CHAPTER 10 STAKEHOLDERS RIGHTS

BUSINESSES AND HUMAN RIGHTS

Human rights are basic rights and freedoms that protect us all. They are based on dignity, fairness, equality and respect.
Businesses have a significant impact on the way we live our life and enjoy these human rights, whether it’s as an employee, a
customer or simply living alongside companies that share our cities and towns.

Companies do need to pay close attention to their supply chains but businesses can affect people’s human rights in more subtle
ways, at home and abroad. Companies with an online presence will need to make sure that they respect people’s right to privacy
and uphold data protection laws, care home providers need to treat the people they look after with dignity and respect and all
businesses have an obligation to ensure safe working conditions for their staff. Aside from it being the right thing to, it also makes
good business sense to respect human rights.

Businesses can find themselves involved in lawsuits, suffering reputational harm and missing out on business opportunities and
investments as well as the chance of recruiting the best new employees.

Almost all human rights are relevant to business. A business can have an impacts – both positive and negative – on many people,
including employees, customers, suppliers and their employees, and communities in which the business operates.

Globally, there is increasing expectation amongst governments, business, investors and civil society, that businesses operate
responsibly and sustainably – and at the heart of this is respect for human rights.

In 2011 the UN Guiding Principles on Business and Human Rights (UNGPs) were unanimously endorsed by the UN Human
Rights Council.

The UNGPs are now the authoritative global standard for addressing and preventing human rights impacts associated with
business activity.

The UN Guiding Principles operate on a three-pillar framework, known as the Protect, Respect, Remedy Framework, which
consists of:

Pillar I: The State duty to protect human rights

Pillar II: The business responsibility to respect human rights

Pillar III: Access to remedy for victims of business-related human rights harm.

The idea of human rights is as simple as it is powerful: that people have a right to be treated with dignity. Human rights are
inherent in all human beings, whatever their nationality, place of residence, sex, national or ethnic origin, colour, religion,
language or any other status. Every individual is entitled to enjoy human rights without discrimination. These rights are all
interrelated, interdependent and indivisible.

While Governments have the duty to protect individuals against human rights abuses by third parties, businesses are increasingly
recognizing their legal, moral and commercial need to respect human rights. Today, businesses are subject to closer scrutiny of
their impacts on people and the planet. Companies that focus on respecting human rights - and cultivate positive relationships with
their stakeholders - can help ensure their business’ continued growth and social license to operate.

Businesses have minimum responsibilities to meet to respect human rights. They must act with due diligence to avoid infringing
the rights of others, which includes addressing any negative human rights impacts related to their business. They must also abide
by international standards and avoid causing or contributing to adverse human rights impacts through their activities and
relationships.

Beyond these minimum requirements, companies can make voluntary, positive contributions to support human rights.

PART A: WHISTLE/ VIGIL/ GRIEVANCE REDRESSAL MECHANISM

INTRODUCTION

 The word whistle blower originates from ‘whistle’ as used by a referee to indicate an illegal or foul play.
 Whistleblowing is officially defined as “making a disclosure that is in the public interest”.
 It will usually occur when an employee discloses to a public body, usually the police or a regulatory commission that their
employer is partaking inunlawful practices.
 A whistle blower discloses information about misconduct in the workplace that he feel violates the law or endangers the
welfare of others and speaks out with an intention to expose corruption or dangers to the public or environment.
Whistleblowing is to be encouraged as it is an efficient and effective way of curbing unlawful practices.
 Whistleblowing incorporates two words: ‘Whistle’ and ‘Blowing’ which means blowing a whistle or revealing some
information in front of the public.
 The information can be about public or private organizations/institutions about activities which are deemed to be illegal,
immoral or fraudulent.
 The people who disclose the wrong doings are known as ‘Whistleblowers.’
 When a disclosure is made about the wrongdoings in a business corporation, it is called corporate whistleblowing.
 Corporate whistleblowing plays a pivotal role in corporate governance that is adopted by
an organization or a company.
 In an organization, company stakeholders could comprise the board of directors,
management, shareholders, employees, clients, etc.
 Corporate Governance has a direct impact on the growth and stability of an organization,
company, it also has bearing on the integrity and reputation of the company.
 Corporate Governance ensures that the board of directors, the management of the
company are transparent and disclose all the business activity of the company to gain the
trust of the investors.
 The term ‘whistle-blowing’ is a relatively recent entry into the vocabulary of public and
corporate affairs although the phenomenon itself is not new.
 In many cases of corporate whistleblowing, it was observed that the employees of the organization are
generally the first ones who have sustainable information in regards to any wrongdoing or any kind of unethical practice
happening in the organization, company but due to fear that they would be suspended or that they would be fired from their
jobs speak about such activities in the last. This makes it important that every organization or company should have a
whistleblowing policy that protects the identity of the whistleblower and there should also be legislative statute that gives
protection to such employees.
 Furthermore, by adopting an efficacious whistleblowing structure an organization or company can ensure to dissuade
employees from indulging in unlawful activities, it would also enable the organization or the company to detect any
wrongdoing in advance. An efficient whistleblowing structure would also enable the whistleblower to expose any kind of
wrongdoing without any fear.
 Whistleblower protection policies are also an imperative element of in-house controls, ethics and compliance program, which
could exhibit to shareholders and law enforcement authorities that an organization has made efforts to thwart, detect and deal
with dishonest behavior.

MEANING OF VIGIL MECHANISM/ WHISTLEBLOWER POLICY

According to Ahern, McDonald, Katharyn, Sally. (2002), the concept of whistleblowing essentially means when a particular
organization or the company is given a warning beforehand about any kind of corruption or any illegal activity happening within
the organization, company.

“The purpose of whistleblowing is to expose secret and wrongful acts by those in power to enable reform.” Glenn Greenwald

Whistleblowing could also be understood as the process that reveals any kind of unethical activity happening within an
organization, company by an employee, or any person privy to such activities.

The International Labour Organization (ILO) defines Whistleblowing as “Reporting by employees or former employees of illegal,
irregular, dangerous or unethical practices by employers.”

The term vigil means the purposeful surveillance to guard and observe. So, the purpose of vigil mechanism policy works on the
meaning of vigil. Every company should adhere to a code of conduct and some commitment while operating its business.

Some essential commitments such as

 maintaining the higher standards of moral, legal, and ethical conduct in its business operation.

In order to maintain these standards, usually, companies attempt to protect their employees, directors and members against any
victimization or harassment at the workplace.

Whistle Blower Policy or Vigil Mechanism can be understood as a mechanism for the Directors and Employees of the Company
to report concerns about unethical behavior, actual or suspected fraud or violation of the Company’s code of conduct or ethics
policy.

The Whistle Blower Policy / Vigil Mechanism aims:

 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,
 to report concerns about unethical behaviour, actual or suspected fraud, leakage of unpublished price sensitive information or
suspected leakage of unpublished price sensitive information or violation of the Code of Business Conduct and Ethics for
Board of Directors and Employees,
 against any employee/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 subject to the disclosure or complaint being made in
good faith and in reasonable time.

GENSESIS OF WHISTLE BLOWING

The idea of whistleblowing had been in the practice since long back. During the time of
Kautilya, the idea similar to the whistleblowing had appeared. Although the term whistle
blowing is recent word added in the vocabulary but the phenomenon is not new one. The
strategy of Kautilya resembled with the vigil mechanism.
The strategy of Kautilya states that- “Any witness who supplies data about extortion and on
the off chance that he/she prevails with regards to demonstrating it, will get the reward of
one-6th of the sum being referred to; or if the source is an administration worker, he/she
might get one-twelfth of the sum for a similar demonstration.”
In 2001, the Indian Legislation Commission proposed that a law protecting whistleblowers
be enacted in order to combat corruption. It had also written a bill to address the problem.
In the year 2004, the government notified the “Public Interest Disclosure and Protection of
Informers Resolution (PIDPIR)” and in response to this resolution, the Central Vigilance
Commission (CVC) was established only to protect the government employees.
The Second Administrative Reforms Commission’s report from 2007 also urged that a
separate statute be enacted to protect whistleblowers.
India then enacted the Whistle Blowers Protection Act, 2014 (“Whistle Blowers Act”),
which is applicable only to public servants. It was enacted with the intent to establish a
mechanism to:
 receive complaints relating to disclosure of any allegation of corruption,
 wilful misuse of against any public servant;
 to inquire or cause an inquiry into such disclosure; and
 to provide adequate safeguards against victimization of the person making such
complaint.
NEED FOR A WHISTLE BLOWING MECHANISM
The corporate sector not only in India but the world over has been through several
progressive changes over the last few decades. These changes, however, have constantly
been overpowered by widespread controversial corporate scandals. These scandals not only
adversely impact the reputation of the company but also hamper the interest of various
investors and stakeholders of the company. Those inside the organization are definitely
better positioned to prevent these wrong happenings and thus the even increasing need for
whistle blower policy.
The need for whistle blower policy is for the following reasons
To promote transparency:
An effective whistle blowing policy facilitates a transparency among employees.
Prevent victimization of whistle blowers:
A robust whistle blowing mechanism protects anyone who exposes alleged wrongdoing in
the institutions and projects.
To promote an open enterprise culture:
Effective protection of whistleblowers will support an open enterprise culture where
employees not only have confidence in reporting but are also aware of the reporting
procedures.
Reduce corruption:
Strengthening whistle blowing mechanism will helps to prevent misuse of power by public
servants and thus curb corruption.
To uphold rule of law and democracy:
Strengthening of the whistleblower protection mechanism will helps in upholding the
principles of democracy and ensure public participation in governance.
To create a better work environment:
Whistle blowing helps in rectifying even the smallest incidents of wrongdoing, thereby
instilling similar responsibilities in others and creating a better environment for all.
TYPES OF WHISTLE BLOWERS
Internal: When the whistleblower reports the wrong doings to the officials at higher position
in the organization. The usual subjects of internal whistleblowing are disloyalty, improper
conduct, indiscipline, insubordination, disobedience etc.
External: Where the wrongdoings are reported to the people outside the organization like
media, public interest groups or enforcement agencies it is called external whistle blowing.
Alumini: When the whistle blowing is done by the former employee of the organization it is
called alumini whistle blowing.
Open: When the identity of the whistleblower is revealed, it is called Open Whistle
Blowing.
Personal: Where the organizational wrongdoings are to harm one person only, disclosing
such wrong doings it is called personal whistle blowing.
Impersonal: When the wrong doing is to harm others, it is called impersonal whistle
blowing.
Government: When a disclosure is made about wrong doings or unethical practices adopted
by the officials of the Government.
Corporate: When a disclosure is made about the wrongdoings in a business corporation, it is
called corporate whistle blowing.
THE WHISTLE BLOWERS PROTECTION ACT 2014
 The Whistle-blower Protection Act, passed in May 2014, established guidelines for
whistle blower protection in non-corporate cases.
 Under this Act, the Central Vigilance Commissioner is responsible for receiving
complaints, reviewing public disclosure requests, and ensuring that complainants are
protected under the law.
 The law created a legal mechanism to deal with complaints about allegations of
corruption or intentional misuse of power or discretion against any public servant and to
investigate or cause an investigation into such allegations.
 It allows anyone, including government employees, to make a general interest disclosure
before a Competent Authority. It also defines various competent authorities in great
detail. It also provides safeguards to conceal the identity and safeguards against the
victimization of the complainant.
 The law doesn’t allow anonymous complaints and there will be no actions on such
complaints.
 The maximum period for making such a complaint is seven years.
 Any person who is dissatisfied with a Competent Authority order may file an appeal with
the concerned High Court within sixty days of the date of the order.
 Anyone who reveals the identity of a complainant unintentionally or purposely will face
imprisonment.
 The Act does not apply to Special Protection Group (SPG) personnel and officers who
were formed under the Special Protection Group Act of 1988.
THE COMPANIES ACT, 2013 AND THE COMPANIES (MEETINGS OF BOARD
AND ITS POWERS) RULES 2014
Under Section 177(9) read with Companies (Meetings of Board and its Powers) Rules, 2014,
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 crores
to establish Vigil/Whistle-blowing mechanism to report any unethical behaviour or other
concerns to the management.
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 provide adequate safeguards against victimization of employees and directors who avail of
the Vigil mechanism and also provide 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.
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.
Section 208 and Section 210 of the Companies Act, 2013 give the Registrar or the Inspector
additional power to investigate the records of the companies and upon doing so submit a
report to the central government. If further contains that they need to provide the government
with all the relevant documents and also provide them with any suggestions that they may
have to pertain to the investigation.
Section 210 of the Act, lays down the procedure that needs to followed by the registrar or the
inspector while investigating the affairs of a company.
COMPANIES (AUDITOR’S REPORT) ORDER, 2020 [CARO 2020]
The ministry of corporate affairs to strengthen the practice of corporate governance among
the Indian Companies issued an order making it mandatory for all the listed companies to
reveal all the whistleblower complaints to the auditor and the same shall be mentioned in the
report published by the auditor.
THE SEBI (LISTING OBLIGATION AND DISCLOSURE REQUIREMENT)
REGULATIONS, 2015
The SEBI LODR has several regulations which mandate the listed companies to disclose
material events and ensure effective corporate governance in the company. Some of these
regulations are:
Regulation 22 of the SEBI LODR Regulations which is similar to Section 177 of the Act and
provides for establishment of vigil mechanism in every listed company for reporting genuine
grievances of employees and directors and also provides for protection to them against
victimization.
Regulation 46 states that every listed company has to disseminate vigil mechanism and its
whistle-blower policy on a separate section on its website.
Further, as per regulation 34 and 53 the company under the heading corporate governance in
its annual report also has to state the details of the vigil mechanism and its whistle-blower
policy and also further mention that no personnel have been denied access to the audit
committee. Similarly, Regulation 4(2)(d)(iv) mandates every listed company to establish a
vigil mechanism/ whistle-blower policy which would enable the stakeholder of the company
such as employees and their representative bodies to lodge complaints against unethical and
illegal practices in the company.
Schedule II of the SEBI LODR Regulations states that the audit committee of the company
shall be responsible for the reviewing the functioning of the vigilance mechanism.
MAJOR WHISTLE BLOWING LEGISLATIONS AROUND THE WORLD
Many countries have devised and adopted a variety of laws and procedures for protecting
and encouraging. Whistle Blowing as discussed below:
The United States
The US has dozens of whistle-blower laws at the state and federal level, as well as separate
clauses in legislation designed to achieve other health, safety or welfare objectives. The three
principal acts, however, are the Whistle-blower Protection Act 1989, the Corporate and
Criminal Accountability Act (Sarbanes-Oxley Act), and the False Claims Act.
(A) The Whistle-blower Protection Act, 1989
It provides millions of federal workers with the rights they need to report government
corruption and wrongdoing safely.
The WPEA makes federal whistleblower rights stronger that at any time in history, lapping
those created by the Whistleblower Protection Act of 1989 (WPA). This update is long
overdue, as WPA protections were very weak.
The WPA was a landmark good government law with the mandate to protect federal
employees who report waste, fraud and abuse.
Over the past two decades, the WPA has fallen victim to hostile judicial activism.
Unfortunately, with every month that passed before enactment of the WPEA, the status of
federal government whistleblowers continued to erode due to a lack of viable rights.
Formerly under the WPA, federal employees were not eligible for whistleblower protections
if they:
 were not the first person who discloses given misconduct
 made a disclosure to a co-worker
 made a disclosure to a supervisor
 disclosed the consequences of a policy decision, or
 blew the whistle while carrying out job duties
Sections 101 and 102 of the WPEA restore the original intent of the WPA to adequately
protect whistleblowers by clarifying that a disclosure does not lose protection because:
i. the disclosure was made to a person, including a supervisor, who participated in the
wrongdoing disclosed,
ii. the disclosure revealed information that had previously been disclosed,
iii. of the employee or applicant’s motive for making the disclosure,
iv. the disclosure was made while the employee was off duty; or
v. of the amount of time which has passed since the occurrence of the events described in the
disclosure.
Section 101(b)(2) also clarifies that a disclosure is not excluded from protection because it
was made during the employee’s normal course of duties, providing the employee is able to
show that the personnel action was taken in reprisal for the disclosure.
B. The Sarbanes-Oxley Act
The Sarbanes-Oxley Act was passed in 2002 to combat corporate criminal fraud and to
strengthen corporate accountability. It was a legislative response to the fraudulent activities
exemplified by World Com and Enron Corporation.
The Act provides for enhanced financial disclosures and auditor independence of publicly
held corporations.
Section 301 of the Act requires that audit committees of the boards of public corporations
establish procedures for ‘the confidential, anonymous submission by employees’ of
complaints regarding internal accounting controls or auditing matters.
The Act provides some protections and assistance for the whistle-blower. Employees are not
required to complain to their employers first, but may complain to a Federal regulatory or
law enforcement agency; any Member of Congress or any committee of Congress; or a
person with supervisory authority over the employee.
It does entertain the right of the whistle-blower to take legal action if they suffer retaliation.
Those found guilty of retaliation are liable to up to ten years in prison. The impact of the
Sarbanes-Oxley Act, however, is primarily limited to financial matters.
(C) The False Claims Act
Designed to stop fraud against the government, this act was passed during the US civil war
under the administration of Abraham Lincoln.
Regarded as the single most successful Whistle Blowing legislation in the country, the False
Claims Act works by providing the whistle-blower between 15 and 30 per cent of the
government’s total recovery, the percentage depending on the extent to which the whistle
blower took the action that enabled the recovery to take place.
It was amended in 1986 to establish protections for whistle-blowers, and to prevent harassing
and retaliation against them. The Bill, which permits an anonymous disclosure, has been
copied by a number of states in the US.