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Whistle Blowing Policy In India: The Law And The Challenge

In this post, we will discuss the Whistleblowing Policy in India, the Law and the challenges ahead.

The renowned physicist Albert Einstein once remarked that the world would not be destroyed by those who commit evil deeds but by those who witness them without taking any action. In the pursuit of personal desires, individuals may sometimes engage in wrongful acts, which, while difficult to prevent or correct permanently, can be curbed through conscious efforts from those with the capacity to stand against them. A Whistleblowing Policy serves as a means to report illegal activities and fraud within an organization to the relevant authorities, either within the organization or the government.

The individual reporting such wrongdoing is known as the whistleblower. Internal whistleblowers report to the management, while those who disclose information to the media, the public, or law authorities are considered external whistleblowers. Importantly, a whistleblower can be an employee or even an ex-employee of the organization.

Whether in a private company or a public sector undertaking (PSU), fraudulent activities within an organization can have a direct or indirect impact on the general public. Therefore, it is crucial for organizations to foster a work environment that promotes ethical conduct, upholds values, and complies with the law. Establishing a system where employees can safely and anonymously report potential violations without fear of retaliation is imperative.

WhistleBlowing Policy

In the interest of public welfare, laws have been enacted, but they often fall short of addressing the rapid growth in fraudulent activities. The Whistleblower Protection Bill, 2011, replacing the Government Resolution, 2004, aims to strike a balance between protecting honest employees from stigmatization and those making disclosures in the public interest. 

Sections 206 to 229 of the Companies Act, 2013 deal with whistleblowing concerning inspection, inquiry, and investigation. Here is a list of sections and rules to keep in mind:

  • Section 208 provides the authority for an inspector to inspect company records and make recommendations for an investigation. 
  • Section 210 empowers the Central Government to investigate a company’s affairs in specific cases, such as receiving a report from the Registrar or the Inspector, on the passage of a special resolution by the company, or in the public interest. 
  • Section 211 grants power to the Serious Fraud Investigation Office (SFIO) to arrest individuals for fraud within a company.
  • Rule 12.5 and Section 177(9) of the Companies Act, along with the SEBI’s Clause 49 amendment, mandate listed companies, those accepting public deposits, and companies borrowing over fifty crores from financial institutions to have a whistleblowing policy and a mechanism for directors and employees to report concerns.

Organizations are encouraged to create an environment conducive to commitment to values and adherence to the law. A whistleblowing system should be established, allowing individuals to report potential fraud or violations safely and anonymously without fear of reprisal. 

Section 210 of the Act empowers the Central Government to conduct an investigation into the affairs of the company in the following cases:

  • On receipt of a report by the Registrar or the Inspector of the company,
  • On being communicated that a special resolution has been passed by the company to investigate the affairs of the company,
  • In the public interest.

Challenges Facing WhistleBlowing Policy

While legislation emphasizes the importance of whistleblowing mechanisms, their existence often faces challenges in practice. The effectiveness of whistleblowing systems hinges on individuals coming forward to report potential fraud or abuse. However, several challenges hinder the willingness of employees to engage in whistleblowing.

One significant obstacle is the fear of social stigma and the potential loss of employment that whistleblowers may face. The reluctance to step forward is intensified by the apprehension of facing negative consequences, both professionally and personally. In many cases, whistleblowers find themselves isolated and shunned by management, choosing between professional responsibility and organizational loyalty a difficult one.

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Conclusion

Hope the blogs helps in understand whistleblowing policy. In contemporary society, where confronting illegal acts and fraud is often associated with social stigma and personal risks, there is limited motivation for individuals to expose wrongdoers. However, the implementation of effective policies can contribute to increasing instances of reporting such acts. 

Companies are encouraged to establish robust ethical compliance programs that not only address the challenges faced by whistleblowers but also create an environment that promotes and appreciates ethical conduct.


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