Training and Recruitment info - please reach 040- 4003 2244-47
+91 90 43 003 883 | [email protected] | Reach us

Comparison of Section 177(9) of Companies Act, 2013 and Clause 49 of Listing Agreement – Establishment of Vigil/Whistle-Blowing Mechanism

I. Introduction:

Whistle Blowing is nothing but calling the attention of top level management to some malafide activities happening within an organization.

A whistle blower may be an employee, former employee or member of an organization, a government agency, who have willingness to take corrective action on the misconduct.

As per Section 177 of the Companies Act, 2013, read with Rule 7 of Companies (Meetings of Board and its Powers) Rules, 2014 provides that certain companies have to establish Vigil/Whistle-blowing mechanism to report any unethical behavior or other concerns to the management.

II. Types of Whistle Blower:

  1. Internal: A Whistle Blower may be within the organization who discloses any illegal, immoral or illegitimate practices to the employer. He/she may be;
    • Employee
    • Superior officer or
    • Any designated officer
    .
  2. External: A whistle blower may be outside the organization who discloses any illegal, immoral or illegitimate practices to the company. He/She may be;
    • Lawyers
    • Media
    • Law enforcement
    • Watchdog agencies

III. Objectives:

  1. To encourage employees to report ethical and legal violations they are aware of or have come across to an internal authority so that action can be taken immediately to resolve the problem.
  2. To minimize the organization’s exposure to the risk and damage that can occur when employees circumvent internal mechanisms.
  3. To let employees know the organization is serious about adherence to codes of conduct.

IV. Steps for Creating a Whistle-blowing Culture:

  • Frame a Policy.
  • Get an endorsement from top level management.
  • Publicize the Organization’s Commitment.
  • Investigate and Follow Up.
  • Assess the Organization’s Internal Whistle-blowing System.

V. Points of Differences:

Following are the points of differences between the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement regarding establishment of Vigil/Whistle Blowing mechanism with a company:

S. No. Particulars Section 177(9) of Companies Act, 2013 (“the 2013 Act”) Clause 49 of Listing Agreement
1. Rules governing the Vigil Mechanism Rule 7 of Companies(Meetings of Board and its Powers) Rules, 2014 -Nil -
2. Applicability

It is mandatory for

  • All the listed companies and
  • Companies which accept deposits from the public
  • Companies which have borrowed money from banks and public financial institutions in excess of Rs. 50.00 (Fifty) Crores

Companies which are required to constitute an audit committee shall operate the vigil mechanism through the audit committee and if any of the members of the committee have a conflict of interest in a given case, they should recuse themselves and the others on the committee would deal with the matter on hand.

For other companies, the Board of directors shall nominate a director to play the role of audit committee for the purpose of vigil mechanism to whom other directors and employees may report their concerns.

It provides adequate safeguards against victimization of employees and directors who avail of the Vigil mechanism and also provides for direct access to the chairperson of the Audit committee or the director nominated to play the role of audit committee, as the case may be, in exceptional cases.

Once established, the existence of the mechanism may be appropriately communicated within the organization.

The details of establishment of Vigil mechanism shall be disclosed by the company on the website, if any, and in the Board’s Report.

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 may take suitable action against the concerned director or employee including reprimand.

It is a non-mandatory requirement under clause 49 of the listing agreement.

The company may establish a mechanism for employees to report to the management concerns about unethical behavior, actual or suspected fraud or violation of the company’s code of conduct or ethics policy.

It provides for adequate safeguards against victimization of employees who avail of the mechanism and also provide for direct access to the Chairman of the Audit committee in exceptional cases.

Once established, the existence of the mechanism may be appropriately communicated within the organization.

VI. Conclusion:

Corporate entities will have to institute rigorous policy to allow employees to bring unethical and illegal practices to the forefront and also train managers and executives on how employees are to be encouraged to openness. Some of the companies already have a Whistle-Blower policy as a good corporate governance practice and now most of the companies have started to frame this policy to comply with section 177 of the Companies Act, 2013 and corresponding rules.

Contributors:

  • By Revanth Gopidi  0 Comments   

    0 Comments

    Leave a Reply

    Your email address will not be published. Required fields are marked *