Sebi decided to incorporate a provision in this regard in its new Corporate Governance Code
As listed companies gear up to put in place a whistle-blower policy with effect from October 1, similar systems may be put in place soon for all market intermediaries as also for the regulator Sebi.
Amid a growing number of scams related to corrupt practices in corporate India, Sebi has decided to make it mandatory for listed companies to have a whistle-blower mechanism for their employees and directors as part of a new Corporate Governance regime coming into force from October.
The mechanism would also need to have necessary safeguards to protect whistle-blowers from victimisation, while checks would also be required against any misuse of this facility aimed at encouraging directors and employees to report genuine concerns and any wrongdoings at their company.
While the new Companies Act also provides for certain classes of companies being required to establish a vigil mechanism for their directors and employees, Sebi decided to incorporate a provision in this regard in its new Corporate Governance Code for listed firms.
The International Advisory Board of Sebi had also suggested that the regulator should encourage an effective whistle-blowing framework in securities market by ensuring adequate legal protection of whistle blowers.
After revising the Listing Agreement to make it mandatory for listed companies to have a whistle-blower policy, Sebi is now in the process of coming out with its own whistle-blower
"The plan is first to have a whistle blower policy for Sebi employees and then ask the market intermediaries to develop their whistle blower mechanism," he added.
Those expected to be covered under this mechanism may include brokerage firms, mutual funds, clearing corporations, depository participants, registrars, merchant bankers etc.
The whistle-blower mechanism, popular in many developed nations, provides an opportunity for employees to report any misdoings within their company.
In February 2014, the Parliament passed 'Public Interest Disclosure and Protection to Persons Making the Disclosure Act' and Sebi would be guided by provisions of this Act.
The Act provides for a mechanism to protect identity of whistle blowers - a term given to people who expose corruption - while it also seeks to encourage people to disclose information about corruption or the wilful misuse of power by public servants, including ministers, without any fear of victimisation.
The new law, which was notified in May, also lays down punishment of up to two years in prison and a fine of up to Rs 30,000 for false or frivolous complaints.
The Act says that every disclosure shall be made in good faith and the person making the disclosure shall provide a personal declaration stating that he reasonably believes that the information disclosed by him and the allegation contained therein is substantially true.
