appropriate authorities. If the identity is not disclosed, no action is taken. However, when the whistle-blower’s identity is disclosed, the authorities are obligated to protect his or her identity as well as documents or other information produced by the complainant.
Certain discretionary powers have been granted to the authorities, who can decide whether to disclose the whistle-blower’s information. The Companies Act and the Securities and Exchange Board of India Regulations do not state whether the identity of whistle-blowers should be kept confidential. Accordingly, there are holes in the law that must be addressed. In some cases, the disclosure of a whistle-blower’s identity has had fatal consequences.
Protections afforded to whistle-blowers
The extant framework provides a few safeguards for whistle-blowers. The Act supports concealment of a whistle-blower’s identity and prescribes a penalty (imprisonment up to three years and a fine up to INR 50,000) should there be a negligent or bad-faith disclosure. Further, the whistle-blower has the right to file an application for redress before the authorities if he or she is being retaliated against, or likely to be. The act extends such protection even to witness and other persons who are part of the inquiry on any complaint made under the act.
Whistle-blowers in the private sector may be protected by safeguards devised by the vigilance mechanism under the Companies Act or the other regulations. Private-sector organizations usually create their own internal whistle-blower policies that encourage whistle-blowing, including robust tools to detect and prevent retaliation against whistle-blowers.
All companies should articulate policies on whistle-blowing and ensure strict compliance as an effective tool to expose cases of fraud and mismanagement within the organization.
Country-by-country and EU whistle-blowing rules need to be taken into account in setting the best practices and policies in this growing area of risk, including what an employer must do when faced with a whistle-blower claim, such as whether an investigation is required, protections of the employee who complained of company practices and litigation issues.
Best practice requires companies to take action in advance by creating a hotline and training its employees in ethical behavior.