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THE WEST BENGAL NATIONAL UNIVERSITY OF JURIDICAL

SCIENCES

COMPANY

LAW

PROTECTION OF WHISTLEBLOWERS IN INDIA: A CORPORATE

PERSPECTIVE

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SHIVAM GOEL

LL.M 1ST YEAR

PG 21337

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INDEX

Page No.Introduction 3Chapter I: Corporate Governance Code & Whistle

Blower Protection Initiatives

7

Chapter II: Whistleblowers: The Keepers of

Corporate Conscience

11

Chapter III: Whistleblower Protection through

Legislative Means in India: The Whistleblowers’

Protection Bill, 2011

16

Chapter IV: International Comparison of

Whistleblowing Laws

21

Chapter V: Whistleblower Policy: A Matter of

Furthering Necessity

25

Chapter VI: Conclusive Remarks 28

Selected Bibliography 31

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Introduction:

“All it requires for the evil to triumph is for good men to do

nothing.”

- Edmund Burke (Political

Philosopher)

“Silence is a powerful enemy of social justice.”

- Amartya Sen, The

Argumentative Indian

A whistle- blower is a person who raises a concern about

wrongdoing occurring in an organisation or body of people.

Usually this person would be from the same organisation. The

revealed misconduct may be classified in many ways; for

example, a violation of a law, rule, regulation and/or a

direct threat to public interest, such as fraud, health/safety

violations, and corruption. Whistle- blowers may make their

allegations internally (for example, to other people within

the accused organisation) or externally (to regulators, law

enforcement agencies, to the media or to the groups-concerned

with the issues).

In this age of Globalisation, where economic motives precede

over all virtues and traditions; protection of larger public

interest from great corporate scandals has become matter of

great importance. Corporate Whistle-blowing, globally is

considered as one of the best tools to ensure good corporate

governance, but the same is still in its infancy in India. As

per a recent study released by ASSOCHAM- Ernst & Young,

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whistle-blowing is being used in a very limited manner by

India Inc. for fraud prevention. The report said:

“Most frauds result in some form of business disruption

as well as reputational and financial losses. Whistle-

blowing is still at a nascent stage in India; and most

Indian-companies do-not use it as an effective tool

against fraud.”1

India has the largest number of listed companies in the world,

and therefore efficiency and well being of the financial

markets is critical for the economy in particular and the

society as a whole. According to a report prepared by Pune

based Indiaforensic Consultancy Services (ICS), at least 1,200

companies listed on domestic stock exchanges have forged their

financial results. The figure included 20-25 firms on

benchmark Sensex and Nifty indices. The study called Early

Warning Signals of Corporate Frauds had alleged that such improper

accounting included deferring revenue and inflating expenses.

The survey examined 4,867 companies listed on the BSE and

1,288 companies listed on the NSE. With the Satyam Fraud

unfolding this report does not seem improbable.

In the present times the need of standards of corporate

governance is more than ever for- despite the dominance of

organisational actors in contemporary social life, law is

desperately short of doctrines, institutions, and regulatory

techniques that adequately control corporate entities. It has1See: Mehta, Mithila. , “Whistle-blowing policy in a Company”, The Times of India,9 September 2013,http://articles.timesofindia.indiatimes.com/2013-09-09/work/41903181_1_india-inc-whistleblowing-organisation, Visited on: 20-10-2013

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now become imperative to design and implement a dynamic

mechanism of corporate governance, which protects the

interests of relevant stakeholders without hindering the

growth of enterprises because the corporate veil frequently

deflects the penetration of legal values into and, indeed, the

imposition of legal sanctions upon the corporate entity.

Adversarially- trained lawyers often facilitate avoidance and

evasion of corporate liability through ‘creative compliance’

with legal requirements. A commonly proffered solution to the

problem of ensuring that legal values permeate the internal

workings of the corporation is to require large institutions

to regulate themselves in a way that is responsive to social

concerns.

The top five mechanisms which are vital for implementing

better and effective Corporate Governance in any organisation

are:

1. Independence of Board

2. Role of Auditors (Internal and Statutory) and Audit

Committee

3. Whistle Blowing

4. Shareholder Activism

5. Fast Track Redressal Forums and Independent complaint

mechanisms.

Whistle blowing is relevant and plays a critical role in

implementing Corporate Governance Practices. This was evident

when Sherron Watkins blew the whistle on Enron’s Management in

the U.S. and when Harry Templeton challenged Robert Maxwell’s

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prowling of the pension fund, better known as the “Maxwell

Saga” in the U.K. Our society has become so entrenched in

doing wrong that corruption and violation has become the

inherent part of the public and private life of the society.

This issue has to be tackled by adopting best approach, which

encourages and requires corporations to set up channels for

blowing the whistle.2

Whistle-blowing in India, especially in public sector

enterprises and government agencies has proved costly. The

murders of Satyendra Dubey and Shanmughan Manjunath may make

most whistle-blowers think twice.

In 2004, the death of whistle-blower Satyendra Dubey, an

engineer with the National Highways Authority of India (NHAI)

led to the initial work on protecting whistle-blowers. Dubey

was killed after he wrote to the ex- Prime Minister, A.B.

Vajpayee’s office about the corrupt practices in the

construction of highways. The government issued a notification

laying down certain guidelines for whistle-blowing and

protecting whistle-blowers. It introduced the Public Interest

Disclosure and Protection of Persons Making the Disclosure

Bill, 2010 in August 2010 to give statutory backing to the

2004 government resolution (which was issued post the murder

of Dubey). Commonly known as the Whistle-Blower Bill, it seeks

2 See: Thapar, Shilpi. , “Learn, Unlearn, Relearn- Whistle Blowing: An Important Aspect ofCorporate Governance and Role of Company Secretary as Effective Whistle Blower”, November 6,2012, http://shilpithapar.com/2012/11/06/whistle-blowing-an-important-aspect-of-corporate-governance-and-role-of-company-secretary-as-effective-whistle-blower/, Visited on: 19-10-2013.Also see: ICSI, Whistle Blower Protection, http://www.icsi.edu/docs/40nc/40%20NC-Souvenir.pdf, Visited on: 19-10-2013

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to protect whistleblowers i.e. persons making a public

interest disclosure related to an act of corruption, misuse of

power or criminal offence by a public servant.

A similar case was that of Manjunath Shanmugham, a sales

manager of the IOC (Indian Oil Corporation). He was killed in

2005 for uncovering a racket that dealt in petrol

adulteration.

The Whistleblowers’ Protection Bill provides that anyone can

file a complaint of corruption, with the Central Vigilance

Commission (CVC), against any employee of the Central

Government or organisations backed by the Central Government.

The CVC is an authorised nodal agency for addressing

complaints. It has powers similar to a civil court, such as:

(a). powers to issue summons, (b). order police investigation,

and (c). provide protection to the whistle-blowers.

However, the CVC is not authorised by Indian laws to address

the complaints regarding matters that are already in court’s

purview, prejudicial to national security, international

relations and proceedings of the Union Cabinet.

The proposed law does not deal with corporate whistle-blowers,

though as per the recommendations of the Second Administrative

Reforms Commission, the scope of the proposed law could be

enlarged to deal with corporate whistle-blowers too.

Under the Indian Penal Code, 1860, whistleblowers and

witnesses have only very limited protection. Section 5 and 24

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of the IPC3 provide limited protection to whistleblowers, but

only against prosecution under the IPC.4

3 See: The Indian Penal Code, 1860: Section 5- Certain laws not to beaffected by this Act: Nothing in this Act shall affect the provisions ofany Act for punishing mutiny and desertion of officers, soldiers, sailorsor airmen in the service of the Government of India or the provisions ofany special or local law.Section 24- Dishonesty: Whoever does anything with the intention of causingwrongful gain to one person or wrongful loss to another person; is said todo that thing “dishonestly”.4 See: Saaib, Mirza and Akash Pratap Singh, “Whistleblower Protection”, LawyersUpdate, Vol. XVIII, Part 5, May 2012, p.29- 30

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Chapter I: Corporate Governance Code & Whistle Blower

Protection Initiatives

Corporate Governance is the acceptance of the inalienable

rights of shareholders as the true owners of the corporation

and the role of the management is perceived as that of

trustees on behalf of the shareholders. It encompasses

commitment to values, ethical business conduct and strikes a

fine distinction between personal and corporate funds in the

management of a company.5 It defines the parameters of

accountability, scrutinizes the reports and disclosures with

the objective of fulfilling the purpose of the corporate

existence in this era of globalisation with the aim directed

towards the welfare of shareholders.6 Hence, corporate

governance goes beyond the letter of law enlisted in the

Statutes and tries to further the interests of the

shareholders and the general public in an ethical and

transparent manner in order to make the organisation a

responsible corporate citizen.7

Whistle blowing has been defined as “the disclosure by

organisation members (former or current) of illegal, immoral

or illegitimate practices under the control of their

5 See: Preamble, The Narayana Murthy Report of the SEBI Committee onCorporate Governance, 20036 See: Chandratre, K.R. , “Role of Board of Directors in emerging dimensions of CorporateGovernance and impending changes in Company Law”, The Chartered Secretary(Journal), The Institute of Chartered Secretary of India, New Delhi, May1997, p.5057 See: Mehrotara, Atul. , “Corporate Governance, SEBI & Corporate Laws”, TheCorporate Laws Weekly, Vol. 90, Part 4, March 16, 2009, p.157

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employers, to persons or organisations that may be able to

effect action.”8 In the context of a corporation, whistle

blowers are those who expose malpractices, unethical and

corrupt practices of their co-workers and seniors, for the

benefit of the company, stakeholders and society at large. In

India, corruption needs no elucidation when it comes to

companies, as the statistics for white collar crimes keep

shooting every year.9 There is rampant personal use of company

funds, misappropriation and recurrent frauds at different

levels. This is clearly reflected by the Satyam Scam & the

Stamp paper scam in the past. In India, the Whistle blower

policy is restricted to the public servants or in works

connected with the Central Government10 and there exists no

provision for corporate whistleblower, except in Clause 49 of

the Listing Agreement.11

Securities Exchange Board of India (SEBI) has prescribed the

listing agreement that is required to be executed between a

stock exchange and a company whose securities are to be listed

on that exchange. Clause 49 of the listing agreement is titled

as ‘Corporate Governance’ and lays down the principles of

Corporate Governance that are required to be followed by the

listed companies. In addition to a list of mandatory

requirements that a listed company is obliged to comply with,

8 See: Near, J.P. and M.P. Miceli, “Organisational dissidence: The case of WhistleBlowing”, Journal of Business Ethics, 4:4, (1985)9 See: 104 White Collar Criminals Caught in 3 Months, The Times of India (Chennai),17th September, 200910 See: The Central Vigilance Commission Act, 2003: Section 8- Functions andpowers of Central Vigilance Commission11 See: NSE India, http://www.nseindia.com/content/press/JAN.pdf, Visitedon: 25-10-2013

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there are a few non-mandatory requirements that have been

specified in terms of Annexure ID of the specimen listing

agreement. One such non- mandatory requirement relates to

‘Whistleblower Policy’.

Clause 49 of the Listing Agreement of Stock Exchanges places a

non- mandatory requirement for listed companies in India to

adopt Whistleblower policy. The specific recommendation,

placed in Annexure ID to Clause 49 specifies that12:

i. The company will establish a mechanism for employees to

report to the management concerns about unethical

behaviour, actual or suspected fraud or violation of

the company’s code of conduct or ethics policy.12 The revised Clause 49 of the Listing Agreement was initially introducedin August, 2003 based on the recommendations of the Narayana MurthyCommittee, which had provided for the mandatory setting up of a WhistleBlower Policy. The Committee made two mandatory recommendations as follows:

1. Personnel who observe an unethical or improper practice (notnecessarily a violation of law) should be able to approach the auditcommittee without necessarily informing their supervisors. Companiesshall take measures to ensure that the right of access iscommunicated to all employees through means of internal circulars,etc. The employment and other personnel policies of the company shallcontain provisions protecting ‘whistleblowers’ from unfairtermination and other unfair prejudicial employment practices. (Para3.11.1.3)

2. Companies shall annually affirm that they have not denied anypersonnel access to the audit committee of the company (in respect ofmatters involving alleged misconduct) and that they have providedprotection to whistleblowers from unfair termination and other unfairor prejudicial employment practices. Such affirmation shall form partof the Board report on corporate governance that is required to beprepared and submitted together with the annual report. (Para3.11.1.4)

India Inc. was, however, clearly unhappy with these recommendations andopposed them intensely. Bowing to the pressure, the SEBI, when it notifiedthe revised Clause 49 in October 2004, decided to make the Whistle BlowerPolicy recommendation optional/ recommendatory in nature.

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ii. The mechanism must provide for adequate safeguards

against victimisation of employees who avail of the

mechanism.

iii. The mechanism must also provide, where senior

management is involved, direct access to the Chairman

of the Audit Committee.

iv. The existence of the mechanism must be appropriately

communicated within the organisation.

v. The Audit Committee must periodically review the

existence and functioning of the mechanism.

While this is a non- mandatory requirement, the company also

has a mandatory requirement to disclose, in its report on

corporate governance, the extent of adoption of such non-

mandatory requirements.

A similar provision for protection of whistle-blowers is found

in the Sarbanes- Oxley Act of 2002, which forms part of the

United States Federal Law. Section 806 of this Act protects

employees who provide information or assist in an

investigation from discharge, demotion, suspension, threats,

harassment or any form of discrimination.13

Persecution of whistleblowers has become a serious issue in

many parts of the world. Many whistleblowers report there

exist a widespread “shoot the messenger” mentality by

corporations or government agencies accused of misconduct and

13 See: Maccawala, Munira, and Nandita Parekh, “Whistle-Blower Policy: A step towardsbetter governance”, December 2010,http://www.bcasonline.org/articles/artin.asp?967, Visited as on: 19-10-2013

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in some cases whistleblowers have been subjected to criminal

prosecution in reprisal for reporting wrongdoing.14

The scenario of whistle blowing is very complicated in India.

Reference to whistle-blowing practice and policy has been made

in various committee reports (for e.g. in 1998 by CII Code of

Corporate Governance; in 1999 by Kumar Mangalam Birla

Committee; in 2002 by Naresh Chandra Committee; and in 2003 by

N.R. Narayana Murthy Committee); listing agreement; and

voluntary guidelines of corporate governance; but still all

seems just on paper and not in practice, real awareness is

still to come.

The Law Commission of India in 2001 had recommended that in

order to eliminate corruption, a law to protect whistleblowers

was essential. It had also drafted a Bill in its report. In

2004, in response to a petition filed after the murder of

Satyendra Dubey, the Supreme Court directed that--

‘specialised machinery’ be put in place for acting on

complaints from whistleblowers, till a law is enacted. The

government notified a resolution in 2004 that gave the Central

Vigilance Commission (CVC) the power to act on complaints from

whistleblowers.

Since 2004 up till 2008, CVC received about 1,354 complaints

from whistleblowers. In 2007, the report of the Second

Administrative Reforms Commission also recommended that a

specific law be enacted to protect whistleblowers, citing

14 See: Gahrana, Aishwarya. , “Keep Conscience Awaken: Blow Whistle”, 40th NationalConvention of Company Secretaries (Journal), Theme: Vision 2020- Transform,Conform & Perform, October 2012, p.137- 141

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that, India is a signatory (not ratified) to the U.N.

Convention against Corruption since 2005, and the same enjoins

States to facilitate reporting of corruption by public

officials and provide protection against retaliation as to

witnesses.

The Whistleblowers’ Protection Bill, 2011 replaces the 2004

government resolution and sets up a mechanism to receive

complaints of corruption or wilful misuse of power by a public

servant. It also provides safeguards against victimization of

the person making the complaint.15

However, none the less the experts are calling the

Whistleblowers’ Protection Bill, a paper- tiger for two

reasons:

1. The private sector has been kept outside the field of

operation of the Bill.

2. Although the Bill punishes any person making false

complaints, however, it does not provide any penalty for

victimising a complainant.

15 See: Legislative Brief: The Public Interest Disclosure and Protection to Persons Making theDisclosures Bill, 2010, PRS LEGISLATIVE RESEARCH, www.prsindia.org. Also see:http://www.prsindia.org/uploads/media/Public%20Disclosure/Legislative%20Brief%20-%20Public%20Interest%20Disclosure%20Bil.pdf

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Chapter II: Whistleblowers: The Keepers of Corporate

Conscience

“There is a Court, higher than the Court of Justice, it is the

Court of Conscience, and it supersedes all.” – Mahatma Gandhi

“Corporations have neither bodies to be punished, nor souls to

be condemned; they therefore do as they like.” – Edward

Thurlow, 1st Baron Thurlow16

Whistleblower Protection- A matter of Global Concern:

Whistleblowers’ protection under United Nations Convention

against Corruption (UNCAC): Enforced in December, 2005 the

Convention has 140 signatories and amongst them 93 States-

have ratified the provisions. Article 8, 13 and 33 of the

Convention17 enumerate the duties of public officials to report

16 Quoted in John Poynder, Literary Extracts (1844), Vol. 1, p.26817 The UNCAC: Article 8- Codes of Conduct for public officials:

4. Each State Party [ratifying nation] shall also consider, in accordance with thefundamental principles of its domestic law, establishing measures and systems tofacilitate the reporting by public officials of acts of corruption to appropriate authorities,when such acts come to their notice in the performance of their functions.

Article 13- Reporting Channels:2. Each State Party shall take appropriate measures to ensure that the relevant anti-

corruption bodies referred to in this Convention are known to the public and shall

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matters in case of non- performance of functions by other

officials. It further lays protection regime for honest

reporters and ensures the maintenance of their anonymity.

Whistleblowers’ protection under OECD Convention on Bribery of

Foreign Public Officials in International Business

Transactions (OECD Convention): Ratified by 37 nations, the

Convention aims “to address the supply side of bribery by

covering a group of countries accounting for the majority of

global exports and foreign investment.” Whistleblower

regulations are a core part of the Convention where countries

are mandated to establish complaint procedures, and to protect

whistleblowers in the public and private sector.18

Whistleblower protection today is a matter of much Corporate

Global Concern because overtime whistleblowers have been seen as

the ‘Keepers of Corporate Conscience’.

Corporate Conscience is a term widely used for Corporate Social

Responsibility, but in actuality corporate conscience is more

than corporate governance and corporate social responsibility.

Corporate conscience is displayed in exercising fair treatment

and growth for all stakeholders and society without leaning

towards profit for a particular interest group. To put it

provide access to such bodies, where appropriate, for the reporting, includinganonymously, of any incidents that may be considered to constitute an offenceestablished in accordance with this Convention.

Article 33- Protection of reporting persons:Each State Party shall consider incorporating into its domestic legal system appropriate measures toprovide protection against any unjustified treatment for any person who reports in good faith and onreasonable grounds to the competent authorities any facts concerning offences established inaccordance with this Convention. 18 See: Transparency International, Whistle Blower Protection,http://archive.transparency.org/news_room/in_focus/2007/whistleblowers,Visited on: 22-10-2013.

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simply, corporate conscience is a two-fold realisation:

firstly that, corporate governance deals with promoting corporate

fairness, transparency and accountability; and secondly that,

corporate social responsibility focuses on the idea that a

business has social obligations above and beyond making

profit. It requires management to be accountable to full range

of stakeholders.

U.S civil activist Ralph Nader coined this phrase

‘whistleblowers’ in the early 1970s to avoid the negative

connotations found in other words such as “informers” and

“snitches”.19 Also, the term ‘whistleblower’ was first

discussed by Doggett, J., in the case of Winters v. Houston Chronicle

Publishing Company20; the word “whistleblower” is derived from the

practice of English bobbies (the British Police), who would

blow their whistles when they noticed the commission of a

crime. The whistle would alert both law enforcement officers

and the general public of danger.

Research has shown that most whistle-blowers are not

disgruntled employees. In sharp contrast, they rank among the

most productive, valued, and committed members of their

organisations. A number of studies show that most

whistleblowers are normal people who have a strong conscience.

Empirical evidence shows that most whistleblowers are

committed to the formal goals of their organisation, they

19 See: Gahrana, Aishwarya. , “Keep Conscience Awaken: Blow Whistle”, 40th NationalConvention of Company Secretaries (Journal), Theme: Vision 2020- Transform,Conform & Perform, October 2012, p.137- 141; Also see: Nader, Petkas, andBlackwell, Whistleblowing (1972)20 781 S.W.2d 408 (1989)

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identify with the organisation, and they have a strong sense

of professional responsibility. These employees report feeling

an “extended sense of responsibility” when they are confronted

with moral or ethical dilemmas.

Whistleblowers act on attitudes akin to the public-service

ethic, for it is well known that whistleblowing involves self-

sacrifice. Since employees who report wrongdoing threaten the

authority structure of organisations, whistleblowing can

result in swift punishment. Such behaviour is difficult to

explain in utilitarian terms because self-sacrifice is

irrational from a narrow means-ends perspective.

Whistleblowers are often ostracized, fired, and humiliated.

Even so, most employees expect retaliation to be more frequent

and severe than it is. It appears that many whistleblowers

willingly put themselves at risk to preserve the common good.

Whistle-blowers of Global Acclaim: Sherron Watkins of Enron,

Coleen Rowley of FBI and Cynthia Cooper of WorldCom are much

considered as the whistleblowers of global acclaim.

Sherron Watkins was the Vice-President of the Corporate

Development at the Enron Corporation. She helped in uncovering

the Enron Scandal in 2001. In August 2001, Watkins blew the

whistle internally by alerting the then- Enron CEO Kenneth Lay

of accounting irregularities in financial reports. However,

Watkins has been criticised for not speaking up publicly

sooner about her concerns, as her memo did not reach the

public until five months after it was written. Watkins

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testified before committees of the U.S. House of

Representatives and Senate at the beginning of 2002.

Watkins was selected as one of the three “People of the Year

2002” by the Time Magazine, the other two who joined her as

“People of the Year” were Cynthia Cooper of WorldCom and

Coleen Rowley of the FBI.

Coleen Rowley was a former FBI agent and whistleblower, who

after the 9/11 attacks wrote a paper to FBI Director, Robert

Mueller documenting how FBI HQ personnel in Washington, D.C.,

had mishandled and failed to take action on information

provided by the Minneapolis, Minnesota Field Office regarding

its investigation of suspected terrorist Zacarias Moussaoui.

Moussaoui had been suspected of being involved in preparations

for a suicide-hijacking similar to the December 1994 “Eiffel

Tower” hijacking of Air France 8969. Failures identified by

Rowley may have left the U.S. vulnerable to the September 11,

2001 attacks. Rowley was one of many agents frustrated by the

events that led up to the attacks. Rowley testified in front

of the Senate and for the 9/11 Commission about the FBI’s

internal organisation and mishandling of information related

to the September 11, 2001 attacks.

Cynthia Cooper (was an American accountant) formerly served as

Vice-President of Internal Audit at WorldCom. In 2002, Cooper

and her team of auditors worked together in secrecy to

investigate and unearth $3.8 billion fraud at WorldCom.

Cynthia Cooper exploded the bubble that was WorldCom, when she

informed its Board that the Company had covered up $3.8

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billion in losses through the prestidigitations of phony book-

keeping.

Whistle-blowers are the conscience keepers of the society in

general and in the corporate world of the corporations in

particular. But situation in India seems beyond repair-- as

over the past five years21, some 150 whistleblowers have

allegedly been harassed or jailed for exposing corruption,

while as many as 20 have been killed. In the latest trend the

State and local governments are exploiting India’s notoriously

slow court system to land the activists behind bars or saddle

them with criminal charges that may take decades to resolve.

Even the national government seems to have joined the fray, by

going after aid groups that receive international funding in a

smear campaign intended to discredit them as anti-national and

then starve them of cash.

“The government is absolutely complicit in these activities,”

says ACHR’s (Asian Centre for Human Rights) director Suhas

Chakma. “Without the cooperation of the local authorities, the

cases against corruption can never be done. In some cases you

may see the complicity even of judiciary”.22

In the spate of rising brutality against the Whistleblowers in

India, the researcher makes the account of the following

recent events:

21 Following the year 201322 See: Whistle Blowers, http://www.quora.com/Whistleblowers/Who-are-some-of-the-famous-whistleblowers-in-India, Visited on: 23-10-2013; Also see:http://www.salon.com/2013/02/04/indias_war_on_whistleblowers_partner/,Visited on: 24-10-2013

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In August, 2011, 35-year-old, activist Shehla Mahsood, who had

filed countless RTI applications and levelled allegations of

corruption against local politicians associated with illegal

diamond mining, was shot dead on her way to an anti-corruption

protest in Madhya Pradesh.

In October, 2011 in Haryana, a journalist Ramesh Singla, who

had been writing articles about illegal mining business in the

state, was killed in a suspected hit and run case.

In February, 2012, 42-year-old, Premnath Jha, who had filed

several right-to-information applications regarding several

construction projects in Maharashtra, was gunned down while

riding home on motorcycle.

The above cited cases might reflect the ethical-social-and-

political crises that our country faces today, & this may seem

far away from the corporate hemisphere; but in reality it is

not so, as in regards to this, the Vohra Committee report

makes complete sense and bridges the gap between political-

lack-of-morality and the corporate-ethical-bankruptcy. The

report says that -corruption in India takes place due to the

unholy nexus among politicians-bureaucrats-and-industrialists,

while government and its functionaries are caught by the

pincer of RTI and whistleblower law, private sector continues

to be left severely alone with neither of the two laws

applicable to it. Also RTI cannot be made applicable to a

private sector company unless it can be proved that it is

bankrolled by substantial public money.23 There is23 See: Murlidharan, S., “Why the whistleblower law doesn’t extend to the private sector”,17 August 2013, http://www.firstpost.com/india/why-the-whistleblower-law-

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channelization of benefits by the political parties to the

corporate-class, showcasing that such channelization is fair

and unprejudiced, thereafter, this corporate-class later rolls

over the benefits back to the political parties with necessary

kick-offs as and when required or demanded by such political

parties.

doesnt-extend-to-the-private-sector-1040889.html?utm_source=ref_article,Visited on: 21-10-2013

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Chapter III: Whistleblower Protection through Legislative

Means in India: The Whistleblowers’ Protection Bill, 2011

The Government of India had been considering the adoption of a

whistleblower protection law since last several years. In

2003, the Law Commission of India recommended the adoption of

the Public Interest Disclosure (Protection of Informers) Act,

2002. In August 2010, the Public Interest Disclosure and

Protection of Persons Making the Disclosures Bill, 2010 was

introduced into the Lok Sabha. The Bill was approved by the

cabinet in June, 2011. The Public Interest Disclosure and

Protection of Persons Making the Disclosures Bill, 2010 was

renamed as “The Whistleblowers’ Protection Bill, 2011” by the

Standing Committee on Personnel, Public Grievances, Law and

Justice. The Whistleblowers’ Protection Bill, 2011 was passed

by the Lok Sabha on 28th December, 2011. The Bill is however

currently pending in the upper house of Parliament, Rajya

Sabha for discussion and further passage.

The Whistleblowers’ Protection Bill, 2011 seeks to provide

‘adequate protection to persons reporting corruption or wilful

misuse of discretion which causes demonstrable loss to the

government or commission of a criminal offence by a public

servant’. The CVC would not reveal the identity of the

complainant but would have the authority to ignore frivolous

complaints. The criteria for ignoring a complaint have not

been clearly explained. Further, limitations have been placed

on matters which are sub-judice, prejudicial to national

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security, international relations, and proceedings of the

Union Cabinet or those beyond the limitation period of five

years.

Highlights of the Bill:

1. The Bill seeks to protect whistleblowers, i.e. persons

making a public interest disclosure related to an act of

corruption, misuse of power, or criminal offence by a

public servant.

2. Any public servant or any other person including a non-

governmental organisation may make such a disclosure to

the Central or State Vigilance Commission.

3. Every complaint has to include the identity of the

complainant.

4. The Vigilance Commission shall not disclose the identity

of the complainant except to the Head of the Department

if it deems it necessary. The Bill penalises any person

who has disclosed the identity of the complainant.

5. The Bill prescribes penalties for knowingly making false

complaints.

The Government of India asserts that, the Bill seeks the

protection of both the Complainant as well as the Public

Official; it seeks to strike a balance between protecting

persons making a public interest disclosure and preventing

undue harassment of public officials.24

24 See: Cabinet Note on The Public Interest Disclosure and Protection toPersons Making the Disclosures Bill, 2010; July 30, 2010

26 | P a g e

Comparison of protection provided to Complainant and Public

Official25:

Protection of Complainant Protection of Public

OfficialIdentity Vigilance commission and the

Head of the Organisation

have to protect the identity

of the complainant. However,

the Vigilance Commission can

reveal the identity of the

complainant to the Head if

it is of the opinion that it

is necessary to do so.

Every complainant has to

furnish his identity (no

anonymous complainant to

be entertained). No

complaint made after 5

years of the action shall

be entertained.

Penalty Identity revelation carries

a penalty of imprisonment up

to 3 years and fine of up to

Rs. 50,000 as prescribed.

A false complaint carries

a penalty of imprisonment

up to 2 years and fine of

up to Rs. 30,000.Victimisa

tion

The Central Government shall

ensure that no complainant

is victimised through

proceedings against him

merely because he made a

disclosure. If a complainant

is being victimised by a

public servant, the

No penalty prescribed for

public official.

25 See: Legislative Brief: The Public Interest Disclosure and Protection to Persons Making theDisclosures Bill, 2010, PRS LEGISLATIVE RESEARCH, www.prsindia.org, at p.3-4; Alsosee: http://www.prsindia.org/uploads/media/Public%20Disclosure/Legislative%20Brief%20-%20Public%20Interest%20Disclosure%20Bil.pdf

27 | P a g e

Vigilance Commission may

issue directions to the

concerned public servant,

including that the

complainant be restored to

his previous position.Appeal No appeal process specified

if the complainant is

penalised for false

complaints.

If a public official is

penalised for revealing

identity or obstructing

investigation of the

complainant, he can

appeal to the High Court.

The protection provided to both the parties raises certain

issues:

1. Identity: The Bill does not allow anonymous complaints.

Also, there are no clear provisions on what grounds the

Vigilance Commission may reveal the identity of a

complainant to the Head of an organisation. Some experts

contend that allowing anonymous reporting provides

protection to whistleblowers while others have expressed

concern about difficulty of investigation and possibility

of frivolous complaints.26 Countries such as the U.S.,

U.K., Canada and Australia27 have some provisions to

26 See: “Alternative to Silence: Whistleblower Protection in 10 European Countries”,Transparency International, 2009; See Also: Banisar, David. , “Whistleblowing:International Standards and Development”, presented in 2006 at Primera ConferenciaInternacional sobre Corrupcion y la Transparencia, Mexico; Further reference: 179th LawCommission of India Report.

28 | P a g e

investigate anonymous complaints, while Italy and

Slovakia do not allow anonymous complaints.

2. Victimisation: (a). The Bill does not define what

constitutes victimisation; (b). There is no penalty

against the public servant who may be victimising the

complainant; (c). The Bill does not provides for witness

protection programme (to protect witnesses during

investigation and trial). The Law Commission has

recommended for witness identity protection.28 Countries

such as the U.S., Canada, Australia, Germany, Italy and

South Africa have witness protection programmes.

3. Appeal : The public official may appeal to the High Court

against penalty for revealing the identity or obstructing

investigation. However, the Bill also penalises any mala-

fide complaint, but does not specify an appeal process.

It is necessary to note that the Bill defines “disclosure”

as a complaint related to corruption, any criminal offence or wilful

misuse of power that leads to loss to the government or

illegitimate gain to the public servant.29 This definition is

narrower than that recommended by the Law Commission (179th

Report), which included mal-administration (any action which

is unjust, causes undue delay or negligence or leads to

waste of public funds).

27 See: U.S.: The Whistleblower Protection Act, 1989; U.K.: The PublicInterest Disclosure Act, 1998; Canada: The Public Servants DisclosuresProtection Act, 2004; Australia: The Public Service Act, 1999.28 See: “Witness Identity Protection and Witness Protection Programmes”, 198th Report ofLaw Commission of India, 2006.29 See: Clause 2(d) of the Whistleblower Protection Bill, 2011

29 | P a g e

The Bill does not define victimisation. The proposed Law

Commission Bill defines victimisation to include suspension,

transfer, dilution of power, adverse entries in the service

record, and punishments under disciplinary rules.

In December 2001, the 179th Report of the Law Commission of

India examined the issue of whistleblowing and made certain

recommendations. The scope of these recommendations were

wider than that of the current Bill, as they included

Ministers within the purview, and also provided powers to

the Authority to initiate criminal proceedings, and fixed a

time limit.

Comparison of the Law Commission Report and the Bill:

Law Commission of India BillScope Disclosure can be against

Ministers and Public Servants.

Disclosure can be only

against Public Servants.Definitio

ns

Defines disclosure as a

complaint against abuse or

misuse of power; commission of

an offence under any law; or

mal-administration.

Defines ‘Victimisation’.

Defines disclosure as a

complaint against a public

servant for commission of an

offence under the Prevention

of Corruption Act, 1988 or

misuse of power leading to

demonstrable loss to the

government or gain to the

public servant; or a criminal

offence.

Does not define

‘Victimisation’.Disclosur

e of

The name of person making the

disclosure shall be revealed to

The Vigilance Commission

shall not reveal the identity

30 | P a g e

Identity the public servant unless the

complainant requests that his

identity be kept hidden or it is

necessary in public interest.

of the complainant to the

Head of the Organisation

except if it is of the

opinion that it is necessary

to do so.Powers of

Competent

Authority

The Competent Authority has the

power to direct the appropriate

authority to initiate criminal

proceedings against the guilty

official.

The Vigilance Commission has

the power to recommend

measures such as initiating

proceedings and taking steps

to redress the loss to the

government.

Time

Limit

The Competent Authority has to

complete the inquiry within 6

months to 2 years after

receiving the complaint.

No time limit prescribed for

discreet inquiry. Time limit

for explanation to be given

by the concerned head of

department shall be

prescribed.Burden of

Proof

In case a complainant is

victimised the burden of proof

is on the employer or public

servant who is accused of

victimisation.

The reversal of burden of proof.

No provision.

Penalty Penalty for false complaint is

imprisonment up to 3 years and

fine of up to Rs. 50,000.

Penalty for false complaint

is imprisonment up to 2 years

and fine of up to Rs. 30,000.

In 2007, the Second Administrative Reforms Commission (ARC)

made certain recommendations related to whistleblowing, which

31 | P a g e

have not been incorporated in the Bill. These included acts of

whistleblowing in the private sector and prescribed penalties

for victimising complainants.

Comparison of the ARC Report and the Bill, 201030:

4th Report of the Second ARC BillIdentity

Protection

Whistleblowers should be

protected by ensuring

confidentiality and

anonymity.

Makes provision to

ensure

confidentiality but

does not allow

anonymous

complaints.Private

Sector

Should cover corporate

whistleblowers unearthing

fraud or serious damage to

public interest.

Not covered in this

Bill.

Penalty for

victimisation

Acts of harassment or

victimisation of or

retaliation against a

whistleblower should be

criminal offences with

substantial penalty and

No penalty for

victimisation

30See: Legislative Brief: The Public Interest Disclosure and Protection to Persons Making theDisclosures Bill, 2010, PRS LEGISLATIVE RESEARCH, www.prsindia.org, at p. 5; See:“Ethics in Governance”, Fourth Report of the Second Administrative ReformsCommission on the 2010 Bill. Also see:http://www.prsindia.org/uploads/media/Public%20Disclosure/Legislative%20Brief%20-%20Public%20Interest%20Disclosure%20Bil.pdf

32 | P a g e

sentence.

Chapter IV: International Comparison of Whistleblowing Laws 31

Relevant

Statute

Definition of

disclosure

Authority Protection

U.S. The

Whistleblo

wer

Protection

Act, 1989

Violation of

laws, gross

mismanagement

, waste of

funds and

abuse of

authority.

Office of

Special

Counsel or

Office of

Inspector

General.

Allows anonymous

complaints.

Protect

employees from

victimisation in

appointment,

promotion,

transfer, or

pay.

31 See: Legislative Brief: The Public Interest Disclosure and Protection to Persons Making theDisclosures Bill, 2010, PRS LEGISLATIVE RESEARCH, www.prsindia.org, at p.6; Alsosee: http://www.prsindia.org/uploads/media/Public%20Disclosure/Legislative%20Brief%20-%20Public%20Interest%20Disclosure%20Bil.pdf

33 | P a g e

U.K. The Public

Interest

Disclosure

Act, 1998

Crimes, civil

offences

(including

negligence),

miscarriages

of justice,

dangers to

health and

safety of the

environment.

Employer, any

prescribed

persons,

police, media

or MP.

Allows anonymous

complaints.

Employment

tribunal decides

compensation if

victimised by

unfair dismissal

or denial of

promotion.

Canada The Public

Servants

Disclosure

Protection

Act, 2004

Serious

wrongdoings

such as

violation of

law, misuse

of public

funds, gross

mismanagement

.

Supervisor or

Public Sector

Integrity

Commissioner

Allows anonymous

complaints.

Provides

protection from

reprisals

(disciplinary

measures,

demotion, or

termination).Austra

lia

The Public

Service

Act, 1999

Breach of

Code of

Conduct (be

honest,

comply with

all laws, no

improper use

of inside

information)

The Public

Service

Commissioner,

Merit

Protection

Commissioner,

Agency Head.

Protection

against

victimisation

and

discrimination.

34 | P a g e

Position in India: The listed companies; are governed by

Clause 49 of the Listing Agreement, where Whistleblower Policy

is non-mandatory in nature. It reads that listed companies may

establish a mechanism to enable disclosure of unethical

behaviour, actual or suspected fraud or violation of company’s

code of conduct or ethics policy.

In fact, Satyam had a Whistleblower Scheme since 200532, which

speaks a lot about India’s enforcement mechanism. Even the RBI

has now announced a Whistleblower policy for foreign and

private banks to strengthen financial stability and enhance

public confidence in the financial sector33.

The Limited Liability Partnership Act, 200834 has also

incorporated provisions to protect the interests of

Whistleblowers35 and ensure that they are not subjected to

harassment or termination of employment or any such threat, to

enhance transparency and promote an anti-corruption tendency

within the company. The Narayana Murthy Committee Report; also

suggested the incorporation of whistleblower policy within a

Company’s Corporate Governance Code to enable the employees to

32 See: Dhoot, Vikas., “Satyam had a Whistleblower Policy since 2005”, The FinancialExpress, New Delhi, 29 March, 2009,http://www.financialexpress.com/news/satyam-had-a-whistleblower-policy-since-2005/440221/2, Visited on: 24-10-201333 See: Foreign Public Sector Banks- Whistleblower Policy, The Economic Times,http://articles.economictimes.indiatimes.com/2007-04-19/news/28384346_1_foreign-banks-public-sector-banks-whistleblower-policy , Visited on: 24-10-201334Note: The Limited Liability Partnership Act, 2008 came into effect by wayof notification dated 31st March 2009.35 See: The Limited Liability Partnership Act, 2008: Section 31-Whistleblowing.

35 | P a g e

approach the audit committee when they observe unethical or

improper practice within the company.

In the spate of rising corruption and corporate scandals being

heard of very-now and then, the Government of India came up

with the Whistleblower Protection Bill, 2011- as a necessary

means to combat corruption and corporate-social scandalising

on one hand and to protect persons making truthful disclosures

on the other hand.

But overtime, scholars and legal researchers have criticised

the Bill, calling it ‘a-paper-tiger’, the reasons are many:

(a).The Bill has kept the private sector out of its ambit or

the field of operation36; (b). The Bill defines the term

‘disclosure’ in wordings rather ambiguous and no efforts have

been made to define the term ‘victimisation’; (c). The power

of the CVC is limited to making recommendations; also it does

not have any power to impose penalties; (d). Special

Protection Group constituted under the Special Protection

Group Act, 1988, has been kept outside the ambit of the Bill.

The Companies Act, 2013 also to a certain extent provides for

Whistleblower Protection by way of necessitating establishment

36The long title of the Bill reads as follows: “A Bill to establish a mechanism to receive complaints relating todisclosure on any allegation of corruption or wilful misuse of poweror wilful misuse of discretion against any public servant or anyfunctionary of a public authority covered under this Act, and toinquire or cause an inquiry into such disclosure and to provideadequate safeguards against victimization of the person making suchcomplaint and for matters connected therewith and incidentalthereto.”

36 | P a g e

of a ‘vigil mechanism’ as the case may be; it is necessary to

take note of the following:

For the purposes of sub-section (9) of section 177, 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 genuine concerns:-

Companies which accept deposits from the public; and

the Companies which have borrowed money from banks and public

financial institutions in excess of rupees fifty crores;

Companies which are required to constitute an audit committee

shall operate the vigil mechanism through the audit committee.

If any of the members of the audit committee are conflicted in

a given case, they should recluse themselves and the others on

the committee would deal with the matter on hand. 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.

This vigil mechanism shall provide for adequate safeguards

against victimization of employees and directors who avail of

the mechanism and shall 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. Once established, the existence of the

37 | P a g e

mechanism may be appropriately communicated within the

organization.37

It is also pertinent to take note of the Prevention of Money

Laundering (Amendment) Bill, 201138; the Bill proposes not only

to introduce the concept of ‘corresponding law’ to link the

provisions of the Indian law with that of the foreign

countries but also it proposes the concept of ‘reporting

entity’ which would include a banking company, financial

institution, intermediary or a person carrying on a designated

business or profession. The Bill proposes to confer powers

upon the Director to call for records of transactions or any

additional information that may be required for the purposes

of investigation. The Director may also make inquiries for

non-compliance of the obligations of the reporting entities.

The Bill seeks to make the reporting entity, its designated

directors on the Board and employees responsible for omissions

or commissions in relation to the reporting obligations.

Hence, the proposed Bill in a big way substantiates

Whistleblower policy initiatives and Whistleblower

protection.39

37 See: The Companies Act and the Whistleblower Protection, Money Control,http://thefirm.moneycontrol.com/story_page.php?autono=949969, Visited on:25-10-201338 See: The Prevention of Money Laundering Act, 2002 levies a fine up torupees five lakhs, the Bill proposes to remove this upper limit; secondly,the Bill expands the definition of offence under money laundering toinclude activities like concealment, acquisition, possession, and use ofproceeds of crime.39 See: PRS LEGISLATIVE RESEARCH, The Prevention of Money Laundering(Amendment) Bill, 2011, http://www.prsindia.org/billtrack/the-prevention-of-money-laundering-bill-2011-2143/, visited on: 23-10-2013.

38 | P a g e

What is to be seen is how far these laws can change the face

of Indian corporate scandalization and insure Whistleblower

Protection; post- Satyam, CWG, 2G and the Coal scam.

Chapter V: Whistleblower Policy: A Matter of Furthering

Necessity

Dinesh Thakur, a former director of project and information

management at Ranbaxy, earlier this year (2013), pulled off

what very few corporate executives dare to do. He gave

evidence to the US authorities about the company falsifying

drug data and violating good management practices, triggering

a massive investigation that resulted in the drug-maker

pleading guilty to felony charges related to the manufacture

and distribution of certain adulterated drugs made at two of

39 | P a g e

its plants in India. The company agreed to pay $500 million to

resolve false claim allegations.40

Thakur received $48 million from the US government as a share

in settlement. He was awarded this sum as part of the civil

settlement lawsuit as per the provisions of the False Claims

Act, which promotes private citizens to bring civil actions on

behalf of the U.S. against Corporations indulging in unethical

practices.41

The Ranbaxy episode has once again whistled an alert that

vigilance and participation of the people associated with the

companies/ organisations is required in the form of

whistleblowers to surface the activities which are not only

against the core principles of the companies but also against

the law of the land. This in whole calls for a strong

whistleblower policy which is significantly operative at the

grass-root level i.e. the company level.42

Framing a whistleblower policy is not mandatory in India;

although Clause 49 of the Listing Agreement (Annexure ID),

formulated by SEBI, states that every company should disclose

40 This is the largest financial penalty paid by any generic drug-maker inthe US for violating the provisions of the federal Food, Drug and CosmeticAct (FDCA).41 See: Das, Soma and Divya Rajagopal, “Dinesh Thakur: Meet the man who won Rs. 244-cr for blowing the whistle against Ranbaxy”, ET Bureau, 15 May 2013,http://articles.economictimes.indiatimes.com/2013-05-15/news/39282156_1_ranbaxy-drugs-rashmi-barbhaiya-largest-drug-maker, Visited on 25-10-2013.42 See: Singh, Rajdutt. , “Whistleblower Protection in India: Delay in framing legalenactment will harm the public interest”, The Financial Express, 19 June 2013,http://pharma.financialexpress.com/sections/management/2283-whistleblower-protection-in-india-delay-in-framing-legal-enactment-will-harm-the-public-interest, Visited on 25-10-2013.

40 | P a g e

in its annual report whether a whistleblower policy is in

place and who it is applicable to.

Mere bringing in the whistleblower policy in an organisation

does not necessarily result in successful functioning of the

whistleblower mechanism. It has to be put into action by

creating awareness, propagating the policy and assuring that

no reprisal would be met against the whistleblowers. To

safeguard themselves from the consequences of reporting a

wrongdoing known or observed, employees across organisational

hierarchies are tight-lipped and fearful to blow whistle

against their colleagues, their business associates or their

higher ups. Employees consider silence as golden in the wake

of surviving in the workplace. This is detrimental to both the

individual and the organisation.

Employees being closer to the organisation would be in a

better position to uncover corporate misbehaviour.

Corporations need to decide whether they would welcome alerts

through internal whistleblowing and take corrective actions

internally or be faced with the implications of unsolicited

alerts from external sources, thereby endangering their

goodwill and reputation.

The Association of Certified Fraud Examiners have highlighted

5 reasons for ‘Why Employees Don’t Report Unethical Conduct’, these are:

1. No corrective action i.e. lack of initiative by or on

behalf of the company.

2. No confidentiality of reports kept or maintained.

3. Retaliation by superiors.

41 | P a g e

4. Retaliation by co-workers.

5. Unsure as to whom to contact.

Benefits of a Whistleblower Policy: In the spate of ever

rising corporate global corruption and mismanagement,

whistleblower policy cannot be thought as a corporate luxury

but is in fact an organisational necessity.

The benefits of such a policy are many:

1. Means to foster good governance by encouraging employees

to escalate deceitful actions by colleagues, seniors and

third parties to appropriate authority, so set to seek

such complaints.

2. Means to promote organisational values of openness in the

workplace.

3. Means to send a clear message that severe action will be

taken against unethical and fraudulent acts.

4. Means to dissuade employees from committing fraud by

instilling fear of unfavourable consequences when caught.

5. Early alerts can be the means to diffuse a potentially

larger disaster.

The Whistleblower Policy should ideally state:

a. Anonymity of the informant will be maintained.

b. The authenticity of the information will be confirmed and

there will be no reprisal for reporting the information.

42 | P a g e

c. Appropriate and adequate disciplinary action will be

taken after conducting necessary investigation and after

corroboration of essential evidences.43

It is worth taking note of what Mr. Bharat Kumar, Chartered

Accountant, J.R. Desai & Co. says- “An organisational culture

which encourages honesty, transparency and a sense of moral

obligation or responsibility is most likely to give rise to

individuals who would not hesitate to blow the whistle in case

they spot any wrongdoing. It is important for the

whistleblower to have access to communication channels and

reach the people that matter. Hence, a very hierarchical

organisational set up with a single nucleus, as we commonly

see in India, can prove to be a major roadblock to

whistleblowing.”44

43 See: Maccawala, Munira, and Nandita Parekh, “Whistle-Blower Policy: A step towardsbetter governance”, December 2010,http://www.bcasonline.org/articles/artin.asp?967, Visited as on: 19-10-201344 See: Mehta, Mithila. , “Whistle-blowing policy in a Company”, The Times ofIndia, 9 September 2013, http://articles.timesofindia.indiatimes.com/2013-09-09/work/41903181_1_india-inc-whistleblowing-organisation, Visited on:20-10-2013

43 | P a g e

Chapter VI: Conclusive Remarks

The researcher is of the opinion that the ‘whistleblower

policy’ should be made mandatory corporate-governance tool for

all private companies as well as the public companies. This

alone can ensure transparency in the socio-economic working of

all companies. A mere amendment to Clause 49 of the Listing

Agreement will not suffice. Necessary changes must be brought

about in the Whistleblower Protection Bill, 2011 so that it

comes out to be something more than just being a ‘paper-

tiger’, we should try to model our laws pari-materia to the SOX

Act45, 200246, which in turn has proved to be an effective means

to protect whistleblowers in the U.S. Also, protection to the

whistleblowers in India should be similar to the one so

provided for in the U.S. under the Dodd-Frank Whistleblower

Rules.

45 See: The Sarbanes Oxley Act, 2002 has made it a criminal offence, whichis punishable by fine and up to 10 years in prison, for taking any action-harmful to a person who provides truthful information about a federaloffence to a law enforcement officer.46 See: The Sarbanes-Oxley Act, 2002; Enacted by the 107th United StatesCongress; The SOX, 2002, increased the independence of the outside auditorswho review the accuracy of corporate financial statements, and increasedthe oversight role of the Board of Directors.

44 | P a g e

The researcher suggests that the seat of the SFIO47 (Serious

Fraud Investigation Officer) set up in the year 2003 under the

aegis of the Ministry of Corporate Affairs should be given

more teeth to bite. As this multi-disciplinary office is

already addressing several cases of corporate scams (as it

addressed the Satyam Scam), its powers and functions should be

expanded to investigate in the cases reported by the

whistleblowers. This office of SFIO should be made responsible

for disclosures of scams by the whistleblowers and hence

anomalies of disclosure to a CVC officer will get redressed,

as SFIO comprises of experts in the field of accountancy,

forensic auditing, law, information technology, investigation,

company law, capital market and taxation.48

The Companies Act, 2013 by way of ‘Explanation: (i)’ annexed

to Section 44749 defines fraud in relation to affairs of a

company or any ‘body-corporate’ as-- any act, omission,

concealment of any fact or abuse of position- committed by any

person or any other person with the connivance in any manner,

with intent to deceive, to gain undue advantage from, or to

injure the interests of, the company or its shareholders or

its creditors or any other person, whether or not there is any

wrongful gain or wrongful loss. The researcher duly

appreciates the depth and the ambit of this definition, what

47 See: The Companies Act, 2013: Section 211- Establishment of Serious FraudInvestigation Office (The Central Government may by notification establishan SFIO to investigate frauds relating to a company. The body shall consistof a director and experts from other fields as specified.)48 See: Balakrishnan, Iswarya and Geetanjali Sharma, “Need for mandatorywhistleblower policy for companies”, NSE Newsletter, January 2011,http://www.nseindia.com/content/press/JAN.pdf, Visited on: 26-10-2013 49 See: The Companies Act, 2013: Section 447- Punishment for Fraud

45 | P a g e

is to be seen is how good this definition stands to the test

of judicial interpretation.

Some of the key provisions of the Companies Act, 2013 which

shall insure better and effective corporate governance are

Sections- 135 (1), 139 (3) (a), 132 (4), 144 and 195 (1)50;

researcher duly appreciates the field of operation of these

provisions.

It may be said that India is trending on the right path so far

as the corporate socio-economic & moral-ethical rationality is

concerned, in the garb of the Companies Act, 2013; the

Whistleblower Protection Bill, 2011 and the Prevention of

Money Laundering (Amendment) Bill, 2011 but in India

whistleblowing has always been conspicuous by its absence in

so far as activities of the private sector are concerned.

50 See: The Companies Act, 2013: Section 135 (1): Corporate SocialResponsibility: Every company having net worth of rupees five hundred croreor more, or turnover of rupees one thousand crore or more or a net profitof rupees five crore or more during any financial year shall constitute aCorporate Social Responsibility Committee of the Board consisting of threeor more directors, out of which at least one director shall be anindependent director. Section 139 (3) (a): Rotation of Auditors has now being provided for inthe Act, although the Central Government may prescribe rules for companiesto rotate the auditors. Section 132 (4): Constitution of National Financial Reporting Authority,to see that there are no financial irregularities in the Annual Reports ofthe company. Section 144: Auditor not to render certain services, such as: (a)accounting and book keeping services; (b) internal audit; (c) design andimplementation of any financial information system; (d) actuarial services;(e) investment advisory services; (f) investment banking services; (g)rendering of outsourced financial services; (h) management services; and(i) any other kind of services as may be prescribed. Section 195 (1): No person including any director or key managerialpersonnel of a company shall enter into insider trading.

46 | P a g e

Decades ago, Feroze Gandhi caused his father-in-law and the

then Prime Minister, Shri Nehru acute embarrassment by

accusing the State-Owned LIC of using its funds to prop up the

shares of Mundra. This in turn resulted in much political

tension to the extent that the then finance minister T.T.

Krishnamachari resigned, but Mundra was left unscathed.

Ashok Khemka blew the whistle against DLF, the private-sector

real estate major, but there-on both the media and the

opposition started gunning Robert Vadra alone, little

realising that public servants often rise to the bait thrown

by the private sector companies. On the same lines, what

necessarily must be given thought of is- would the Karnataka

mining scam had taken place without the alleged lead taken by

an industrial group? The same goes for the coal-scam.

We demonise politicians completely, it is fine but at the same

time we cannot turn a blind eye to the shenanigans of the

private sector. It is because we turn a blind eye to the

shenanigans of private sector that is why in the 2G scam, in

the public perception it is all about the then Communications

Minister- A.Raja, who incidentally pleads that he is not the

sinner but is sinned against, Unitech Group, Swan and ADAG

(Anil Dhirubhai Ambani Group) are also in the dock is known to

a very few.

The Whistleblower Protection Bill, 2011 is not in a good shape

insofar as rewarding or protecting the whistleblowers’ is

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concerned. It expects the whistleblower to be armed with

documentary evidence at the risk of being cast to the wolves.51

In the light of the above discussion, the researcher is of the

view:

1. Whistleblowers are the ‘keepers of corporate conscience’

and if the corporate conscience is to be protected then

necessary protection must be enveloped on to them.

2. Merely having a whistleblower policy at the company

level won’t help (Satyam too had a whistleblower policy

effective since 2005), what is necessary is- the

effective implementation of such policy, and this can be

done only by building employee confidence in the wake of

a corporate culture which promotes employees to report

wrongdoing and at the same time provides them significant

protection against all personal- professional biasness

and prejudices.

51 See: Murlidharan, S., “Why the whistleblower law doesn’t extend to the private sector”,17 August 2013, http://www.firstpost.com/india/why-the-whistleblower-law-doesnt-extend-to-the-private-sector-1040889.html?utm_source=ref_article,Visited on: 21-10-2013

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Selected Bibliography:

Primary Sources:

Statutes-

1. The Indian Penal Code, 1860

2. The Companies Act, 1956

3. The Prevention of Corruption Act, 1988

4. The Prevention of Money Laundering Act, 2002

5. The Central Vigilance Commission Act, 2003

6. The Limited Liability Partnership Act, 2008

7. The Public Interest Disclosure and Protection to Persons

Making the Disclosures Bill, 2010; which was later named

as- The Whistleblowers’ Protection Bill, 2011 by the

standing committee.

8. The Prevention of Money Laundering (Amendment) Bill, 2011

9. The Companies Act, 2013

10. The Sarbanes- Oxley Act, 2002

Conventions-

1. The OECD (Organisation for Economic Cooperation &

Development) Convention, 1960

2. The United Nations Convention Against Corruption, 2003

Reports referred to-

1. The Vohra Committee Report, 1993

2. The CII Code of Corporate Governance, 1998

3. The Naresh Chandra Committee Report, 2002

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4. The N.R. Narayana Murthy Committee Report, 2003

5. 179th Law Commission of India Report, 2001

6. 198th Law Commission of India Report, 2006

7. 4th Report of the Second Administrative Reforms

Commission, 2007

Secondary Sources:

Articles referred to (online):

1. “Need for mandatory whistleblower policy for companies”, NSE

Newsletter, January 2011,

http://www.nseindia.com/content/press/JAN.pdf

2. “Whistleblower Protection in India: Delay in framing legal enactment will

harm the public interest”, The Financial Express, 19 June 2013,

http://pharma.financialexpress.com/sections/management/22

83-whistleblower-protection-in-india-delay-in-framing-

legal-enactment-will-harm-the-public-interest

3. “Dinesh Thakur: Meet the man who won Rs. 244-cr for blowing the whistle

against Ranbaxy”, ET Bureau, 15 May 2013,

http://articles.economictimes.indiatimes.com/2013-05-15/n

ews/39282156_1_ranbaxy-drugs-rashmi-barbhaiya-largest-

drug-maker

4. “Satyam had a Whistleblower Policy since 2005”, The Financial Express, New

Delhi, 29 March, 2009,

http://www.financialexpress.com/news/satyam-had-a-

whistleblower-policy-since-2005/440221/2

5. “Why the whistleblower law doesn’t extend to the private sector”, 17

August 2013, http://www.firstpost.com/india/why-the-

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whistleblower-law-doesnt-extend-to-the-private-sector-

1040889.html?utm_source=ref_article

6. “Whistle-Blower Policy: A step towards better governance”, December

2010, http://www.bcasonline.org/articles/artin.asp?967

7. “Learn, Unlearn, Relearn- Whistle Blowing: An Important Aspect of Corporate

Governance and Role of Company Secretary as Effective Whistle Blower”,

November 6, 2012,

http://shilpithapar.com/2012/11/06/whistle-blowing-an-

important-aspect-of-corporate-governance-and-role-of-

company-secretary-as-effective-whistle-blower/

8. “Whistle Blower Policy and the Indian Corporate Governance”,

http://www.lawteacher.net/indian-law/essays/whistle-

blower-policy-and-indian.php

9. “Companies Act, 2013- Rules 2”, 14 September 2013,

http://thefirm.moneycontrol.com/story_page.php?

autono=949969

Journals referred to:

1. “Corporate Governance, SEBI & Corporate Laws”, The Corporate Laws

Weekly, Vol. 90, Part 4, March 2009

2. “Organisational dissidence: The case of Whistle Blowing”, Journal of

Business Ethics, 4:4, (1985)

3. “Role of Board of Directors in emerging dimensions of Corporate Governance

and impending changes in Company Law”, The Chartered Secretary

(Journal), The Institute of Chartered Secretary of India,

New Delhi, May 1997

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4. “Keep Conscience Awaken: Blow Whistle”, 40th National Convention

of Company Secretaries (Journal), Theme: Vision 2020-

Transform, Conform & Perform, October 2012

5. “Whistleblower Protection”, Lawyers Update, Vol. XVIII, Part 5,

May 2012

6. “Manoj Mehra v. UOI”, Lawyers Update, Legal Snippets, Vol. XIX,

Part 6, June 2013