What is Whistle Blowing?
In simple words the term whistleblower means a person who exposes secret
information or activity that is deemed to be illegal or unethical within an
organization. Though the word ‘Whistle Blower’ is a new entry in the vocabulary
of the corporates but the concept is quite old. Whistle Blowing is the act of
drawing public attention to perceived wrongdoing.
Who is a Whistle Blower?
A person who does the act of whistle blowing is called the
whistleblower. A whistleblower could be an employee, contractor or a supplier
who becomes aware of any unethical practices or illegal activities. Corruption,
bullying, fraud, safety violations are some of the common activities
highlighted by them. A whistleblower can register a complaint with higher
authorities that would trigger criminal investigations against the company. To
protect whistleblowers from losing their job or being mistreated there are
specific laws for example in India there is the Whistleblowers Protection Act, 2014.
Most companies have a different policy which clearly state on how to report
such an incident.
Type of
Whistleblowers: There are two types of whistleblowers:
a.
Internal
whistleblowers: Those who report the misconduct, fraud or indiscipline to senior
officers of the organization.
b.
External
whistleblowers: Who report wrongdoings to people outside the organizations? For
example: Media, police, governments etc.
Whistleblower and Legislation: The Whistleblower Protection
Bill, 2011 had replaced the government resolution of 2004. Its main aim was to
create a balance between persons making public interest disclosure and those
who are honest employees. Whistle blowing has been dealt with under sections
206 to 229.
Whistleblower and SEBI: SEBI stands for the
Securities Exchange Board of India. In the year 2003 the SEBI had amended its
principles on corporate governance. India is facing a terrible record when it
comes to dealing with insider trading. To improve the rate of success, the
market regulator had introduced a new tipping method. SEBI will award up to Rs.
1 crore for any information which can be provided and successful action against
the people doing insider trading. This
mechanism is also popularly known as ‘corporate and confidentiality mechanism’.
Under this mechanism if a person who is guilty of violating securities law
assists in larger probe, his identity shall be kept confidential and he shall
be given exemption from penal action. Earlier it was not compulsory for
companies to necessarily have a whistle blowing policy, but after the amendment
of SEBI under clause 49 which clearly asserts a mechanism for corporate
governance it became quite necessary. Besides that, the company will have
mandatory requirement to disclose all its reports on corporate governance. The
other top mechanisms excluding whistleblowers which are required for
implementing better and effective corporate governance in any organizations
are:
1.
Independence of Board
2.
Role of Auditors
3.
Shareholder Activism
4.
Fast Track Redressal Forums
COMPANIES ACT: The sections 206 to
229 of the Indian Companies Act, 2013 deal with the provisions related to whistle
blowing. The provisions for inspection, investigation and inquiry are provided
under them. Sec 208 provides for an inspector who shall inspect the records of
a company and provide recommendations after the investigation. Section 210
allows the union government to conduct investigations related to the affairs of
the company in the given situation:
1.
Where a report has been received by the registrar or
the inspector of the company.
2.
Where a special resolution has been passed by the
company to investigate the affairs of the company.
3.
In the interest of public.
Section 211 of the act provides the establishment of an investigation office
named SFIO (Serious Fraud Investigation Office) which shall be empowered to
arrest a person who has committed any fraud in the company. Section 212 provides
the procedure of investigation; it states that if the central government is of
the opinion that the SFIO must investigate it can do so:
a.
Upon a report received by the registrar of companies
b.
Upon an intimation of a special
resolution by a company when investigation is mandatory
c.
In the interest of public
d.
On request of any department of central or state
government
Thus, if we see properly the only difference between section 210 and 212
is the last clause where the SFIO may also conduct an investigation when it is
requested by any department of the central or state government. Section 214
provides for the security of maximum Rs. 25,000. Section 215 specifically states
that no corporate, firm, or an association can be appointed as the inspector. Section
221 of the Company Act provides for the freezing of the assets of the company on
inquiry or investigation. Section 226 provides that voluntary winding up of a
company etc., not to stop investigation. Section 229 provides the penalty for
furnishing false statements, mutilations and destruction of documents. A responsibility also lies over the auditors
to act as whistleblowers and they have to report directly to the union government
if there is any reason to believe that any fraud is committed. Hence we can
observe that the provisions of the companies’ act related to whistle blowing or
protection of fraud under the Indian laws are quite adequate.
Advantages of Whistle Blowing:
Whistle Blowing policy is advantageous and beneficial for any kind of
organizations, the employees of those organizations, shareholders, societies
and even the general public. Any kind of malpractice which can be harmful shall
be punished duly in accordance with the law. The policies of whistle blowing
would assist in removing the ambiguities and educate the employees about
different wrong doing which might take place in the organization. A living example of adopting the whistle
blowing policy in India can be found by the Berger Paints company in India. It
allows the registration of direct complaints in cases where there is a
violation of the company’s code of conduct. Below are the advantages summarized
which we find in the Whistle Blowing Policy:
1.
Unethical behavior exposed: The whistleblowerpolicy in India serves a vital function in government and business. When agencies of the
government or corporation cross the ethical and legal limits it is the whistleblower
who do the job of making these malpractices public knowledge and as a result of
which the violators are held responsible. This also helps in restricting the
organizations or the agencies to limit them.
2. Protection to the employees: The whistleblower
policy in India also provides protection to the employees who report the malpractices
and violation of laws. There can be a lot of retaliation by the employer
against the employee who report the malpractices. The retaliation could include
a lot of things such as denial of benefits, dismissal, demotion, etc. Companies
who are found to be in violation of whistleblower protection laws are liable to
fine, suspension and civil lawsuits.
Disadvantages of Whistle
blowing: The disadvantages found by us are summarized as follows:
1.
Diminished Career: The world outside
may view whistleblowers as heroes because they reveal corrupt behavior but
industry insiders often consider them as disloyal or indiscreet for not keeping
the secrets of the company. As the whistleblower cases bring investigations
conducted by government, legal testimony etc. The attention of the media may
lead to the whistleblower being blacklisted.
2.
Personal
Complications: The whistleblowers often endure from their actions personal problems.
Investigations and lawsuits against the company may often require them to hire
lawyers in order to defend themselves. They also might receive threats from
former employers.
The challenges faced
by the whistle blowing policy in India:
Corruption: In India the
corruption plays a pivotal role in causing obstacles for the successful
implementation of whistle blowing mechanisms. Though the democratic system of
government is followed in India but the dark network of bureaucracy prohibits
genuine victims from attaining justice.
Those who raise their voice against the maligned system end up being
tortured or harassed. One of the biggest examples which can be given for such
an incident is the case of Satyendra Dubey in 2003. In this case the engineer
(satyendradubey) was charged for retaliating on corruption in a highway
project. He repeatedly sent letters to the higher officials of the NHAI
informing them about the financial discrepancies which resulted in his transfer
to Gaya at Bihar instead of investigation and he ended up being murdered. With
the help of the earlier mentioned case we can understand that a lot of people
are afraid to raise their voices or blow the whistle so that they are not
subject to such incident.
Lack of integration of
the legislation: The Companies Act 2013 along with the SEBI provide a
successful mechanism for whistle blowing in the ever growing scams and scandals
of the corporate. The Companies Act 2013 provides for the vigilance whereas the
SEBI vide clause 49 of listing agreement mentions it as non-mandatory provision
for whistle blowing. By this what we aim at meaning is there is no proper set
of rules provided by our legislation specifying what should the whistle blowing
policy include and exclude along with pointing out the ambiguities in it.
Ideal whistle blowing
policy: When there are wrong doings in an organization and it remains in the
shadow or unblown it leads to the company incurring financial losses. By the
ideal whistle blowing policy we mean is a policy which is absolute and which
specifies what are the protection, rights etc., of the whistleblowers. An ideal
whistle blowing policy should also specify the ambiguities in the current policies
which are implemented and must promote a culture of openness. The main thing
which needs to be focused for a whistle blowing policy is the maintenance of
anonymity so that the whistle blower feels safe and secure.
Conclusion: Whistle blowing
mechanism must be incorporated in order to eliminate all the scams and scandals
taking place in organizations, government agencies etc. More auditors should be
employed so as to strengthen the internal control systems by which the whistle
blowing activities can be controlled. Implementation and formulation of holistic
laws can reduce the malpractices and corruption to a huge extent and this in
turn will result to a corporate sector being free from scandals or scams. Just
like a strong tree which takes a lot of time to grow tall and strong similarly
this policy will not give immediate outcomes but over the years when it spreads
and becomes stronger it shall prove to be a highly successful asset.
