A good whistleblower policy must encourage employees to openly and anonymously report concerns

Yet another controversial whistle blower’s case in Infosys has brought the subject back in discussion.

Companies sometimes regret having a wider coverage than mandated by law.
Companies sometimes regret having a wider coverage than mandated by law.

Yet another controversial whistle blower’s case in Infosys has brought the subject back in discussion. Here, the whistle blower is demanding SEBI’s probe, alleging wrongdoing in the sell-off of Infosys’s subsidiary Panaya. The anonymous complainant wants SEBI to investigate this and fix the responsibility of the board of directors of the company. The complainant, having smelt a rat, is questioning the board’s decision to first acquire Panaya, only to then sell it very cheaply within less than three years of the acquisition. While the board may be within its right to do this and argue it as a bona fide business decision, which could be the case, for the time being the whistle blower has made serious allegations.

Although the law on whistle blowing in India is at its nascent stage, many cases have popped up and a new species of whistle blower seems to have born. Whether this would change corporate India’s functioning will depend not only on the laws governing whistle blowing, but also on the outcome of the whistle blower cases so far. Interestingly, the elaborate Whistle Blowers Protection Bill, 2011, continues to be a law in the works—although being passed by Parliament. There is little chance of it becoming law any time soon.

So, where do we stand today? Only the company law and SEBI regulations provide for whistle blowing. Both statutes provide for similar provisions, christening this subject as “vigil mechanism”. All listed companies and other classes of prescribed companies are required to frame a policy on vigil mechanism. The policy applies to directors and employees allowing them to report genuine concerns to the audit committee. To protect whistle blowers, the law requires safeguards against any victimisation. To ensure this, companies generally provide that a whistle blower cannot be suspended, threatened, harassed, discriminated, punished or terminated. Also, it is important the identity of the complainant is kept confidential, else the person could feel not only uncomfortable, but scared to report. In case a person reports any concern in good faith, and later on, it is discovered no wrongdoing took place, that whistle blower will still be protected. But the law does not spare a complainant lodging frivolous complaints. Whistle blowers should, thus, be cautious before raising frivolous issues. While there may be no statutory punishment, this can lead to punitive actions.

A good whistle blower policy must encourage employees and directors to openly, confidentially and anonymously report their concerns, if they believe the management indulged in any questionable transaction, serious violation of law, actual or suspected fraud, siphoning of funds, misstating or misleading facts, or suspected breakdown of corporate governance. Though the law restricts whistle blowers to be employees or directors, nothing stops a company from widening this scope. Many companies extend the coverage to “other stakeholders” and “other interested parties”. While the intention for a wider inclusion is good, this could land companies in trouble. It’s because any interested person could become a whistle blower, requiring company’s audit committee to investigate the complaint. Imagine what would happen if a man on the street holding barely a share or two in a company blows the whistle? While the audit committee is not bound to investigate every matter that comes before it unless, prima facie, it finds some merit in it, why take a chance by widening the cover?

Companies sometimes regret having a wider coverage than mandated by law. If a company were to restrict the coverage limited in law, it would still not leave whistle blowers without any remedy. In situations like these, though a company’s doors may be closed, nothing stops whistle blowers from approaching others. The complaint could be brought to the notice of auditors, stock exchanges, administrative departments or SEBI. These bodies are vested with wide powers to investigate a case, but they are expected to use caution in deciding whether or not to pursue a case. In determining this, certain factors could be considered—seriousness of the case, alleged wrongdoer involved, credibility of allegations.

Whistle blowing may be a reward-less exercise unless whistle blower is awarded any compensation, the fear that whistle blowing could bring may raise hopes for higher standards of corporate governance in India.

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