Vigil mechanism/ Whistle Blower Policy is a very well-known term all over the World. Various compliance and fraud surveys show Vigil/Whistleblower mechanisms are among the most effective means of detecting Corporate misconduct. A genuine Whistleblower can help a Company and its stakeholders in avoiding exposures related to fraud or misconduct. Companies Act 2013 introduced the concept of Vigil Mechanism in India.
Difference between Vigil mechanism and Whistle-blowing:
Both these terms carry different meaning although they are invariably used simultaneously. A Vigil mechanism provides a channel to employees and Directors of a Company to report to the management concerns about unethical behavior, actual or suspected fraud or violation of the Codes of Conduct or any Policy of the Company.
The term “Whistle-blowing” originates from the practice of British policemen who blew their Whistles whenever they observed commission of a crime. Whistle Blowing is nothing but calling the attention of top level management to some malafide activities happening within an organization. A Whistleblower is a person who comes forward and shares his/her knowledge on any wrongdoing which he/she thinks is happening in the organization or in a specific department. A Whistleblower could be an employee, contractor, or a supplier who becomes aware of any illegal activities.
For creating and establishing a well entrenched Whistle-blowing Culture, a Company shall have to undergo the following steps:
In India, the Companies Act 2013 and SEBI LODR Regulations provide the mandatory requirement for certain Companies to have such Vigil mechanisms.
Provisions Under the Companies Act, 2013:
A) Section 177 of the Companies Act, 2013 read with Rules made thereunder mandates following Companies to establish Vigil mechanism in their Company:
B) Companies which are required to constitute an Audit Committee shall operate the Vigil mechanism through the audit Committee. If any of the members of the Audit committee have a conflict of interest in a given case, they should recuse themselves and the other members of the Audit Committee shall deal with the matter on hand.
C) For the Companies which are not required to constitute the Audit Committee, the Board of Directors shall nominate a director to play the role of audit committee for the purpose of Vigil mechanism. All the employees and other Directors shall report their concerns to such appointed Director.
D) Vigil mechanism Policy of the Company shall provide for adequate safeguards against victimization of director(s)/employee(s) who avail of the Vigil Mechanism and to make provisions for direct access to the Chairman of the Audit Committee or the director nominated to play the role of Audit Committee (as the case may be).
E) The details of establishment and framing of Vigil Mechanism Policy shall be disclosed by the Company on its website, if any, and in it’s Board’s report.
F) The Independent Directors of the Company (wherever applicable) shall ascertain and ensure that the Company has an adequate and functional Vigil mechanism and that the interests of a person who uses such mechanism is not prejudicially affected on account of it’s use.
G) In case of repeated frivolous complaints being filed by a Director or an employee, the audit committee or the director nominated to play the role of audit committee has the right and power to take suitable action against the concerned director or employee.
Under SEBI (LODR) Regulation, 2015
The SEBI (LODR) Requirements, 2015 contains similar requirement for establishment of a Vigil Mechanism termed ‘Whistle Blower Policy’.
A) Regulation 4(2)(d)(iv) of SEBI (LODR), 2015 provides for the listed entity to devise an effective Whistle blower mechanism viz. Whistle Blower Policy enabling stakeholders, including individual employees and their representative bodies, to freely communicate their concerns about illegal or unethical practices.
B) The Audit committee shall review the functioning of the Whistle blower mechanism.
C) The listed entity shall disseminate details of establishment of Vigil mechanism/ Whistle Blower policy on its functional website.
D) The Corporate Governance Report of the Company shall contain the details of establishment of Vigil mechanism, Whistle blower policy and affirmation that no personnel has been denied access to the audit committee.
Conclusion:
The concept of Vigil mechanism/Whistle Blower is very nascent in Indian context. However, in the last few years, it has helped in exposing various Corporate frauds. This is a welcome development. The Government and various corporate stakeholders shall continuously work towards strengthening this process- both in letter and spirit.
