India Inc’s missing whistle-blowers

Source: The post is based on an article “India Inc’s missing whistle-blowers” published in the Business Standard on 14^th Jul 2022.

Syllabus: GS2 – Governance

Relevance: Whistle Blower Protection

News: In the recent past, there have been insider revelations in western corporations like Uber, Facebook, Apple, Amazon, Netflix, Google. It raises uncomfortable questions about what is happening in India Inc.

What are the issues in the Indian Inc.?

There have been a number of corporate scandals in India in the recent past, such as Global Trust, Satyam, IL&FS or YES Bank.

There is a lack of whistle-blowers in Indian corporations. Most of the exposure of Indian corporate scandals have been the result of implosions rather than employee revelations.

Few cases in which India Inc. faced whistle-blower incidents were related to Infosys and Ranbaxy. However, these revelations were either managed or were executed by the United States citizen.

Legal Regime for Whistle-Blowers in Indian Inc.

Internal Mechanism

As per the Companies Act, every listed company that has borrowed more than Rs 50 crore from banks or public financial institutions has to set up an internal vigil mechanism like Auditing Committee. Employees/ directors can report “genuine” concerns and grievances to such committees.

Further, it also mandates that “adequate” safeguards be provided against victimising the whistle-blower. For example, keeping the identity of the concerned employee confidential.

External Mechanism

In 2019, the Securities and Exchange Board of India (SEBI) allowed employees to report insider trading violations directly to it instead of via the company’s internal mechanism. In 2021, it raised the reward payable to whistle-blowers generously from Rs 1 crore to Rs 10 crore.

What are the reasons for lack of whistleblower activities in India?

Both the Companies Act and the SEBI rules cover listed companies. Unlisted companies such as Unicorns and the small and medium enterprise sector  remain outside the purview of any whistle-blower rules.

The whistle-blowers in India do not enjoy similar protections for insider revelations as they do in the US. Therefore, a number of whistle-blowers in the public sector in India have lost their lives for doing insider revelations, for example, Satyendra Dubey, and Shanmugam Manjunath

Parliament have passed a Whistle Blowers Protection Act 2014. But it is limited to public servants, not private companies.

The internal mechanism mandated under the Company Act remains subordinate to the management of the company. A whistle-blower will remain completely prey to the management’s whims.

Way Forward

The government should enact a law to provide universal protection to the whistle-blowers in India.

The Whistle-blower protection can go a long way to enable good corporate governance and provide check and balance and an early warning system for potential crises, such as the one at IL&FS in India