MCA gets tough on whistleblower complaints; wants all of it in public domain

Public companies and even regulators can no longer wash their hands off whistleblower complaints.

In an order issued on February 25, the Ministry of Corporate Affairs (MCA) has made it clear that listed companies will have to disclose all whistleblower complaints to the auditor, and these will have to be mentioned in the audit reports. There have been several instances where companies have just brushed aside whistleblower complaints, and refrained from disclosing them to the shareholders by terming them as ‘ benami complaints.’

In a long list of matters that should mandatorily be mentioned in the auditor’s report, the MCA has said it should include “whether the auditor has considered whistleblower complaints, if any, received during the year by the company”.

The MCA has further said that “where the auditor is unable to express any opinion on any specified matter, his report shall indicate such a fact together with the reasons as to why it is not possible for him to give his opinion on the same.”

Summing up the two clauses in the MCA order, legal experts say that not only should whistleblower complaints be disclosed, but the auditor should also give his/her opinion on it, or the reason for not doing so.

There have been several instances of whistleblower complaints being filed with SEBI against listed companies. But the regulator and company often do not officially disclose them to the public. In fact, SEBI has been pulled up by the Securities and Appellate Tribunal (SAT) in the recent past for turning complaints against companies into market intelligence, and not giving out any details about them to the public.

“The order requires the auditor to consider whistleblower complaints,” said Sandeep Parekh, Managing Partner at Finsec Law Advisors. While there should be a structured and formal method of processing whistleblower complaints within the management and board of that company, such complaints can often be misused for settling internal scores against a rival or for HR complaints, he observed.

“Thus, the disclosure of every complaint in the public domain will create more heat than light. The approach of additionally requiring the auditors to review the complaints is a fair addition to the current approach, where a company creates its internal mechanism to address serious and non-serious complaints,” Parekh added.

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