WHISTLEBLOWING: INDIAN PARADIGM AND

BLEMISHES

“Whistleblowers protection is a policy that all government leaders support in public

but few in power tolerate in private” – Thomas M. Devine1

INTRODUCTION

While discussing whistleblowing very fundamentally one should have a thorough knowledge regarding
corporate governance and its history. It has grabbed an amassed attention in the global scenario.

At first, let us analyse the words corporate and governance. According to the Webster Dictionary
Corporate means a body having the nature of corporation. A corporation means a legal entity that exists
independently of the person or persons who have been granted the charter creating it and invested with
many of the rights given to the individual. The word governance derived from a Greek work Gubernare
means to rule or steer and the Webster dictionary defines it as the act of exercising the authority.

Sir Adrian Cadbury, who chaired the UK’s Committee on the Financial Aspects of Corporate Governance
which reported in 1992, stated that corporate governance as ‘the system by which companies are directed
and controlled’.2 A wider definition was given by the Organisation for Economic Cooperation and
Development (OECD 2004). It defines Corporate Governance as a set of relationships between a
company’s management, its board its shareholders, and other stakeholders. It also provides the structure
through which the objectives of the company are set, and the means of attaining those objectives and
monitoring performance are determined.’ Corporate governance is a philosophy by which companies are
directed, monitored, managed and controlled 3. These two definitions clearly show the significance of
corporate governance and its relevance in managing a company as a whole unit.

Though the concept of corporate governance is complex the principles based on it are very simple. The
basic principles of corporate governance are – transparency, fairness, accountability and responsibility.

Advisory Board of National Association of Corporate Directors (NACD), New York defines “Corporate
governance ensures that long term strategic objectives and plans are established and that the proper
management structure (organisation, systems and people) is in place to achieve those objectives, while at

1
THOMAS M DEVINE, ’The Whistleblowers Protection Act, 1989: Foundation for the Modern Law of
Employment Dissent’ Vol. 51, Washington College of Law, Administrative Law Review (1999), p. 533.
2
CHRISTINE A MALLIN, Corporate Governance Developments In The UK, in HANDBOOK ON
INTERNATIONAL CORPORATE GOVERNANCE COUNTRY ANALYSIS 3 (Christine A Mallin ed., 1990)
3
MEHTA G S, Dharma In Corporate Governance, in THE CHARTERED ACCOUNTANT, December 2003,pp.
677-678

Electronic copy available at: http://ssrn.com/abstract=2258296

the same time making sure that the structure functions to maintain corporation’s integrity reputation and
responsibility to its various constituencies.”

Thus corporate governance mainly consists of two elements:-

a) Long-term relationship, which has to deal with checks and balances, incentives of managers and
communications between management and investors.
b) Transactional relationship involving matters relating to disclosure and authority4.

According to World Bank, Corporate Governance is:

 Blend of law, regulation and appropriate voluntary private sector practices

 Which enable the corporation to attract financial and human capital, perform efficiently, and
 Perpetuate itself by generating long term economic value for its shareholders,
 While respecting the interests of stakeholders and society as a whole.

Best practices of corporate governance will broadly include- a definition of practices that define good
governance; a code of best practices covering the constitution of the board, its various committees,
defining their goals and responsibilities, exploring preferred internal systems and disclosure
requirements5.

The real seeds of corporate governance lie in the business scams in India and abroad. The junk bond
fiasco in USA and the failure of Marxwell, BCCI and Polypeck in UK resulted in Treadway Committee
in USA and Cadburry Committee in UK on corporate governance. Satyam scam in India was an incident
which made a really great breakthrough in India regarding corporate governance.

Actually, Corporate Governance is a recent phenomenon derived out of increasing competition and
globalisation. It requires strictures of accountancy, control and reporting functions of the board of
directors and incorporates the rapport between various participants in shaping the direction and
performance of the corporation. It also necessitates for a strong relationship amongst various participants
of the corporation, the board, management team, shareholders and other stakeholders.

Whistleblowing and whistleblower

The term whistleblower was first discussed by Doggett, J., in the case of Winters v. Houston Chronicle
Pub. Co6. It has its origin in United Kingdom. The term can be attributed to the action of the ‘English
bobbies (police constables)’ who blew their whistle when they noticed the commission of a crime. The

4
SANJAY BHAYANA, CORPORATE GOVERNANCE PRACTICES IN INDIA, 2 (ed 2007)
5
SANJIV AGARWAL, CORPORATE GOVERNANCE CONCEPT AND DIMENSIONS, 16 (ed 2003)
6
795 S.W.2d 723 (Tex. 1990)

Electronic copy available at: http://ssrn.com/abstract=2258296

purpose behind whistleblowing is always to make the public as well as the authorities alert regarding the
illegal activity or crime i.e to safeguard the public good

Wikipedia defines Whistle-blowing as “The act when a person tells the public or some public authority
about an alleged dishonest or illegal activity occurring in a government department, a public or a private
organisation or a company.” The reported activity can be a violation of a law, rule, regulation and/or a
direct threat to public interest. It can also be a fraud or corruption. It can be internal i.e. to other in the
organisation, or externally i.e. to regulators, law enforcement agencies, to media or to a group concerned
with the issue.

In other words whistleblowing can be defined as an act of disclosure of information by people within or
outside an organisation and that which are not otherwise accessible to public, generally of activities of
organisation that are against public interest.

A whistle-blower is defined as someone who divulges wrongdoing, fraud, corruption or mismanagement.

Mostly the person could be an employee because he is the person who becomes adept in about the
corruption or frauds which takes place inside a company or organisation because they carries the privacy
of the organisation. And so they would be the first persons who will come to notice all the illegal
activities inside the walls. Thus the objective of a whistleblower is to put out all those malpractices,
corruption or any other frauds inside a company and thereby safeguarding the public interest.

Whistleblowing can be classified into two i.e., internal whistleblowing and external whistleblowing.
Internal whistleblowers are those who report the mismanagement or misconduct to superior officers
within the company while external whistleblowers are those who report the same to law enforcement
authorities or media. Internal whistle blowing is often helpful to company because it helps them to correct
their differences internally and save themselves from mortification before the public.

However since all organisations restricts publishing institutional information the whistle-blower often
faces retaliation like dismissal from employment and even physical harm. What really happen with the
whistleblowers is always harassments and other kind of victimisation including assaults and death threats.
Here is the relevance of an Act to protect the whistleblowers who safeguards the public interest by taking
several risks.

Whistleblowers and Corporate governance

The framework of corporate governance includes supervisory board, board committees, risk management
framework, internal control framework and whistleblower mechanism. The fundamental objective of
corporate governance is the “enhancement of shareholder value, keeping in view the interests of other
stakeholder”. Fundamental to this examination and infusing throughout this exercise is the recognition of
the three key aspects of corporate governance, namely; accountability, transparency and equality of
treatment for all stakeholders.
The role of whistleblowers in safeguarding corporate governance is very vital. Whenever any kind of
mismanagement occurs inside an organisation or company which is detrimental to public policy or
stakeholder’s interest, there comes the role of whistleblower and he is the one who intimates it to superior
officials or to the media. Thereby a whistleblower resolves problems which may arise out of such
mismanagement and safeguards stakeholders’ interest. Thus it can be considered as, the internal
organisation of a company or an organisation is safeguarded by the whistleblower to a great extent.

Thus the benefits of supporting whistleblowers are many. It assists in the creation of an open, transparent
and accountable culture in work place; it limits the risk of damage of reputation of an organisation.

The process of internal whistleblowing involves five steps, at first when a concern is raised by an
employee; it is communicated to the Ombudsman, who could be any person, a legal adviser, audit
committee or a compliance officer. This would result in initial enquiry, which could be dismissed when it
is found that the complaint is frivolous or insignificant and the proceedings can be stopped. On the other
hand if the complaint turns out to be a genuine one an enquiry committee can be appointed and which
may take up further investigations and based on the results of the investigation appropriate action may be
taken against the wrongdoer as the case may be. Internal whistleblowing is the safest method where
external whistleblowing is the extreme end of whistleblowing concept.

Whistleblowers gathered attention through the worldwide media exposure of recent accounting scandals
and also when Time magazine awarded Cynthia Cooper of WorldCom, Sherron Watkins of Enron, and
Coleen Rowley of the FBI as its “Persons of the Year” in 2002.

HISTORY OF WHISTLEBLOWer protection and current scenario

In point of fact the roots of whistleblowing go back well over a century and it initially arose not in
connection with corporate malfeasance, but in the federal government’s False Claims Act, 1863. It was
established to offer incentives to individuals who reported companies or individuals defrauding the
government and it also imposed monetary penalties on bogus whistleblowers. It lays down that the
whistleblower can share in up to 30% of the proceeds of the lawsuit. This Act has resulted in more than
$17 billion dollars of recoveries for the U.S. government since 1986.

The second phase was the Whistle Blower Protection Act, 1989 which got amended in 1994. Under this
act federal employees are protected from workplace retaliation when disclosing waste and fraud and
purpose of the Act and subsequent amendments were to reinforce the protections available to federal
employees. Whistle Blower Enhanced Protection Act was approved by House of Representatives in 2007.

In 2002 Sarbanes-Oxley Act was introduced through which a series of Subsequent to this was the
Sarbanes-Oxley (SOX) Act of 2002, in which Congress brought together a series of corporate governance
initiatives into the federal securities laws. Earlier the federal regime consisted of disclosure requirements
only. The corporate governance was not mandatory and those were governed by state corporate laws.
Federal courts had, moreover, enforced such a view of the regime's limits, by characterizing efforts of the
Stock Exchanges to extend its domain into substantive corporate governance as beyond its jurisdiction.
SOX altered this division of authority by providing explicit legislative directives for SEC regulation of
what was previously perceived as the states' exclusive jurisdiction. Whistleblowing was introduced as a
legislative percept. Sections 806, 301, and 1107 of SOX provided additional guidance for whistleblowing.

Section 806 states that whistleblowers who provide information or assist in an investigation of violations
of any federal law relating to fraud against shareholders or any SEC rule or regulation are protected from
any form of retaliation by any officer, employee, contractor, subcontractor, or agent of the company.
Employees who are retaliated against will be “entitled to all relief necessary to make the employee
whole” (SOX section 806), including compensatory damages of back pay, reinstatement of proper
position, and compensation for litigation costs, expert witness fees, and attorney fees. SOX also require
audit committees to take a role in whistleblowing and reducing corporate fraud. Section 301, amending
the Securities Exchange Act of 1934, compels audit committees to develop reporting mechanisms for the
recording, tracking, and acting on information provided by employees anonymously and confidentially.
By mandating policies and protection for reporting wrongdoing, the SOX standards go beyond merely
encouraging companies to be more responsive to employee whistleblowers. The stretch of whistleblowing
policies covers beyond public corporations. Section 1107 extends protection to any person who reports to
law enforcement officer information related to a violation of a federal law. These whistleblowers are
protected from any retaliation by the offender. A violator may be fined and imprisoned for up to 10 years.

Prior to 1998 whistleblowers were not protected in UK. The act of whistleblowing grabbed attention in
UK during mid-nineties. Now whistleblowing is considered as essential to control corruption and related
corporate crimes. The Public Interest Disclosure Act, 1998 protects employees from detrimental
treatments and victimisation from employer if the disclosure is in public interest or if the disclosure is in
respect of any wrongdoing.

The Act covers criminal offence, breach of obligation, miscarriage of justice, and danger to the health and
safety of an individual damage to the environment deliberate concealment of information tending to show
any of the above.

In 1996 India initiated the first step regarding corporate governance and its objective was to develop and
promote a code for Corporate Governance.it was directed that the code should be adopted and followed
by the private Sector, the public Sector, banks or financial Institutions, all of which are corporate entities.
It also concentrated on listed companies because these companies are largely indebted to public and in the
code the preference was largely given to the shareholders and creditors. During this time there were no
separate or perfect provisions either to define the act of whistleblowing or to impart protection to
whistleblowers. Satyam scam opened the eyes of authorities and initiated Company Bill 2009. The
Companies Bill, 2009 which has been divided into 28 Chapters consisting of 426 Sections, as opposed to
the 658 Sections of the existing Companies Act, 1956. The Bill, inter alia, reinforces shareholders
democracy, facilitates e-Governance in company processes, recognizes the liability of Boards, directors
and senior management personnel of companies, provides for a new scheme for penalties and punishment
for non-compliance or violation of the law, harmonizes corporate regulation with action by sectoral
regulators, incorporates a new framework for mergers and amalgamations of companies and provides an
extensive Insolvency Code based on the latest principles recommended by the United Nations
Commission on International Trade Law (UNCITRAL) 7. This was a major breakthrough regarding
protection of shareholders.

Public Interest Disclosure and Protection to Persons Making the

Disclosure Bill, 2010

In a country like India we can hear the term corruption every when and then. It has now grown as social
evil which thwarts appropriate and balanced social progress and economic advancement. From the above
discussion one can clearly understand the act of whistleblowing and its concept. The very reason of not
lodging a complaint or ignoring the act of whistleblowing is fear of harassment inside the company. So
the first step to avoid corruption inside an organisation should a proper whistleblowing policy.
Whistleblowers never recognise themselves as whistleblowers. They are identified as whistleblowers as a
result of their act. The benefits of whistleblowing have been already discussed and for those obvious
reasons enumerated they should be protected.

"The public interest Disclosure (Protection of Informers) Bill, 2002” was suggested by the Law
Commission of India had in its 179th Report. The main objective was to encourage disclosure of
information regarding corruption or maladministration by public servants and to provide protection to
such complainants. The Second Administrative Reforms Commission in its 4th Report on "Ethics in
Governance" has also suggested a legislation to protect whistleblowers. Resolution No. 89, dated the
21stApril, 2004 by Government of India authorised the Central Vigilance Commission as the designated
agency to receive written complaints from whistle-blowers and also provides for the protection to the
whistle-blowers from harassment. It also stipulates for keeping the identity of whistleblowers concealed.

Apart from this, the murder of Satyendra Dubey and several other peoples ignited circumstances and
necessitated for a specific legislation which stipulates statutory protection of persons who report the
corruption or wilful misuse of power or wilful misuse of discretion which causes demonstrable loss to the
Government or commission of a criminal offence by a public servant.

7
http://www.legalserviceindia.com/article/l397-Companies-Bill,-2009.html last visited on November 26,
2012, 3.30 pm
This was the first incident which raised an increasing demand for whistleblower policy. The National
Highway Authority of India Deputy General Manager Late Mr. S.K. Dubey was had written a letter to the
then Prime Minister Shri Atal Vajpayee complaining of the corruption which was going on in a particular
project but the government put a blind eye on the matter. However media and some NGOs and some
other voluntary organisation fought on this and they created a public clamour which resulted in creating
an awareness of significance of whistleblower policy in the country. The irony behind this is “Just two
days after Dubey's murder thousands of miles away in Australia, Andrew Wilkins was being presented
with the Whistleblower of the Year Award at the Legislative Assembly by the United Nations
Association of Australia. He also received a $5,000 cheque from an anonymous donor. All this came to
him for the courage he showed when he resigned from Australia's top intelligence assessment agency, the
Office of National Assessment, in protest against the government justification of its war with Iraq 8”.

Manjunath Shanmugam working with Indian Oil Corporation (IOC) was a graduate of the Indian Institute
of Management, Lucknow was shot dead on 19th November 2005. He was a perfect example responsible
citizen who fought against adulteration of petrol pump owners. He rebuffed bribes and flouted even life
threats. It is alleged that the murder has been done by the corrupt petrol pump owners.

Now it is high time to initiate a protection policy for those who report the corruption in an organisation or
a company because they are the people who try to protect the shareholders interest to a large extent.
Mostly the employee who comes to know about the mismanagement inside their company prefer to keep
mum on this regard for the reason that they might get harassed or their job may get lost or on the fear of
losing their lives. In this circumstances what our countries legislature has to initiate is a law to protect
such people and thereby encouraging the act of reporting corruption. This can be a very effective step to
curb the evil of corruption.

The Government of India has been considering adopting a whistleblower protection law for several years.
In 2003, the Law Commission of India recommended the adoption of The Public Interest Disclosure
(Protection of Informers) Act, 2002. In August 2010, The Public Interest Disclosure and Protection of
Persons Making the Disclosures Bill, 2010 was introduced into the Lok Sabha, lower house of the
Parliament of India and got approved by the cabinet in June, 2011. It was renamed by the Standing
Committee on Personnel, Public Grievances, Law and Justice as The Whistleblowers' Protection Bill,
2011.

The Whistleblowers' Protection Bill, 2011 was passed by the Lok Sabha on 28 December 2011 and now it
is awaiting the assent of Rajyasabha. V. Narayanasamy, Minister of State for Parliamentary Affairs
introduced the bill in Rajya Sabha on 29 March 2012.

8
ADITI DATTA, Open Page, Whistleblowers in east and west, The Hindu, Feb 03, 2004
AN ANALYSIS of the Whistle blowers’ protection BILL, 2010 and some
suggestions

The objective of the Act is to establish a mechanism to receive complaints relating to disclosure on any
allegation of corruption or wilful misuse of power or wilful misuse of discretion against any public
servant and to inquire or cause an inquiry into such disclosure and to provide adequate safeguards against
victimization of the person making such complaint and for matters connected therewith and incidental
thereto.

The objective of the Bill clearly lays down the ambit and it includes only Public servants. Public Servant
is defined as: “Any person who is an employee of the central government or the state government or any
company or society owned or controlled by the central or state government. However, no public interest
disclosure shall be accepted against defence, police and intelligence personnel.” Corporate Whistle
blowing is not included in this Bill as it will be taken care of by Companies Bill, 2009. It is suggested that
non-listed should also come under the ambit of the Bill.

In UK Public Disclosure Act 1998 extends “protected disclosures” to private and voluntary sector
employees. In USA, the legislations protect all employees who reports about economic abuses or
misconducts as well as actions that affect the health and safety of individuals and the environment.

Central or the State Vigilance Commission is the authority under the Bill and disclosures can be made to
them. Disclosure has been defined as: “Any complaint made in writing or electronic mail against a public
servant on matters related to (a) attempt to or commission of an offence under the Prevention of
Corruption Act, 1988; (b) wilful misuse of power which leads to demonstrable loss to the government or
gain to the public servant; or (c) attempt or commission of a criminal offence by a public servant.”

It is mandatory that every complaint should disclose the name and address of the complainant and the
Commission. To make sure about the genuinity of the complaint the commission abstains from accepting
anonymous complaints. It is the duty of the Vigilance Commission to protect the identity of the
complainant and related documents, unless it decides against doing so, or is required by a court to do so.
The complainant may also be given protection for this purpose. The Central Government and the
Vigilance Commission have to take care that no private individual is harmed in any way. If a public
servant is harmed then they have to see to it that he/she is restored back to his old position.

The need for competent independent authority also cannot be overlooked because the authority prescribed
under the Act is already overburdened with other investigations also. The Bill should consider the role of
media and should provide special laws to regulate disclosures over media also.

This really restricts the ambit and scope of the Bill because it only applies to public servants and not to
private corporations. In India, the Bill proposed to be applies only to those public corporations and
companies coming under the ambit of cl. 49 of listing agreements. One another point to be noted is that
whistle blower policy comes under the non-mandatory requirement of cl 49 of listing agreements. It
should come under mandatory requirements.

The central government shall ensure that no complainant is victimised through proceedings against him
merely because he made a disclosure. If a complainant is being victimised by a public servant, the
Vigilance Commission may issue directions to the concerned public servant, including that the
complainant be restored to his previous position. Thus Bill targets to safeguard those people who may
undergo victimisation as a result of the act of disclosure but the word victimisation is not clearly defined
under it. However The Law Commission had proposed that victimisation should include suspension,
transfer, dilution of power, adverse entries in the service record and punishments under disciplinary rules.
There is no penalty against the public servant who may be victimising the complainant. This Bill does not
provide for witness protection programme to protect witnesses during investigation and trial. The Law
Commission has recommended guidelines for witness identity protection. Countries such as the US,
Canada, Australia, Germany, Italy and South Africa have witness protection programmes. Another
difficulty is found out with the appeal provisions that there is no appeal provision for a complainant who
penalised for false complaints but a public official can prefer an appeal if he is penalised for revealing the
identity.

Another serious flaw in the Bill is it has been introduced without a proper consultative process with
stakeholders and the public, does not go far enough. Yet another flaw is nowhere in the Bill it defines the
act whistleblowing. Mostly all foreign legislations clearly provides for their own extensive definitions for
the term.

The Bill should also consider regarding special protection to women whistleblowers. Condition of women
in our country is so pathetic and so the need of protecting women whistleblowers cannot be ignored.

CONCLUSION

It is really stepping stone to protect the ethical values of a company or organisations but the Bill is vague
about the remedial measures and ways of imparting protection to whistleblowers. The present scenario
relating to whistleblowing in our country is too complex to be governed under the scope of the proposed
bill. It aslo runs short of international practices. The purpose of the bill has been defeated by its narrow
applicability and hence it can be said that the bill should be reconsidered and it requires a further study.

Miss.Rajasree P R

LL.M. (III Semester)

HIDAYATULLAH NATIONAL LAW UNIVERSITY, RAIPUR

Email id: [email protected]