Vexed with a whistleblower’s decision to go silent after levelling serious allegations against the workings of the Multi Commodity Exchange, the Securities Exchange Board of India (SEBI) has informed the public that it will henceforth entertain complaints against market participants only if the whistleblower is reachable to substantiate allegations and provides supporting documents. It has also said that complaints made to it must be from an identified source. One understands SEBI’s angst in the MCX case, where after making allegations about funds diversion and other unfair practices, the complainant stonewalled all efforts to reach out to him by providing fake contact details. The case highlights how frivolous whistleblowing can not only waste the regulator’s investigative capacity and time, but also inflict damage on investors by facilitating stock price manipulation by unscrupulous elements. But if anonymous whistleblowing provides a potent platform for disgruntled employees or competitors to undermine a genuine business, it has also set Indian regulators on the trail of many corporate misdoings in the past. The NSE co-location controversy and the related party lending at ICICI Bank came to light after such complaints. Therefore, while SEBI or other regulators may be right in insisting that whistleblowers remain accessible, it would be unfair to summarily dismiss anonymous complaints per se .
It is not with mala fide intent that many whistleblowers in India choose to remain anonymous — they fear victimisation, too. Whistleblower protection laws in India are at a nascent stage. The omnibus law, supposed to ensure immunity for complainants who act in public interest, remains in limbo after the amended Whistleblowers Protection Bill of 2015 was never operationalised. In the corporate context, the amended Companies Act of 2013 requires all listed companies dealing with public money to establish a vigil mechanism, but stops short of specifying any timeline by which such complaints must be resolved. SEBI’s listing obligations and disclosure regulations require audit committees to vet such complaints, but again leave the procedure open-ended. Under extant laws, whistleblower complaints about companies are supposed to be first escalated to company boards and internal audit committees. But these are manned by independent directors, who are often known to be complicit with the management and wary of rocking the boat. In such circumstances, corporate insiders filing complaints stand a real chance of being both ignored and victimised. This legal ambiguity about the status of whistleblowers makes anonymous complaints the default choice even for bona fide insiders looking to expose corporate malpractices.
If SEBI is keen to weed out malicious complaints masquerading as whistleblowing, it must bat for a stronger protection framework and perhaps set up a whistleblower’s office under its direct aegis, so that complainants can bypass in-house committees. It may also have to build in-house capacity to investigate a large volume of complaints, so that undue stock price impact can be contained.