EXISTING WHISTLEBLOWER REGIME IN INDIA – AS POWERFUL AS IT SEEMS?
|Date | Version||May 20, 2022| 1.0|
|Keywords||‘Whistle-blower’s law’, ‘Corporate Governance’|
|List of Legislation Referred||i. Companies Act 2013 (Section 177) read with The Companies (Meetings of Board and its Powers) Rules, 2014.
ii. Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI LODR 2015)
Abstract- This write-up examines the efficacy of the ‘whistle blower’ regime in India and the way forward.
As the name suggests, a ‘whistle blower’ is one who blows the whistle. Who is eligible to blow the ‘whistle’ and concerning ‘what’ is a matter determined by the regulatory regime. A ‘whistle blower’ is generally understood as ‘one who reveals something covert or informs against another. Especially an employee who brings wrongdoing by an employer or by other employees to the attention of a government or law enforcement agency[ Whistleblower.” Merriam-Webster.com Dictionary, Merriam-Webster, available at https://www.merriam-webster.com/dictionary/whistleblower. (last accessed 20 May. 2022).].
It is logical to expect that any regulatory regime seeking an effective outcome would take into consideration the following:
(i)protection for the person who blows the whistle.
(ii)checks and balances to ensure that the whistle-blower or the perpetrator does not abuse the process.
LEGISLATIVE FRAMEWORK IN INDIA
Vigil with Public Servants
A brief legislative history will help bring some perspective to the subject matter.
2001: The Law Commission of India[ Law Commission of India, “The Public Interest Disclosure and Protection of Informers” (December 2001), available at https://lawcommissionofindia.nic.in/reports/179rptp1.pdf. (last accessed 20 May. 2022).] recommended enacting legislation to protect whistle-blowers, to help eliminate corruption. A draft Bill was also prepared.
2004: The Supreme Court of India directed the Central Government to put administrative machinery to act on complaints from whistle-blowers until the time law was enacted. This direction of the Supreme Court was in response to a Petition filed following the murder of the whistle-blower in the National Highways Authority of India’s Golden Quadrilateral project[ Writ Petition (Civil) No. 539/2003.].
As a result, the Government notified a resolution named ‘Public Interest Disclosure and Protection of Informers Resolution (PIDPIR)[ Government of India, “Public Interest Disclosure and Protection of Informers (PIDPI) Resolution”(Central Vigilance Commission, 2004), available at https://cvc.gov.in/sites/default/files/371_4_2013-AVD-III-16062014_0-7-13_1.pdf. (last accessed 20 May. 2022).]’. This resolution empowered the Central Vigilance Commission (‘CVC’) to act on complaints from whistle-blowers. The jurisdiction of CVC extends to employees of the Central Government or of any corporation established by or under any Central Act, Government companies, societies or local authorities owned or controlled by the Central Government. State Government employees and activities of State Governments or its Corporations and the like do not fall under the purview of the CVC.
According to the PIDPIR, it is not required for CVC to take any action if the complainant is anonymous.
2005: India signed The United Nations Convention against Corruption[ United Nations Convention against Corruption, 2003, available at https://treaties.un.org/doc/Treaties/2003/12/20031209%2002-50%20PM/Ch_XVIII_14p.pdf. (last accessed 20 May. 2022).] on December 09, 2005, and ratified it on May 09, 2011.
The Convention covers five main areas: preventive measures, criminalisation and law enforcement, international cooperation, asset recovery, and technical assistance and information exchange. The Convention covers many different forms of corruption, such as bribery, trading in influence, abuse of functions, and various acts of corruption in the private sector.
2007: The Second Administrative Reforms Commission Report[ Government of India, “Ethics In Governance” (The Second Administrative Reforms Commission, 2007), available at https://darpg.gov.in/sites/default/files/ethics4.pdf. (last accessed 20 May. 2022).] also recommended implementing a specific law to protect whistle-blowers.
2011: Whistle Blowers Protection Bill was proposed and finally enacted in 2014.
The Whistle Blowers Protection Act, 2014[ The Whistle Blowers Protection Act, 2014 (Act 17 of 2014), s. 3(d).
], any person may make a complaint against a public servant if the complaint relates to any of the following –
(i)an attempt to commit or commission of an offence under the Prevention of Corruption Act, 1988.
(ii)willful misuse of power or willful misuse of discretion by virtue of which demonstrable loss is caused to the Government or demonstrable wrongful gain accrues to the public servant or to any third party.
(iii)Attempt to commit or commission of a criminal offence by a ‘public servant[ The Whistle Blowers Protection Act, 2014 (Act 17 of 2014), s. 3(i).]’, as defined under section 2(c) of the Prevention of Corruption Act, 1988 but shall not include a Judge of the Supreme Court or High Court.
Such complaint is a ‘disclosure’ and shall be deemed as ‘public interest disclosure’ for the purposes of this Act.
No investigation shall be carried out in case of anonymous complaints. The ‘Competent Authority[ The Whistle Blowers Protection Act, 2014 (Act 17 of 2014), s. 3(b).]’ is required to ascertain the complainant’s identity.
Upon receipt of the disclosure, the competent authority is required to conduct an enquiry and is also required to seek inputs from the Head of the concerned body. The identity of the complainant will be disclosed to such Head unless the complainant does not give consent, in which case the complainant will be required to provide all documentary evidence in support of his complaint.
The requirement to provide all documentary evidence appears onerous for the complainant, especially in this scenario where the disclosure is in ‘public interest and not by way of grievance redressal.
The following fall outside the purview of the investigation by the Competent Authority[ The Whistle Blowers Protection Act, 2014 (Act 17 of 2014), s. 6(2).]:
(i)Any disclosure regarding which a formal and public inquiry has been ordered under the Public Servants (Inquiries) Act, 1850.
(ii)Any disclosure regarding which inquiry has been referred for inquiry under the Commissions of Inquiry Act, 1952.
(iii)Any disclosure made after the expiry of seven years from the date the action complained against is alleged to have taken place.
The 1850 and 1952 legislations require a thorough review to evaluate their relevance. The rationale for the seven-year embargo is challenging to appreciate, mainly because the issue is ‘public interest disclosure’, and the ‘action’ may have come to light only after several years.
Any person who negligently or mala fidely reveals the identity of a complainant shall be punishable with imprisonment for a term which may extend up to three years and also to fine which may extend up to fifty thousand rupees[ The Whistle Blowers Protection Act, 2014 (Act 17 of 2014), s. 16.].
Therefore, if the identity of a complainant is revealed anonymously, or is revealed despite good care, then no penal consequence would arise.
Any person who makes any disclosure mala fidely and knowingly that it was incorrect or false or misleading shall be punishable with imprisonment for a term that may extend up to two years and a fine that may extend up to thirty thousand rupees[ The Whistle Blowers Protection Act, 2014 (Act 17 of 2014), s. 17.].
It would seem that competent authority should not take action regarding anonymous disclosures so that the system is not abused and that disclosures are legitimate, and in a case, the system is abused, the complainant is punished. Arguably, even if the disclosure is anonymous, if there is sufficient information to indicate a prima facie case, the competent authority should initiate an investigation.
If there is dissatisfaction with the 2014 Act, the sentiment is compounded by the Whistle Blowers Protection (Amendment) Bill, 2015[ The Whistle Blowers Protection (Amendment) Bill, 2015, available at https://prsindia.org/billtrack/the-whistle-blowers-protection-amendment-bill-2015 (last accessed 20 May. 2022).]. The Bill:
(i)prohibits reporting a corruption-related disclosure if it falls under any specified ten categories of information. Specific categories like information related to economic, scientific interests and the security of India; and information received from a foreign government are understandable.
(ii)Disallows disclosures that the Official Secrets Act, 1923 covers.
(iii)Any public interest disclosure received by a Competent Authority will be referred to a government authorised authority if it falls under any of the ten prohibited categories. This authority will decide on the matter, which will be binding. The ‘independence’ of this authority could be in question, given that there are no criteria specified in this regard.
In the case of SP Gupta v. Union of India[ AIR 1982 SC 149.], the Supreme Court observed that “disclosure of information in regard to the functioning of the Government must be the rule and secrecy an exception justified only when the strictest requirement of public interest so demands”. This observation would seem relevant even today, though the need for secrecy regarding external affairs and matters relating to safeguarding the safety and security of the people is understood. The methods adopted for preserving the safety and security of the people and the collateral effect or damage is a question that should be addressed, despite the need for secrecy.
Vigil concerning the private sector
Not all businesses fall under the ‘vigil mechanism’ set forth under the Companies legislation and the Regulations of the Securities Exchange Board of India (‘SEBI’). SEBI is the regulatory authority for and in relation to listed entities and securities.
Those entities that are perceived to involve ‘public interest’ fall within the ambit of the corporate laws.
Every listed company and the companies belonging to the following class or classes are required to establish a vigil mechanism for their directors and employees to report their genuine concerns or grievances[ The Companies Act, 2013 (Act No. of 2013), s. 177.]-
a)the Companies which accept deposits from the public;
b)the Companies which have borrowed money from banks and public financial institutions above fifty crore rupees.
Such companies must constitute an audit committee that shall oversee the vigil mechanism through the committee. If any of the committee members have a conflict of interest in a given case, they should recuse themselves, and the others on the committee would deal with the matter on hand.
The scope and ambit of the ‘vigil mechanism’ are left at the disposition of the companies. The protection afforded to a whistle-blower is not adequate, and it would not be incorrect to state that the corporate environment is not encouraging for a whistle-blower.
Regulation 4(2)(d)(iv) of SEBI LODR, 2015[ Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, available at
https://www.sebi.gov.in/legal/regulations/apr-2022/securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-regulations-2015-last-amended-on-april-25-2022-_58418.html (last accessed 20 May. 2022).] requires the listed entity to devise an effective vigil mechanism/whistle-blower policy enabling stakeholders, including individual employees and their representative bodies, to communicate their concerns about illegal or unethical practices freely. A framework around the whistle-blower policy would have been helpful.
Regulation 30 of SEBI LODR, 2015[ ibid] requires every listed entity to make disclosures of any events or information that is material in the opinion of the board of directors of the listed company. The listed entity is also required to disclose all events or information with respect to subsidiaries which are material for such listed entity.
While the criteria for determination of what is ‘material’ is provided and the entity is required to frame a policy for determination of what is ‘material’ accordingly, it is not clear if a ‘complaint’ under the vigil mechanism would need disclosure on account of being ‘material’. In the absence of any other provision or clarification, it would seem that such a ‘complaint’ would indeed require disclosure. Such disclosure is likely to result in collateral damage pending the completion of the investigation under the vigil mechanism.
Transparency should generally be encouraged concerning the performance of Government bodies and business houses. They should of course, withhold ‘sensitive’ information, but the legislation should specify the category of information that is considered ‘sensitive’. For instance, matters concerning foreign Governments or issues affecting the security or sovereignty are undoubtedly in the ‘sensitive’ category. Similarly, trade secrets and intellectual property would fall under the ‘sensitive category’ for business houses.
‘Transparency’ would minimise the chances of overreach.
Where the legal environment minimises overreach, the possibility of ‘abuse’ of the system is significantly reduced, and it would be fair to expect the regulatory regime to lean in favour of the whistle-blower. There would be a strong argument favouring the acceptability of ‘anonymous’ complaints.