Whistle-blowers

In this article, Kapil Mishra pursuing M.A, in Business Law from NUJS, Kolkata discusses Legal framework and Regulations protecting Whistle-blowers in India.

Index of the research undertaken

Background and Genesis of Whistle-blower Laws in India

  • This section gives the context and the evolution of whistle-blower policies in India.

Definitions, Framework, and relevance

  • This section helps you understand definitions, Framework of the Act and how these can affect a case and the concerned Whistle-Blower.

Challenges and Aspects of Possible Improvement

  • This section gives an understanding about key challenges – from both practical and technical perspectives, coupled with the aspects of improvements in the Act.

Conclusion

  • Brief take home message about Whistle blowing in India and possible steps to check the true merits of a case to blow the whistle.

Laws related to Whistle-blowers in India

Background:

Monday, May 13, 2013 – Court in Maryland, USA; exactly after five years and one month since a case was filed by a senior executive of a leading (and largest) Indian Pharma company; court announced a settlement between various Government departments and the Pharma company whereas the company pleaded guilty in this federal case.

This settlement made a distinct mark in Indian corporate world,  as well as in USA, to be one of the largest ever settlement by any Indian company in which company agreed to pay $500mn to govt. agencies of US – which was a whopping Rs.3,000 crore in Indian currency.

All of this started and happened for a very simple reason that an executive decided to notify regulators against some of the wrong practices he noticed in the company- means he became a WHISTLEBLOWER against the incorrect practices. This whistle-blower had not only updated the agencies but also filed a case in 2007 and fought for 5 long years resulting in such a huge settlement. Despite of battery of lawyers and attorneys, company had to plead guilty and pay an amount never heard of in Indian corporate world. This case was an example of the power vested by law in Whistle blowers, albeit the ones with god faith, and also a case study in which being on the side of truth made the whistle-blower get almost $49mn (Rs270 crore) as compensation.

With this hindsight, this article is going to explain the law governing Whistle-blowers, their roles and how the legal framework is laid out to address such issues structurally.

Genesis of the Legal Framework around Whistleblowing

In certain cases which reached the door of Supreme Court of India and were involving instances where the person, who blew the whistle against corrupt and wrong practices in some of the government organisations, were killed. Notably the case of NHAI engineer Satyendra Dubey, who was killed after he wrote letters to Prime Minister’s Office about colluded corruption by contractors, Govt. Officers and Politicians in the Golden Quadrilateral project in 2003. As this case provoked national debate and protests to save people who stands-up against wrong practices – Supreme Court pressed Government into issuing an office order-known as Public Interest Disclosure and Protection of Informers, 2004 appointing Central Vigilance commissioner as the nodal agency.

This dialogue between Judiciary and Government spurted the framing of Whistle-blowers Protection Act, 2011 – which was passed by Lok Sabha in 2011, Rajya Sabha in 2014 and finally enacted after President’s assent in 2014. Post its enactment it has gone through few amendments in 2013 and 2015.

Definitions, Framework, and Relevance

Definition of Whistle Blowers Act is described as (quoted as it is)- “An act to establish a mechanism to receive complaints relating to disclosure on any allegations of corruption or wilful misuse of power or wilful misuse of discretion against any public servant and to inquire or cause an inquiry into such disclosure and to provide adequate safeguards against victimisation of the person making such complaint and for matters connected therewith and incidental thereto.”

i. Who is a Whistle-blower:

The term Whistle-blower and its use has been rather recent in legal as well as corporate history of India, however as concept this has been in existence for long. In general context a ‘Whistle-blower’ can be a person or a group of persons, who are exposing the fraud, corruption, wilful wrongdoing or similar unethical acts those may be non-permissible under law, these whistle-blowers can be employee or former employee or vendors or affiliates of any organisation deviating from the good management practises.

There are different types of whistle blowers which are described as following –

a. Internal

When whistle blower, while being employed with the organisation, reports the wrong conduct or activities of an official or a colluded effort by a group of people in an organisation.

b. External

When the issues pertaining to the wrong practises or wilful misdeeds are reported by people who are outside the system – these people can be individuals or in the form of organisations such as media, public interest groups or any other such agency. Such whistle blowers are known as external whistle blowers.

c. Alumni

When the whistleblowing is done by a person who is no more employed by the organisation but he is acting on the willful wrongdoings he has witnessed during his employment with the organisation. Such ex-employees can unearth such deliberate mismanagements with the relevant authorities.

ii. Framework

In the corporate world, the most important factor of reliability is ‘Transparent Governance’. Ability of an organisation to inculcate a transparent governance system, which promotes adoption of ethical business practises, can provide a significant thrust to have sustainable growth and continued business for longer term. This can be achieved by establishing efficient management systems and robust policies to detect and minimise acts of frauds, corruption in the company.

The existence of such policies in the form of legislative act has been there even before the enactment of Whistle-blower Act, it was well recognised under Section 177(9) of Companies Act that all public listed companies have to mandatorily establish a vigilant mechanism for employees and senior executives. On top of that it has been made mandatory to establish a whistle blower policy with clear and adequate safeguards against victimisation of whistle-blowers.

Viability of a whistleblowing policy depends solely upon the intent with which an organisation firstly wants to create it and secondly wants to implement it. Such policy should not only give direction to complaints regarding any violation but also should specifically convey the results and in worst case even the failure to report should also fall into the violation of policy. Some of the key points to understand the framework can be as following –

  • The policy must provide a mechanism and channel to report violation on any level. Such channels should be presided by the chairman of the board.
  • Entire Pyramid of hierarchy, right from an entry level employee to the director should be allowed to report any violations of the policy. Discriminations, wilful negligence of quality, colluded frauds, and misappropriation of budgets are some of the events those should get reported.
  • In the event of such reporting, the senior management shall take-up the investigation and any false evidence shall be dealt with seriously.
  • Zero harassment should be assured to the whistle-blower by the management in the policy itself and no retaliation in whatsoever form should be tolerated.
  • Full confidentiality shall be maintained at all the times to safeguard the whistle-blower.
  • Such policy should have exception to not protect a whistle-blower from disciplinary action if allegations are proven unfounded and with wilful malicious intent.

iii. Whistle-blower Policy and Legislation in India

With the Pharmaceutical company’s case in which an Indian executive of an Indian company took up the case of wrong practises in the US courts under False Claim Acts of USA, it was evident that the Whistle-Blower Policy and the framework around it was not considered to be strong enough. However Whistleblowing should be seen in conjunction with the recent structural change Indian corporate world has gone through which includes multiple new bills and amendments in numerous old bills. In the context of Whistleblowing in largely corporate settings (Public/Private both), it is wise to understand it in the light of Companies act and the relevant regulators such as SEBI and others.

a. The Companies Act and Whistleblowing

In the hindsight of numerous scandals and syndicated corruption through Private and Public Sector companies alike, it was obvious to have certain changes the way Business world is governed through different Acts and Statute of Law. One such important step was the enactment of The Companies Act 2013, which has put more thrust on eliminating loopholes through stricter compliance and vigilance mechanism.

Different sections of the Companies Act 2013, covers complete framework of inquiry, investigation and inspection – all under one chapter of the Act through sections 206 to 229. These provisions increases identification of wrong practises by an external agent and thus the agent can play an important role to become an external whistle-blower. Section 208 of the act empowers an Inspector (other than registrar) to go through the records and recommend a further investigation in such matters of doubt; whereas Section 210 of the Act empowers Central Govt. to order an investigation on the receipt of such recommendations from registrar or Inspector or in public interest or on intimation of a special resolution passed by company to be investigated. In the same lines Section 211 has led to the formation of Special Fraud Investigation Office (SFIO) with power to arrest for offences specified as fraud. In previous context Auditors were not legally empowered to ascertain a fraud and they were just supposed to be primarily reporting such misappropriation. However now it is their onus to act as whistle-blowers and directly report any such act to Central government or concerned authorities.

b. Securities & Exchange Board of India (SEBI) and Whistleblowing

SEBI – The regulatory body for management of Public Limited companies,following its mandate to strengthen corporate governance standards in India, amended the Principles of Corporate Governance by incorporating clause 49 of the listing policy which mentions the formation of Whistle-blower Policy for companies. However it is not mandatory to put a policy in place, although numerous companies have adopted it wholeheartedly as it improves the compliance and governance standards – on the other hand it is mandatory to disclose adaption of such policy and number of events reported under such policy along with the number of cases resolved or pending.

c. The Whistle-blower Protection Act

As a bill passed by the Parliament in 2014 and consented by the President in May, 2014 – Whistleblower Protection Act, 2014 replaces the government resolution of 2014 which empowered Central Vigilance Commission to act on complaints from whistle-blowers.

In this act under section 3, any public servant or any other person which may include any non-governmental organisation may make a public interest disclosure to a competent authority. Any such disclosure to the competent authority shall be treated as Public interest disclosure in the context of this Act. The Act provides empowerment to the competent authorities to give direction to the relevant bodies/authorities for the protection of complainant or witness.

This Act has few exclusions to be reported if it fall under any of the categories of national importance such as,

  1. Nation Security issues.
  2. Economic/Scientific issue of Importance.
  3. Cabinet Meetings/Proceedings.

Any such public interest disclosure falling into the excluded categories, when received by competent authority shall be forwarded to an authorised government office/body and the competent authority will be taking a decision on such matter whereas that decision shall be binding.

On the other hand this Act comes with few control mechanism on complainants, such as

  • Penalty of up to two years imprisonment and a monetary fine of up to 20,000 rupees for individuals found to be filing false complaints or the ones with wilful vendetta.
  • Along with this the Act provides a time limit of seven (7) years to file a complaint dating from the time of occurrence of such corruption or wilful act.

Challenges and Aspects of Improvements

The Whistle-blower Protection Act has got its own challenges which have been identified and discussed by many national international experts and people working against corruption. The Biggest challenge that remains to be a major shortcoming of the Act is about the Anonymity of a Whistle blower.

Under the Act, a whistle-blower can’t file a complaint anonymously. It is clearly stated in the act that no action shall be taken if any such disclosure does not express the identity of the complainant. This is a serious shortfall of the Act – while in this provision whistle-blower cannot remain anonymous, the authority receiving complaint is supposed to safeguard the identity of the complainant. Hence complainant is solely dependent upon the authority to protect his/her identity – whereas in contrast US laws provides complete anonymity for registering a complaint and even for receiving monetary rewards such complainant can remain anonymous provided he acts through a legal counsel.

This can be understood in the context of two separate case from India and US – one in which an executive (Sherron Watkins) of Enron corporation was hailed as a star by the corporate world and society alike, She was given full confidentiality and protection from government agencies and only at her will she disclosed her identity wherein her expose led to the fall of a multibillion dollar corporation. However on the other hand in India, when a government engineer (Satyendra Dubey) blew the whistle and wrote to PMO with details of syndicated corruption and very soon all of his details reached the people alleged for corruption leading to the unfortunate event of him being murdered. This event was widely criticised across sections of society and acted as an eye opener to the government.

Although in Indian context after few such instances of killing of whistle-blowers, Whistleblower Act has empowered Central Vigilance Commission to assess public disclosure requests and safeguard such whistle-blowers. The CVC has got powers to order the restoration to the position from which Whistleblower might have been fires in retaliation – moreover the onus is on the employer to prove that any action taken against employee (whistle-blower) is not in retaliation. Another important feature of the Act is the power vested upon CVC to penalise any officer who has disclosed whistle-blower’s name without proper approval and such punishment can be up to   Rs.50,000 fine and imprisonment of up to 3 years. However the Act does not empower authorities to provide criminal penalties for any sort of physical harassment or attack on whistle-blowers. Likewise the Act does not provide much clarity for civil penalties for workplace discrimination and retaliation.

Overall, the improvement can start on all of the above mentioned aspects and the topmost priority can be defining the important terms such as “Victimisation” – so that it can be used to safeguard whistle-blowers without any ambiguity. Similarly it is suggested by many experts that the vary definition of “Disclosure” is very narrow and should be broadened to have better effectiveness while covering such cases as in the form disclosure of any wrongdoing by a volunteer.

Another interesting aspect of being a whistleblower is to have the dilemma of Professional responsibility versus Organisational Loyalty. In this case a potential whistleblower has to face a lot of intrinsic questions before taking the plunge to become one – such risks include the risk of job , professional relations and sometime risk of life as well. This can be better dealt with the detailed policy framework and strict enforcement of the same.

Conclusion – Whistleblowing in India and Steps to Assess the Merit of a Case

There has been numerous examples and case studies which can act as a guiding book for someone who wants to either formulate a whistle blower policy in an organisation to make governance more transparent and efficient or if one wants to volunteer against any wilful fraud going on in an organisation.

Whistleblower policy if implemented effectively, can become a big deterrent to people with malign intents. Cases from the past suggest that a case fought solely on merits and with full preparation coupled with supportive legislative framework, can lead to expose of very high level syndicated fraud such as Enron Corporation and of many companies from Pharma and Defence sectors – whereas if the framework and its implementation is weak such as we have seen in past in India, honest whistle blowers have faced very high discrimination, victimisation and in some cases they lost the life also.

Now the question comes that what should be one’s strategy to implement strong policy in an organisation as an executive; whereas on the other hand as an executive or an employee what should be the step by step process to take the plunge and risk one’s career and may be life also to make sure that wrong practises are exposed to the world and competent authorities take action on it? This can be understood and implemented in the structural way by answering few questions to himself by the Whistleblower such as –

  1. Person who is volunteering to expose a wrong act or a fraud, should first assess that if this will fall into a case of personal interest or a case of larger public interest. In the situation where it looks like a personal interest and just an individual case – one should assess whether he has explored the available grievance or anti-harassment mechanism or not.
  2. One must ascertain about his own role and responsibility towards serving the public interest against the urge towards organisational loyalty one might have. Generally such dilemma comes up with every such case of whistle blowing where one has to compare moral values and business ethics versus relationship with colleagues and employer.
  3. Willingness and mental preparedness to confront retaliation and lots of undercurrent by your known people and colleagues.
  4. By blowing the whistle against wrongdoings, a whistle blower disagrees with the authority of that organisation and that will obviously bring a lot of risk where not only authority but also hierarchy is violated by such act. In such an extreme situation, the volunteer must be sure about the content and specificity of the issue. If the issue cannot be articulated in a manner that it gets substantial and correct type of audience, it will get washed out and will not serve the correct purpose.

In order to have a corporate ecosystem free from all scams and frauds, following high level of integrity and transparent governance, The Whistleblower Act is a step in right direction albeit it needs some more teeth and nails. The Whistleblower Act coupled with The Companies Act 2013 makes up the deficit which Indian Legal system has been facing however there have been shocking cases of victimisation of whistleblowers and no one can deny that corrupt practises can only be decreased and probably not eliminated completely. Possibly the Act can have a second level escalation mechanism which is a big missing point as of now – due to which many complaints are watered down due to external factors and the Whistle-blowers have no resort to complaint against a wilful negligence against his complaint.

Success or failure of The Whistleblower Act is not much dependent upon the quantified outcomes in the short term and it should not be considered as a magic wand which will eliminate all wrongdoings in our routine life – rather in longer term it may act as a supporting tool to employees, professionals and organisations which have an intent to maintain integrity and transparent governance free from all possible corruption. It is only the active participation from all stakeholders, which will make the Act useful and instrumental in a collective fight against corruption and all wrong practises.

 

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