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All you wanted to know about whistleblower protection

LOKESHWARRI S K | Updated on January 24, 2018 Published on July 20, 2015

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The Vyapam scam has brought the critical issue of whistleblower protection once again in to focus. These men or women who blow the lid on irregularities typically run the risk of offenders striking back, at times fatally, as the Vyapam scam has shown.

The laws governing this issue, however, need to be well-balanced so that they provide adequate protection to the whistleblower while ensuring that those in power are not harassed by unsubstantiated complaints.

What is it?

The Whistleblower Protection Act, which was passed in May 2014 after an inordinate delay, lays down the rules that protect whistle blowers in non-corporate cases. Under this Act, the Central Vigilance Commissioner has to receive complaints, review public disclosure requests and ensure that the complainants are protected. The Act stipulates imprisonment of up to two years and fine of up to ₹30,000 if the complaint is false. The government has proposed a few amendments to these rules.

The Indian corporate sector also has its own set of rules governing whistleblowing. Corporate whistleblowers are however protected by the Companies Act and the Whistleblower policy laid out by the SEBI.

Under this policy, every company is required to have a vigil mechanism that covers its directors and employees. There ought to be clearly laid down channels for complaints on internal malpractices. Companies also have to provide safeguards against victimisation of persons using the mechanism.

Why is it important?

Company employees are likely to be privy to the shenanigans of the promoter or management. Establishing fool-proof routes through which employees can expose irregularities is the best way to improve corporate governance.

There have been instances of employees of Indian companies operating in US reporting to the regulatory authorities there. One such case involved Dinesh Thakur of Ranbaxy who blew the lid off adulterated drugs in the US markets. Ranbaxy had to pay $500 million to resolve the matter and Thakur was paid $48 million as a reward for his involvement. Infosys’ whistleblower Jay B Palmer alleged that the technology company was abusing the B1 and H1B visa laws as well as income tax and Securities and Exchange Commission’s guidelines.

Many listed companies have already established channels for such reporting. In a survey by E&Y, 68 per cent of the respondents felt that more frauds were being unearthed in recent times due to the presence of such a mechanism. Multi-national companies appeared more pro-active in adopting these rules when compared to their Indian peers.

Why should I care?

If you are an investor, you will be better off investing in companies with good corporate governance. It will therefore be good to check if the company you are investing in has established policies for whistle blowing. Frauds can come to light sooner in such companies, avoiding a Satyam-like implosion.

If you are a scrupulous employee, you might want to learn how you can report any malpractices that you spot. It also helps to know your rights if you are victimised following such complaint.

The bottom line

The Vyapam scam has shown that whistleblowing in India can be quite risky. Therefore, regulators will do well to follow global practices in rewarding whistleblowers handsomely. Maybe the financial award can compensate, in part, for the large risk they take.

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Published on July 20, 2015
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