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In India, whistleblowing of financial wrongdoing has a long and storied history. It is extensively discussed by Kautilya, the author of Arthashastra that is arguably one of the earliest political treatises, and provides for a comprehensive mechanism. There existed a mechanism for rewarding the informant (suchaka), and false reporting was penalised. Also, the reward system provided for duality and varied according to the difficulty of exposing corruption from the inside and from outside the organisation.

Since the latter half of the 20th century, policymakers have endeavoured to balance profitability with a positive impact on society and the environment. The genesis of the modern environmental, social and governance (ESG) principles was the United Nations 2004 report, “Who Cares Wins”, which argued for creating sustainable markets by integrating ESG factors into financial analysis. ESG principles were not merely moral commitments but financial and strategic obligations.

As ESG principles have been incorporated into legal and regulatory frameworks, whistleblowing has become essential to ensure accountability and transparency. Following such integration, mechanisms and clear protocols should allow employees and stakeholders to report breaches.

Companies have adopted various whistleblower mechanisms, largely in accordance with the regulatory framework of the Companies Act, 2013 (act), the Securities and Exchange Board of India (SEBI) regulations and industry best practices. For banking and financial institutions, the Reserve Bank of India (RBI) has provided guidelines and requirements. To encourage reporting, the regulatory framework as a generality provides for secure and confidential reporting channels, clear investigation procedures, independent oversight and protection against retaliation.

The act requires public companies to establish vigilance mechanisms to serve as a channel for reporting wrongdoing and preventing victimisation. To achieve this, the constitution of the audit committee has to provide that a majority of members are independent directors and that, in certain cases, whistleblowers have direct access to the audit committee chairperson. The details of the mechanism have to be published on the company’s website and its functioning included in the company’s board report. The audit committee is empowered to take suitable action to prevent misuse of this mechanism through frivolous complaints. Paragraph 3(xi)(c) of the , requires auditors to report whistleblower complaints in their reports.

The SEBI, which regulates listed entities, has further reinforced whistleblower protection through its Listing Obligations and Disclosure Requirements Regulations, 2015 (LODR). Under the LODR, the whistleblowing mechanism is to be incorporated into the company’s code of conduct, and entities are required to disclose the operation of such mechanisms, including significant actions taken regarding complaints received. The SEBI Insider Trading Regulations, 2015, provide for rewards to informants who disclose insider trading to the SEBI.

The RBI guidelines, which are similar to the whistleblower mechanisms provided by the act and the SEBI guidelines, focus not only on corporate governance and transparency but also on risk management. The RBI supervises banks through regular audits and assessments to ensure compliance with its guidelines. Regarding government departments and public sector companies, a statutory agency, the Central Vigilance Commission (CVC), receives complaints alleging corruption or misuse of office by government employees. The CVC can also enlist the assistance of the police agencies when conducting its investigations.

While the regulatory framework has integrated whistleblowing into corporate governance, challenges remain; many employees are unaware of their rights and protections under the mechanisms, and inconsistency of the quality of the policies prescribed and their enforcement needs to be addressed. The implementation of mechanisms by private companies remains largely inconsistent.

To resolve these challenges, companies are eliminating faults in their whistleblowing policies and procedures. Not only are they adopting international best practices to align with global standards, but they are also relying on technology to ensure that their processes remain transparent and expeditious. These address anonymity concerns, inspiring confidence in their employees and stakeholders, and fostering a culture of ethical business practices.

Jatin Pore and Vikrant Singh Negi are partners at DSK Legal. Sneha Barange an associate, also contributed to the article.