Defination

According to the Companies Act, 2013, whistleblowing is an action aimed at drawing the attention of stakeholders to instances of unethical practices in an organization. Under central law concerning allegations against public servants, it is a mechanism to receive complaints relating to alleged corruption or wilful misuse of power or discretion. A whistleblower can be anyone who chooses to expose wrong practices and has evidence to support the allegations. They can be either from within or outside the organization—such as current and former employees, shareholders, external auditors, and lawyers.

In India, whistleblowers are protected by the Whistle Blowers Protection Act, 2014. The law provides for the protection of their identity and also has strict norms to prevent their victimization. For instance, an organization cannot initiate proceedings against a whistleblower pending a probe into allegations. The same sections have been adopted in the Companies Act, which applies to listed companies, and are a part of the Securities and Exchange Board of India’s governance norms. All listed and public sector firms need to have a whistleblower policy that outlines procedures and recourses available to complainants.

Whistleblowing may sometimes be used to settle personal vendettas or manipulate the stock market. To prevent this from occurring, the audit committee that investigates the allegations will examine them for their merit. If a complaint is proven to be frivolous, the complainant can face a jail term of up to two years.

Background

• Whistleblowing is defined as an act of disclosing information by an employee or any concerned stakeholder about an illegal or unethical conduct within an organization.
• A whistleblower is a person who informs about a person or organization engaged in such illicit activity.

• The Law Commission of India in 2001, had recommended that, in order to eliminate corruption, a law to protect whistleblowers was necessary. It had drafted a bill as well to address this issue.

• In 2004, in response to a petition filed after the infamous murder of NHAI Official, the Supreme Court of India directed the Central government that, ‘administrative machinery be put in place for acting on complaints from whistleblowers till a law is enacted.’
• The government, in response, notified a resolution in 2004 named, ‘Public Interest Disclosure and Protection of Informers Resolution (PIDPIR)’.
• This resolution gave the Central Vigilance Commission (CVC) the power to act on complaints from whistleblowers.

• In 2007, the report of the Second Administrative Reforms Commission also recommended that a specific law needs to be enacted to protect whistleblowers.
• The UN Convention against Corruption to which India is a signatory (although not ratified) since 2005, encourages states to facilitate reporting of corruption by public officials and provide protection for witnesses and experts against retaliation.
• The Convention also provides safeguards against victimization of the person making the complaint.

• To conform with such regulations, in 2011 Whistleblowers Protection Bill was proposed which finally became a law in 2014.

• The Companies Act, 2013, as well as the Securities and Exchange Board of India regulations have made it mandatory for companies to take notice of all such complaints.

Key Highlights of Whistleblower Protection Act, 2014

• The act establishes a mechanism to receive complaints related to disclosure of allegations of corruption or wilful misuse of power or discretion, against any public servant, and to inquire or cause an inquiry into such disclosure.
• The act also provides adequate safeguards against victimization of the person making such complaints.

• It allows any person, including a public servant, to make a public interest disclosure before a Competent Authority. The law has elaborately defined various competent authorities. For instance, competent authority to complaint against any union minister is the Prime Minister.

• The law does not allow anonymous complaints to be made and clearly states that no action will be taken by a competent authority if the complainant does not establish his/her
• The maximum time period for making a complaint is seven years.

• Exemptions: The act is not applicable to the Special Protection Group (SPG) personnel and officers, constituted under the Special Protection Group Act, 1988.

• Court of Appeal: Any person aggrieved by any order of the Competent Authority can make an appeal to the concerned High Court within a period of sixty days from the date of the order.

• Penalty: Any person who negligently or mala-fidely reveals the identity of a complainant will be punishable with imprisonment for a term extending up to 3 years and a fine which may extend up to Rs 50,000.
• If the disclosure is done mala-fidely and knowingly that it was incorrect or false or misleading, the person will be punishable with imprisonment for a term extending up to 2 years and a fine extending up to Rs. 30,000.

• Annual Report: The Competent Authority prepares a consolidated annual report of the performance of its activities and submits it to the Central or State Government that will be further laid before each House of Parliament or State Legislature, as the case may be.

• The Whistleblowers Act overrides the Official Secrets Act, 1923 and allows the complainant to make public interest disclosure before competent authority even if they are violative of the later act but not harming the sovereignty of the nation.
• In 2015, an amendment bill was moved that proposes, whistleblowers must not be allowed to reveal any documents classified under the Official Secrets Act of 1923 even if the purpose is to disclose acts of corruption, misuse of power or criminal activities. This dilutes the very existence of the 2014 Act.

Provisions in SEBI:

India has a poor track record in dealing with insider trading. To improve success rates, the market regulator recently introduced a tipping mechanism. SEBI will award up to ?1 crore for information and successful action against insider traders. It has also created a “cooperate and confidentiality" mechanism. This means that if someone guilty of violating securities law is willing to assist in the larger probe, the person will be given exemption from penal action and their identity will be kept confidential.