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BREAKING THE SILENCE: WHISTLE-BLOWING PRACTICES AND CHALLENGES IN INDIAN CORPORATE GOVERNANCE
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BREAKING THE SILENCE:
WHISTLE-BLOWING PRACTICES AND CHALLENGES IN INDIAN CORPORATE GOVERNANCE
AUTHORED
BY- SONALI KHANDELWAL & DR. VALARMATHI R
ABSTRACT
A strong corporate governance
framework is necessary to guarantee a company’s long-term survival and
prosperity. Investors and stakeholders are more confident in such a system
since it encourages accountability and openness. People who reveal or report
unethical, unlawful, or fraudulent activity occurring within an organization
are known as whistle-blowers. By disclosing misconduct and promoting moral
behavior within companies, whistle-blowers are essential to maintaining the
integrity of business operations. Whistle-blower policies are useful tools for
reducing risks and encouraging moral behavior in businesses. They are usually
overseen by management but are also revealed to the Board of Directors and
Audit Committee. These regulations support a transparent and accountable
culture while addressing the difficulties associated with work division. Developing
an environment where people can express themselves freely within organizations
is still difficult, despite its significance. Whistle-blowers, regardless of
how important they are, nevertheless confront many obstacles. Because there
aren’t enough whistle-blowers, several industries including business and
healthcare have been the subject of public criticism and inquiries. Hence,
preserving a positive corporate culture and respecting ethical standards depend
on encouraging whistle-blowing and providing safe spaces for those who choose
to come forward. This paper aims to shed light on the significance of
whistle-blowing in Indian organizations and address the challenges and
opportunities associated with its implementation.
Keywords: Corporate Governance, Whistle-blowers,
Misconduct, Ethical Standards, Whistle-blowing.
INTRODUCTION
The corporate sector has grown and
expanded significantly in recent years, offering a wealth of options for career
advancement. But there is a darker side to this affluence that is marked by
fraud, corruption, and power abuse. These immoral actions hurt the expansion
and development of the economy. High-profile frauds like the Satyam,
Commonwealth Games, and 2G spectrum scandals have damaged India’s reputation
despite legislative attempts to address such atrocities. While insiders within
businesses are aware of the misbehavior and can reveal the company’s true
nature, external spectators frequently overlook these fraudulent acts. One way
to reveal wrongdoing is by whistle-blowing, which is the act of disclosing
deliberate misconduct, such as fraud, corruption, or unlawful activity, within
an organization. Whistle-blowers, motivated by moral convictions and a desire
to further the common good, are essential to maintaining moral norms and
preventing corruption.[1] An employee, contractor, or any
other member of a company who confidentially reports suspected misconduct is
considered a whistle-blower. This could involve wrongdoing, scandals including
corruption, insider trading, misbehavior, or poor management inside the
organization. The act of disclosing misconduct to external parties like the
media, police, or government representatives, or to internal channels like
senior management or human resources, is known as whistle-blowing. Whistle-blowers
must, however, confirm the veracity of the material before filing a complaint
in order to prevent rumors from circulating that can harm the company's
reputation. Whistle-blowers, however, suffer serious repercussions for their
acts, such as threats to their personal and family safety, animosity from
colleagues or higher management, and administrative harassment. Even while
whistle-blowing plays a crucial role in exposing misconduct, employees of
companies are frequently unwilling to reveal information for fear of
retaliation.[2] Eliminating fraud and misconduct
within enterprises is significantly hampered by insufficient safeguards for
whistle-blowers. This underscores the need for whistle-blower protection in a
country such as India, where corruption and inefficient administration are
rampant.
Businesses are under pressure to
protect the interests of their investors, particularly shareholders, in
addition to delivering excellent financial returns in the current competitive
business environment. Although the idea of corporate governance has been around
for many years, it has been much more popular recently as businesses look to
improve the security, accountability, and transparency of their management
systems. A set of guidelines known as "corporate governance" aims to
increase a company’s overall efficacy and efficiency while upholding its social
obligations and following accepted norms. A crucial component of corporate
governance, whistle-blowing rules provide a way to keep an eye on unethical or
unlawful activity taking place within companies and to disclose information as
required.
Therefore, corporate governance and
whistle-blowing are related ideas that are essential for encouraging
responsibility, ethics, and transparency in businesses. Companies can cultivate
a culture of integrity and responsibility by strengthening corporate governance
structures and providing whistle-blowers with more authority. This will
ultimately boost stakeholder confidence and trust.
HISTORY OF WHISTLE-BLOWING IN INDIA
Whistle-blowing has a long history;
it was practiced as early as Ancient Greece and India. Orator Lycurgus of
Athens highlighted the necessity for individuals to come out and reveal
wrongdoers, acknowledging that laws and judges cannot solve every problem on
their own.[3] In a similar vein, the ancient
Indian thinker Kautilya suggested paying whistle-blowers who disclosed
instances of embezzlement, underscoring the fact that corruption was common in
even prehistoric cultures.[4] Societies have long been afflicted
by corruption, which weakens public confidence in political and administrative
structures and erodes society's moral foundation. Nonetheless, historical
documentation reveals initiatives to use monitoring and administrative tools to
fight corruption. Whistle-blowing was important even in prehistoric India, as
evidenced by the existence of informants and investigating officers in those
old Indian governance structures. Kautilya’s writings also illuminated the way
in which whistle-blowers were treated, with rewards given for revealing
financial misconduct and harsh punishments meted out for making unfounded
allegations. While these actions were intended to discourage dishonest
informants, they also brought attention to the dangers whistle-blowers faced
when they exposed unethical behavior.[5]
In 1993, N. Vittal, the Chief
Vigilance Commissioner at the time, introduced the first bill in contemporary
India to protect whistle-blowers. The Whistle-blower Protection Act was passed
in 2014 as a result of further efforts, albeit its operationalization has not
yet taken place. In contrast to nations such as the United States and the
United Kingdom, whistle-blower laws in India are still developing. However,
laws like the Companies Act of 2013 and regulatory agencies like SEBI have
required procedures for handling whistle-blower allegations in specific
categories of businesses.[6] Acknowledging whistle-blowers as
important sources of information about wrongdoing, these policies seek to
improve accountability and transparency in public and private institutions.
Furthermore, the Right to Information (‘RTI’) Act, which was passed into law in
2005, gave residents the ability to request information from public agencies.
This allowed for the revelation of many instances of corruption and unlawful
activity. Whistle-blowers are exposed to retaliation because the RTI Act does
not shield them from it.
MAJOR
WHISTLE-BLOWER CASES IN INDIA
1. Satyendra
Dubey Case:
The Satyendra Dubey case serves as a sobering reminder of the dangers
whistle-blowers encounter when disclosing crime and corruption. Significant
financial violations in the “Golden
Quadrilateral” project in Jharkhand were found by Mr. Dubey, a civil
engineer assigned to monitor its construction. On the basis of falsified
paperwork, contracts were issued, and contractors received significant advances
without the necessary supervision. Mr. Dubey repeatedly tried to bring
attention to these discrepancies to the Prime Minister’s Office (‘PMO’) and the
National Highway Authority of India (‘NHAI’), but he received no response.
Those profiting from the misappropriation of monies in the highway contracts saw
his whistle-blowing activities as a danger, which resulted in his violent
murder.[7]
2. Petrol
Pump Scandal of 2005- Manjunath Shanmugam Case[8]: During his employment with the
Indian Oil Corporation (‘IOC’), Mr. Manjunath Shanmugam, a marketing manager,
discovered a gasoline adulteration scheme at a Lakhimpur Kheri IOC location.
Mr. Shanmugam took prompt action upon learning of this malpractice, ordering
the closure of two nearby gas stations. To his dismay, though, these pumps were
reopened after a month, suggesting ineffective enforcement. When Mr.
Shanmugam’s body was found on November 19, 2005, it became clear how tragically
his whistle-blowing efforts had ended. The primary offender, the owners of the
gas pumps, and eight other accomplices were apprehended following further
inquiries. Mr. Shanmugam eventually lost his life as a result of his valiant
act of whistle-blowing. Widespread indignation at his murder led the Central
Bureau of Investigation to become involved in the case. All eight defendants
were declared guilty by the trial court in 2007, with seven of them receiving
life sentences and one, Pawan Kumar, receiving the death penalty. The story of
Mr. Shanmugam underscores the significance of safeguarding the safety and
protection of whistle-blowers and serves as a sobering reminder of the dangers
they confront when disclosing corruption and wrongdoing.[9]
3. Air
Asia Case: Gaurav
Taneja, a pilot for Air Asia airlines, raised concerns about the airline's
disregard for air safety regulations and failure to follow COVID-19 protocols,
which endangered the lives of passengers. However, instead of addressing these
issues, the airline terminated Taneja’s employment and accused him of
defamation.[10]
LAWS
PROTECTING WHISTLE-BLOWERS IN INDIA
Whistle-blower protection is
consistent with India’s adherence to international norms and agreements. India
is a party to the United Nations Convention against Corruption (UNCAC), which
acknowledges the value of safeguarding whistle-blowers as a crucial element of
anti-corruption initiatives. India can meet its duties under UNCAC and show
that it is committed to fighting corruption both domestically and
internationally by passing strong whistle-blower protection laws. In India,
protecting whistle-blowers is essential for preventing corruption, fostering
accountability, and ensuring the general welfare.[11] Strong democratic government,
deterrence of misconduct, and encouragement of transparency are all possible
with effective whistle-blower protection laws.[12] Whistle-blower safety and security
should be a top priority for legislators, policymakers, and civil society as
India moves forward with its quest for socioeconomic growth and good
governance. Therefore, in order to protect the Whistle-blowers, the Indian
Government has enacted a separate legislation called the Whistle-blower
Protection Act, 2014 as well as
incorporated a few provisions in different acts:
Companies Act, 2013
Every company's board of directors
is required by Section 134(5)(f)[13] to include a statement outlining the
internal financial controls with regard to the Financial Statements in the
directors' accountability statement. This clause subtly promotes the creation
of internal control systems, such as avenues for staff members to report
suspicions of dishonest activity or financial anomalies. “Every listed company, as well as certain classes of companies, must
establish an audit committee made up of independent directors. This committee
is responsible for a number of duties, such as monitoring the vigil mechanism,
also known as the whistle-blower mechanism, which allows directors and staff to
report concerns about actual or suspected fraud, unethical behavior, or
violations of the company’s code of conduct.”[14]
It further requires the creation of
a whistle-blower or vigil mechanism to be used by directors and staff to report
legitimate concerns over actual or suspected fraud, unethical behavior, or
transgressions of the company's code of conduct.[15] The system needs to offer
sufficient protections against whistle-blowers being harmed. Companies (Meetings of Board and its Powers)
Rules, 2014, Rule 7, further prescribes the details of the vigil
mechanism’s creation and functioning.
Securities and Exchange Board of
India
As of December 2019, all listed
companies are required by SEBI to have a whistle-blower policy and to make sure
that all of their workers are aware of it. In order to encourage the disclosure
of insider trading infractions, SEBI also implemented a compensation plan.
Whistle-blower protection policies were previously advised for firms by Clause
49 of the Listing Agreement, but compliance was not required. Nonetheless, it
was required to disclose the adoption of the policy and the cases mentioned
under it. With the adoption of the LODR Regulations 2015[16] in place of the Listing Agreement,
listed firms are now required by Regulation 22 to set up whistle-blower
procedures for directors and workers alike.
Adopted in India as part of a
coordinated effort to fight corruption in the bureaucracy, the Whistle-blower
Protection Act represents a major legal advance. On December 27, 2011, it was
passed by the Lok Sabha, starting its legislative journey. The Rajya Sabha
approved the Bill on February 21, 2014; on May 9, 2014, the President signed it
into law. The Act’s main goal is to create a mechanism for filing complaints
about claims of official misconduct or corruption against public employees.[18] Its main goal is to protect those
who come forward with information of public importance from being attacked or
subjected to reprisals. Individuals, including public employees, are permitted
by this law to reveal such information to the appropriate authorities.
Importantly, the Act attempts to discourage any malevolent or careless activity
by imposing severe penalties for the unapproved revelation of a
whistle-blower’s identity. Those discovered to have disclosed inaccurate or
misleading material may also be subject to legal repercussions.
The Official Secrets Act, 1923 is
superseded by the Act, which permits whistle-blowers to reveal information in
the public interest even when doing so violates the Act as long as it does not
jeopardize national sovereignty. But issues with the Act’s execution surfaced,
which is why the government introduced an Amendment Bill in 2015. The purpose
of this proposed modification was to avoid any inconsistency with the Official
Secrets Act by limiting whistle-blowers' ability to reveal materials classified
under it. Nevertheless, this bill was not approved.
Although the government has
acknowledged the critical role whistle-blowers play in fighting corruption, the
Whistle-blowers Protection Act, 2014 has not yet been fully implemented. Its
efficacy has been hampered by a lack of knowledge among potential whistle-blowers
regarding their rights and safeguards and by delays in designating appropriate
authorities. Resolving its inadequacies and guaranteeing efficient
implementation are crucial measures in accomplishing its intended goals of
promoting accountability and openness in the Indian bureaucracy.
CHALLENGES
IN THE WHISTLE-BLOWING FRAMEWORK IN INDIA
1.
Limited Scope
The Whistle-blower Protection Act,
2014 only applies to public servants. This leaves a significant portion of the
workforce, those employed in the private sector, without the legal protection
and anonymity the act provides. Many private companies, particularly smaller or
unlisted ones, are not obligated by law to have a whistle-blower policy.
Private sector employees may be hesitant to report wrongdoing for fear of
retaliation from their employers. This creates a gap in protection for
employees in these companies and hinders the overall effectiveness of the
whistle-blower framework.
2.
Frivolous Complaints
False accusations against a company
can have a devastating impact on its brand image and stock price. Even
unsubstantiated allegations, if widely publicized, can lead to a loss of public
trust and investor confidence. Companies may be reluctant to encourage
whistle-blowing if they fear being targeted by malicious complaints. When
frivolous complaints become prevalent, it can create a sense of skepticism towards
all whistle-blower reports. This can discourage legitimate whistle-blowers,
fearing their reports may be dismissed as baseless. Investigating frivolous
complaints diverts valuable time and resources from investigating legitimate
reports of wrongdoing. This can slow down the identification and addressing of
genuine issues within an organization.
3.
Lack of Clarity
The Companies Act mandates a
whistle-blower mechanism, but details on how it should be implemented and how
investigations into complaints are conducted are unclear. This lack of clarity
can lead to inconsistencies and confusion for both companies and
whistle-blowers.
4.
Victimization
Despite legal protection,
whistle-blowers may still face retaliation from their employers, including
termination, demotion, or harassment. Fear of such retribution can deter
potential whistle-blowers from coming forward, undermining the system’s
effectiveness. Whistle-blowers may struggle to find adequate support after
reporting wrongdoing. They may face isolation from colleagues, difficulty
finding new employment due to blacklisting, or even threats to their personal
safety.
These challenges can create a
chilling effect on whistle-blowing in India.
Employees may be discouraged from reporting wrongdoing due to fear of
retaliation, lack of clear procedures, or the potential for their complaints to
be dismissed as frivolous.
COMPARATIVE
STUDY BETWEEN INDIA, USA AND UK
In order to fortify the
whistle-blowing system in all industries, the United States has put in place a comprehensive
framework of state and federal regulations. The Sarbanes-Oxley (Corporate and
Criminal Accountability) Act[19], the False Claims Act, and the
Whistle-blower Protection Act of 1989 are the three main statutes that protect
whistle-blowers and promote the report of unlawful activity.[20] A portion of the money collected
from fraudulent operations can be awarded to whistle-blowers under the False
Claims Act, which was first passed in 1986 in an effort to address fraud
committed during the Civil War. On the other hand, if a whistle-blower’s
statements are found to be untrue, the legislation penalizes them and requires
them to pay twice as much in damages. A federal statute known as the
Whistle-blower Protection Act of 1989 was created to shield workers who report
unethical or unlawful behavior they witnessed while they were employed. It
protects whistle-blowers from job reprisal, including salary reductions,
promotions, or termination. Whistle-blowers must, however, substantiate their
allegations, and making false accusations could result in criminal prosecution.
While the US has strong rules protecting whistle-blowers, India has had trouble
passing legislation along these lines. In spite of the courageous efforts of
people such as Lalit Mehta and Satyendra Dubey to expose corruption, the Indian
government has not moved quickly enough to enact laws that adequately protect
whistle-blowers. The Whistle-blower Protection Act was not passed until 2014,
and it is still inactive.
On the other hand, early in its history,
the United States gave priority to protecting whistle-blowers, realizing the
significance of fighting corruption for the advancement of the country. Strong
protections for whistle-blowers are offered by the nation’s laws, which include
the Consumer Protection Act signed into law by former President Barack Obama.
Disclosures are also encouraged in order to protect the public interest.
India’s implementation of whistle-blower protection laws is deficient in
contrast. Current events, like the suspension of Gaurav Taneja from AirAsia for
disclosing safety risks, underscore the government’s denial of key issues
related to whistle-blowing. In a similar vein, after major incidents, the UK
passed extensive legislation to safeguard whistle-blowers.[21]
As examples of nations that place a
high priority on whistle-blower protection, the United States and the United
Kingdom acknowledge the critical role that these laws play in preventing
corruption and guaranteeing transparency in government. Despite the pressing
need to fight corruption and malpractice in numerous sectors, India, on the
other hand, falls behind in enacting adequate safeguards to protect
whistle-blowers.
CONCLUSION
There is no doubt that in recent
years, more people in India have become aware of the Whistle-blower Protection
Act.[22] Still, despite this increased
awareness, people are reluctant to come forward and denounce wrongdoings. This
resistance continues even after oversight organizations such as the SEBI
require the creation of certain channels for reporting unethical or unlawful
activity occurring within businesses and providing whistle-blower protection.
Whistle-blowers play an unquestionably brave role; they must have moral
fortitude and put the public’s good above their own interests. Whistle-blowers
must, however, follow the correct channels and protocols when reporting
unlawful activity or wrongdoing to prevent unforeseen outcomes that could be
detrimental to stakeholders’ interests.
There have been many obstacles and
disappointments on India’s path to providing appropriate protection for
whistle-blowers, including the tragic deaths of RTI activists who were fighting
for accountability and transparency. Notwithstanding these challenges,
legislative initiatives such as the Whistle-blower Protection Act and corporate
governance changes represent a step in the right direction toward establishing
a climate in which people feel free to come forward without fear of reprisal.
India could benefit from studying the successful implementation of whistle-blower
protection laws in nations like the United States and the United Kingdom. Even
though India has adopted certain rights from other constitutions throughout the
world, its rules protecting whistle-blowers are still not well implemented.
Despite being passed, the Whistle-blower Protection Act of 2014 has not yet
been put into effect, and the 2015 amendment bill was not approved by the Rajya
Sabha and hence lapsed. Therefore, more stringent, comprehensive, and
successful legislation pertaining to whistle-blower protection is desperately
needed.
Whistle-blowing can be effectively
controlled by strong internal controls, transparent disclosure procedures, and
competent management. Therefore, companies need to promote a culture that
supports whistle-blowers and place morality above profit in order to fight
corporate frauds.
SUGGESTIONS
1.
Both public and private organizations should train
their employees on the Whistle-blower Protection Act, their organization’s
whistle-blowing policy, and the numerous disclosure options.
2.
The private sector should be included in the scope of
the Whistle-blowers Protection Act by additional amendments.
3.
Incentives for leakers whose information is confirmed
to be accurate and credible following a hearing should be allowed under the
legislation.
4.
Since the legislation aims to shield whistle-blowers
from victimization, it is necessary to have a comprehensive description of
victimization.
5.
The people who vouch for the allegation should
likewise be protected during the investigation.
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[13] The Companies Act, 2013, § 134(5)(f).
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Article Information
BREAKING THE SILENCE: WHISTLE-BLOWING PRACTICES AND CHALLENGES IN INDIAN CORPORATE GOVERNANCE
Authors: SONALI KHANDELWAL, DR. VALARMATHI R
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/04/12
- Issue 7
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International Journal for Legal Research and Analysis
- Abbreviation IJLRA
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