VIGIL MECHANISM/ WHISTLE BLOWER

 

INTRODUCTION

 

The term "whistle blowing" originated from the practice of British policemen blowing their whistles whenever they witnessed a crime being committed. The term 'whistle blowing' is a relatively recent addition to the lexicon of public and corporate affairs, although the phenomenon itself is not new. The concept of whistle blower also existed in ancient India, Kautilya proposed- "Any informer who provides information about embezzlement under the crime, if he succeeds in proving it, he should be rewarded as one-sixth of the amount; if he was a government servant, he would get one-twelfth of the amount for the same act. The term whistle blowing probably originates from an analogy with a referee or umpire who, by blowing his whistle, calls attention to foul play. Attracts attention, which will alert both law enforcement officers and the general public to the danger.

MEANING AND DEFINITION

 

Whistle blowers are individuals who expose corruption and fraud in organizations by filing a law suit or a complaint with Government authorities that prompts a criminal investigation in to the organizations alleged behavior. A whistle-blower is a person who publicly complains concealed misconduct on the part of an organization or a body of people, usually from within that same organisation. This misconduct may be classified in many ways:

For Example, a violation of a law, rule, regulation or a direct threat to the public interest, such as fraud, health or safety violations, and corruption.

TYPES OF WHISTLE BLOWER

S.NO.	TYPES	MEANING
01	Internal	When the whistle-blower reports the wrong doings to the officials at higher position in the organization. The examples of internal whistle blowing are disloyalty, improper conduct, indiscipline, disobedience etc.
02	External	Where the wrongdoings are reported to the people outside the organization. The examples of external whistle blowing are  media, public interest groups or enforcement agencies etc.
03	Alumini	When the whistle blowing is done by the former employee of the organization.
04	Open	When the identity of the whistle-blower is revealed.
05	Personal	Where the organizational wrongdoings are to harm one person only by disclosing such wrong doings.
06	Impersonal	When the wrong doing is to harm others.
07	Government	When a disclosure is made about wrong doings or unethical practices adopted by the officials of the Government.
08	Corporate	When a disclosure is made about the wrongdoings in a business corporation.

VIGIL MECHANISM UNDER COMPANIES ACT, 2013

 

Section 177(9) of the Companies Act, 2013 provides every listed company or such class or classes of companies, as prescribed in Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014, shall establish a vigil mechanism for directors and employees to report genuine concerns in such manner as may be prescribed.

 

Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014, provides that -

 

# Applicability

 

1. Every listed company and the companies belonging to the following class or classes shall establish a vigil mechanism for their directors and employees to report their genuine concerns or grievances -

• the Companies which accept deposits from the public; or
• the Companies which have borrowed money from banks and public financial institutions in excess of 50 crore rupees.

 

# In case of Conflict of Interest

 

2. The companies which are required to constitute an audit committee shall oversee the vigil mechanism through the committee and if any of the members of the committee 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

 

# In case of non applicability of Audit Committee

 

3. In case of other companies, the Board of Directors shall nominate a director to play the role of audit committee for the purpose of vigil mechanism to whom other directors and employees may report their concerns.

 

# Purpose of vigil mechanism

 

4. The vigil mechanism shall provide for adequate safeguards against victimisation of employees and directors who avail of the vigil mechanism and also provide for direct access to the Chairperson of the Audit Committee or the director nominated to play the role of Audit Committee, as the case may be, in exceptional cases.

 

# Action taken in case of repeated frivolous complaints

 

5. In case of repeated frivolous complaints being filed by a director or an employee, the audit committee or the director nominated to play the role of audit committee may take suitable action against the concerned director or employee including reprimand.

 

Section 177(10) of the Companies Act, 2013 provides that the vigil mechanism under sub-section (9) shall provide for adequate safeguards against victimisation of persons who use such mechanism and make provision for direct access to the chairperson of the Audit Committee in appropriate or exceptional cases: Provided that the details of establishment of such mechanism shall be disclosed by the company on its website, if any, and in the Board’s report.

 

 

VIGIL MECHANISM UNDER SEBI LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS, 2015

 

1. The listed entity shall formulate a vigil mechanism for directors and employees to report genuine concerns. [Regulation 22(1)]

 

2. The vigil mechanism shall provide for adequate safeguards against victimization of director or employee or any other person who avail the mechanism and also provide for direct access to the chairperson of the audit committee in appropriate or exceptional cases. [Regulation 22(2)]

 

3. Regulation 46(2)(e) provides that the listed entity shall disseminate the details of establishment of vigil mechanism/ Whistle Blower policy.

 

4. The disclosure regarding the details of establishment of vigil mechanism, whistle blower policy, and affirmation that no personnel has been denied access to the audit committee shall be made in the section on the corporate governance of the annual report.

 

WHAT IS THE POSITION IN US ?

 

The Sarbanes–Oxley Act of 2002 is a United States federal law that mandates certain practices in financial record keeping and reporting for corporations. Section 302 of the Sarbanes Oxley Act of 2002, an Act enacted by the U.S. congress to protect investors by improving the accuracy and reliability of corporate disclosures made according to the securities laws, and for other purposes contains the following provisions for whistle-blowers:

 

a. Make it illegal to “discharge, demote, suspend, threaten, harass or in any manner discriminate against” whistleblowers.

 

b. Establish criminal penalties of up to 10 years for executives who retaliate against whistle-blowers.

 

c. Require board audit committees to establish procedures for hearing whistleblower complaints.

 

d. Allow the secretary of labor to order a company to rehire a terminated employee with no court hearing.

 

e. Give a whistle-blower the right to a jury trial, bypassing months or years of administrative hearings.

 

Interesting Fact

 

The informant who give information relating to insider trading concern directly to the SEBI. The reward will be determined by SEBI for that informant and is capped at the lower of Rs 1 crore or 10% of the monetary penalty recovered by the SEBI.

 

Article Compiled by:-

Mayank Garg

+91 9582627751

 

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including newspapers , charted secretary etc.

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