Despite the felt need for whistleblower protection laws, little has been done about it. While the Public Interest Disclosure and Protection to Persons Making the Disclosure Bill 2010 is in the offing for public entities, no similar law is even being considered for the private sector. The tragic killings of whistleblowers Satyendra Dubey and Shanmughan Manjunath seem to have underlined the need for protective laws in the public sector. There is every likelihood, however, that there are similar cases in the private sector that have gone unreported.

This brings up the issue of whether a whistleblower mechanism has been mandated. While whistleblowers may have always existed, related laws across the world came into existence only in recent years, and in India the Companies Act 1956 has not dealt with it.

Listed companies have a ‘non-mandatory’ requirement to establish a whistleblower mechanism under corporate governance norms, which is also subject to review by the audit committee. The equity listing agreement also suggests that the company’s whistleblower policy should be disclosed in its corporate governance report.

The recommendations under the equity listing agreement specify that employees should report concerns over unethical behaviour, actual or suspected fraud, or violation of the company’s code of conduct or ethics policy. There should be adequate safeguards against the victimisation of employees. Once established, the existence of the mechanism may be appropriately communicated within the organisation.

The first part of the requirement seems easy enough to implement, as it only involves having a policy to deal with whistle blowing. The practical implementation and effectiveness, however, remain to be seen.

For unlisted companies, there are the Corporate Governance Voluntary Guidelines issued by the Ministry of Corporate Affairs in 2009, which, as the title amply clarifies, are only voluntary. The guidelines make a brief mention of whistle-blowing mechanism:

The companies should ensure the institution of a mechanism for employees to report concerns about unethical behaviour, actual or suspected fraud, or violation of the company’s code of conduct or ethics policy;

The companies should also provide for adequate safeguards against the victimisation of employees who use the mechanism, and allow direct access to the chairperson of the audit committee in exceptional cases.

The voluntary adoption of norms is rare in a developing country like ours. To be effective, there is need for a law and its enforcement. In its absence, few companies would have a policy in place. Further, even where policies exist the fear of repercussions will not encourage their use.

On the other hand, it is interesting to note that certain multinational companies voluntarily establish whistle-blowing mechanisms in line with their global policies. For example, companies use the whistleblower mechanism to ensure compliance with the stringent Foreign Corrupt Practices Act of 1977 in the US, which is replicated by subsidiaries in India.

Companies Bill 2012 takes a step in the right direction, with a requirement for listed companies (and other class of companies, to be prescribed) to establish a vigil mechanism “for directors and employees to report genuine concerns”. However, private limited companies do not seem to be covered.

Also, one of the consequences has been the efforts to increase the auditor’s responsibilities in Companies Bill 2012. While it is well accepted around the world that the auditor’s responsibilities are limited to opining on whether the financial statements are ‘true and fair’, Companies Bill 2012 extends this responsibility. It proposes that an auditor should report to the Central Government if he has reason to believe that any offence involving fraud is being committed or has been committed against the company by its officers or employees. The implementation remains to be seen, as the auditor may not in all circumstances be aware of matters unrelated to the financial statements. Specifically, aspects such as ethical behaviour or compliance with the company’s code of conduct are not in any way within the purview of an auditor’s opining on the financial statements.

Whistle blowing can prove to be an effective tool in establishing a culture of self-monitoring. All it needs is a boost in the right direction from the regulators.

Madhuri Ravi, Senior Manager, contributed to the article.

The author is Partner, Price Waterhouse

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