Question 1

Annual production of 1,20,000 units at full capacity

Particulars Amount per unit (Rs)

Raw materials 30
Direct labour 20
overheads 10
Total cost 60
Add: Profit 40
Selling price 100

To assess the need of working capital, the following additional information is available: -

1. Stock of raw materials- 3 months consumption

2.WIP - 2 months, Finished Goods -1 Month

3. Credit allowable for debtors- 0.5 months

4. Credit allowable by creditors- 3 months

5. Lag in payment of wages- 1 month

6. Lag in payment of overheads- 1.5 month

7. Cash in hand and bank expected to be Rs 2,00,000.

8.Degree of Completion for RM- 100%, Labour -50% Ohs- 50%

9.Provision for contingencies @ 10% including that provision.

Calculate the working capital requirement of company using Total approach.

WIP- 100% material = Rs 30
Labour and Overheads
Solution expenses @ 50%= Rs 15
Total= Rs 45
1 month= 4 weeks; 1 Year= 52 weeks

Annual production of 1,20,000 units at full capacity.

Therefore, 1 month production capacity- 120000/52= 2,307.69, So let’s take- 2308 units/per
week

Current Assets (A)

 1. Raw Material (2308 x 12W (3months) x Rs 30) = Rs 8,30,880
2. Work In progress-
a. WIP (2308 x 8 W (2 months) x Rs 45) = Rs 8,30,880
b. Finished goods- (2308 x 4W (1 month) x Rs 60) = Rs 5,53,920
3. Debtors- (2308 x 2 W (0.5 months) x ¾ x 60) = Rs 2,07,720
4. Cash in Hand- Rs 2,00,000

Total Current Assets (A)- Rs 26,23,400

Current Liabilities (B)

1. Creditors- (2308 x 12W (3 months) x Rs 30) = Rs 8,30,880

2. Wages- (2308 x 4W (1 month) x Rs 20) = Rs 1, 84,640
3. Overhead expenses = (2308 x 6W (1.5 month) x Rs 10) = Rs 1,38,480

Gross Current Liabilities (B) – Rs 11,54,000

4. Contingencies @ 10% = 105 of 11,54,000 = Rs 1,54,000

Total Current Liabilities (B) - Rs 11,54,000 + 1,54,000 = Rs 13,08,000

Therefore, working capital= A-B

Total Current Assets (A)- Rs 26,23,400 - Total Current Liabilities (B) Rs 13,08,000

= Rs 13,15,400

Working Capital- 13,15,400

Question 2

Question 3- Write a short-note on ANY TWO

B) Corporate Social Responsibility

Corporate social responsibility (CSR) is a company’s commitment to manage the social,

environmental and economic effects of its operations responsibly and in line with public
expectations.
It is part of a company’s approach to corporate governance and often touches every part of
the business—operations, human resources, manufacturing, supply chain, health and safety,
and more.

CSR activities may include:

 Company policies that insist on working with partners who follow ethical business
practices.
 Reinvesting profits in health and safety or environmental programs.
 Supporting charitable organizations in the communities where a company operates.
 Promoting equal opportunities for men and women at the executive level

Some aspects of CSR may be required by law. For example, banks and hospitals are legally
required to protect people’s private information. Others are voluntary. The benefits of CSR
are many. Companies establish good reputations, attract positive attention, save money
through operational efficiency, minimize environmental impacts, attract top talent and inspire
innovation. Public companies often report on their CSR performance in their annual reports.

CSR matters for companies because if the community does not approve of how, they do
business, they may lose customers or see their reputations suffer. The news media and activist
groups often watch companies closely and are quick to publicize instances of irresponsible
behaviour.

Example of Corporate Social Responsibility

Starbucks has long been known for its keen sense of corporate social responsibility and
commitment to sustainability and community welfare. According to the company, Starbucks
has achieved many of its CSR milestones since it opened its doors. According to its 2019
Global Social Impact Report, these milestones include reaching 99% of ethically sourced
coffee, creating a global network of farmers, pioneering green building throughout its stores,
contributing millions of hours of community service, and creating a ground-breaking college
program for its partner/employees.1

Starbucks' goals for 2020 and beyond include hiring 10,000 refugees, reducing the
environmental impact of its cups, and engaging its employees in environmental leadership.
Today there are many socially responsible companies whose brands are known for their CSR
programs, such as Ben & Jerry's ice cream and Everlane, a clothing retailer.
Why should a company implement CSR?
Many companies view CSR as an integral part of their brand image, believing that customers
will be more likely to do business with brands that they perceive to be more ethical. In this
sense, CSR activities can be an important component of corporate public relations. At the
same time, some company founders are also motivated to engage in CSR due to their
personal convictions.

What is the impact of CSR?

The movement toward CSR has had an impact in several domains. For example, many
companies have taken steps to improve the environmental sustainability of their operations,
through measures such as installing renewable energy sources or purchasing carbon offsets.
In managing supply chains, efforts have also been taken to eliminate reliance on unethical
labor practices, such as child labor and slavery. Although CSR programs have generally been
most common among large corporations, small businesses also participate in CSR through
smaller-scale programs such as donating to local charities and sponsoring local events.

C) Role of Cadbury Committee in the corporate governance

The Cadbury Committee was set up in May 1991 by the Financial Reporting Council, the
London Stock Exchange and the accountancy profession to address the financial aspects of
corporate governance. Its chairman was Sir Adrian Cadbury. The sponsors were concerned at
the perceived low level of confidence both in financial reporting and in the ability of auditors
to provide the safeguards which the users of company reports sought and expected.

The underlying factors were seen as the absence of a clear framework for ensuring that
directors kept under review the controls in their business, together with the looseness of
accounting standards and competitive pressures, both on companies and on auditors, which
made it difficult for auditors to stand up to demanding boards. These concerns about the
working of the corporate system were heightened by some unexpected failures of major
companies and by criticisms of the lack of effective board accountability for such matters as
directors' pay.

Further evidence of the breadth of feeling that action had to be taken to clarify
responsibilities and to raise standards came from a number of reports on different aspects of
corporate governance which had either been published or were in preparation at that time.
Reasons for setting up the Committee.

1. The committee was set up in May 1991 by the Financial Reporting Council, the
London Stock Exchange and the accountancy profession to, address the financial
aspects of corporate governance. The Committee’s membership and terms of
reference are set out in Append. Its sponsors were concerned at the perceived low
level of confidence both in financial reporting and in the ability of auditors provide
the safeguards, which the users of company reports sought and expected

1. These concerns about the working of the corporate system were heightened by some
unexpected failures of major’ companies and by criticism of the lack of effective
board accountability for such matters directors pay. Further evidence of the breadth of
feeling that action had to be taken to clarity responsibilities and to raise standards
came from a number of reports, on different aspects of corporate governance which
had either been published or were in preparation at that time.
2. The committee wherever possible drew on these documents, and a wide range of
submissions from interested parties, in producing its draft report which was issued for
public comment on 27 May, 1992.
3. Since then, the committee has received over 200 written responses to its proposals,
the great majority of which broadly support the committee’s approach, and has
carefully considered the balance of opinions expressed on particular issue. The
committee is most grateful to all those who have taken the time and trouble to give us
their comments. They have helped to shape our final report and, in addition, they are a
valuable reference source for our successors.
4. Corporate governance is the system by which companies are directed and controlled.
Board of directors is responsible for the governance of their companies. The
shareholders role in governance is to appoint the directors and the auditors and to
satisfy themselves that an appropriate governance in place.
5. Within that overall framework, the specifically financial aspect of corporate
governance (the Committee’s remit) are the way in which boards set financial policy
and oversee its implementation, including the use of financial controls, and the
process whereby they report on the activities and progress of the company to the
shareholders.
 6. The role of the auditors is to provide the shareholders with an external and objective
check on the director’s financial statements, which form the basis of that reporting
system. Although the reports of the directors are addressed to the shareholders, they
are important to a wider audience, not least to employees whose interest’s boards have
a statutory duty to take into account.
7. The committee’s objective is to help to raise the standard corporate governance and
the level of confidence in financial reporting and auditing by setting out clearly what
it sees as the respective responsibilities of those involved and what it believes is
expected of them.

Question 4- Elaborate the recommendations of Narayanmurthy Committee and analyse

its application, implementation in India in depth.

Answer

The last few years have witnessed increasing stress on improving the standard of Governance
of the Corporates around the world and in India too with setting up of a few committees. The
concept of Corporate Governance has been evolving and the same has grown over the years.
With a view to further improving the standards of Corporate Governance in India, SEBI
constituted a Committee under the Chairmanship of Shri N. R. Narayana Murthy, Chairman
and Chief Mentor of Infosys Technologies Limited. The Committee included representatives
from Chambers of Commerce as well as leading professional bodies.
The terms of reference of the Committee were twofold: - (a) to review the performance of
Corporate Governance; and (b) to determine the role of companies in responding to rumour
and other price sensitive information circulating in the market in order to enhance the
transparency and integrity of the market. Audit Committee
The Committee Report is a relatively short document and contains some innovative and very
useful recommendations. As was to be expected, the Committee has focused on enhancing
the role of audit committees and has made two very important mandatory recommendations:
1. It has been recommended that Audit committees of publicly listed companies should
mandatorily review certain information including financial statements, draft audit report
(including quarterly / half-yearly financial information), Management discussion and analysis
of financial condition, reports relating to compliance with laws and to risk management,
records of related party transactions, etc. 2. Another very significant mandatory
recommendation is that all audit committee members should be financially literate, with at
least one member having accounting or related financial management expertise. The term
financially literate has also explained and it means the ability to read and understand basic
financial statements i.e. balance sheet, profit and loss account, and statement of cash flows.
The Committee has provided for the qualifications or circumstances which can be considered
while ascertaining as whether a member of the audit committee has accounting or related
financial management expertise.
Audit Report- Similarly, greater stress has been laid on the role of audit reports and audit
qualifications. The result of deliberation of this aspect has been that a specific responsibility
is sought to be cast on the shoulders of the management. Hence, the Committee has made a
mandatory recommendation to the effect that, in case a company has followed a treatment
different from that prescribed in an accounting standard, then it is for the management to
justify the need for such alternative treatment. The Committee requires the Management to
clearly explain the alternative accounting treatment in the footnotes to the financial
statements. In other words, managements will have to take responsibility of their decision to
make changes in accounting norms.
Related Party Transactions- One of the major bugbears of small shareholders and other
investors is the related party transactions entered into by company managements. Keeping in
view the significance of related party transactions, the Committee has made a mandatory
recommendation that a statement of all transactions with related parties should be placed
before the Audit Committee for formal approval / ratification. The recommendation also
states that, if any transaction is not on an arms length basis, management should provide the
explanation to the Audit Committee justifying the same. Interestingly, while putting down its
mandatory recommendation in respect of related party transactions, the Committee has
mentioned independent audit committee instead of just audit committee.
Risk Management- risk assessment and effective procedures for minimizing risk has to be an
important feature of corporate managements. It is necessary for companies to be proactive
and take cognisance of the ever-changing economic and political environment. Keeping these
factors in view, the Committee has made a mandatory recommendation that companies
should have certain procedures in place so as to inform Board members about the risk
assessment and risk minimization procedures. The Committee expects the Boards to
periodically review the procedures so as to ensure that executive management controls risk
through means of a properly defined framework. The Committee has also recommended that
the Management should place a report before the entire Board of Directors every quarter
documenting the business risks faced by the company, measures to address and minimize
such risks, and any limitations to the risk-taking capacity of the corporation. This document
should be formally approved. While there is no doubt that risk assessment and control
measures ought to be on the agenda of every company, care should be taken that it is not
reduced to mere paper exercise.
Training of Board members the Committee has made a non-mandatory recommendation to
the effect that companies should be encouraged to train their board members in the business
model of the company as well as the risk profile of the business parameters of the company.
In addition, the directors should also be trained in respect of the responsibilities as directors
and the best ways to discharge them. Even DCA has also been talking about training of
independent directors. Hopefully, there will be some thrust in this direction from the leading
chambers.

Question 5- Explain the role and responsibilities of Audit Committee in furtherance of

the concept of Corporate Governance in India.

Answer 5

Who is an independent director?

As per section 149 (6) of The Companies Act, 2013, Independent Director means any director
other than a managing director or whole-time director or a nominee director.

Certain conditions need to be fulfilled, before appointing any person as an independent

director.

1.) clause (a) of Section 149(6), of the Act, states that any person who is to be appointed must
in the opinion of the Board, be a person of integrity and must possess relevant expertise and
experience;

2.) clause (b) along with clause (c) of Section 149(6), states that the person who is to be
appointed must neither be a promoter of a company nor must be related to the promoters or
directors of that company. Further, clause(d) along with clause(e), states that, he must have
no pecuniary relationship with the company, and that none of his relatives must have been
having any pecuniary relationship with the company.
3.) clause (e) of the Section talks about his relationship with the company. It states that for a
person to be appointed as an independent director, neither he nor any of his relative, must
hold following positions in a company:

    (i) the position of a key managerial personnel

    (ii) employee or proprietor or a partner, in any of the three financial years, proceeding.

    (iii) Holds together with his relative two percent or more of the total voting power of the
company; or

    (iv) Chief Executive or director, of any non-profit organization.

So, these were the conditions which need to be followed while appointing any independent
director as per The Companies Act, 2013. However, the next question which needs to be
answered is that why these independent directors should be appointed and be included in the
Board.

Need to have independent directors on the board

There are several distinct benefits that an independent board of directors can bring to a
company, the first and foremost is that the internal processes that are can be controlled, and
the mismanagement or fraud which is being done by the company can be brought to the
knowledge of the shareholders of the company and to the public at large. It has some other
benefits also, which include

 Offset the management flaws in a company.

 Ensure the practice of legal and ethical behavior at the company, and at the same
time strengthening accounting controls.
 Increase the popularity of the company through his contacts and expertise so as to
strengthen the share capital of the company.
 Be a part of long-term decisions which need to be taken, for the welfare of the
company.
  Help a company survive, grow, and prosper over time through improved
succession planning through membership in the nomination committee,

What is corporate governance?

Corporate Governance is a term with a very wide connotation, but in its most general sense, it
means the system of rules, practices, and processes by which a company is directed and
controlled. It essentially involves working in the best interests of the company while
balancing the interests of the many stakeholders in a company. Since corporate governance
also provides the framework for attaining a company’s objectives, it encompasses practically
every sphere of management, from action plans and internal controls to performance
measurement and corporate disclosure.

So essentially, Corporate Governance is the application of best management practices,

compliance of law in its true spirit and adherence to ethical standards for effective
management and distribution of wealth and discharge of social responsibility for sustainable
development of all stakeholders.

Composition & structure of board of directors under corporate governance:

For maintaining the unbiassed and objectivity of the decisions taken by the Board, it is
necessary to take into consideration the views of all the directors within the boards, which are
in a sense representing various groups of the company. Thus, the Corporate Governance
regulations provide a basis on the composition and structure of the Board.

By regulating the composition and structure of the Board the objectivity and soundness of the
decisions taken by the Board are maintained. It also ensures that no single director can
dominate in such decision-making process, and thus reducing the chances of arbitrability of
the decisions. This can be done by including a sufficient number of non- executive members
with appropriate competencies, who are independent.

Independent directors and corporate governance:

The need for the independent directors can be established by the fact that they are expected to
be independent from the management and act as the trustees of shareholders. This implies
that they are obligated to be fully aware of the conduct which is going on in the organizations
and also to take a stand as and when necessary, on relevant issues.

The importance of the role of an Independent Director is of great significance. The

guidelines, role and functions and duties and etc. are broadly set out in a code described in
Schedule IV of the Companies Act, 2013.

The code lays down certain significant functions like safeguarding the interest of all
stakeholders, particularly the minority holders, harmonizing the conflicting interest of the
stakeholders, analysing the performance of management, mediating in situations like the
conflict between management and the shareholder’s interest, etc.

The independent directors are also expected to attend the general meetings of the company
and to keep themselves aware of the matters which are going on in the company.

Role towards shareholders and stakeholders:

Independent directors have various roles to fulfil in their official capacity. Following, in my
opinion, are the most important ones:

 They must discharge their duties and must try to bring transparency in the working
mechanism of the company. Since shareholders, especially the minority
shareholders, are usually not equipped to look into those affairs of the company,
and thus they look forward to independent directors so as to provide such
transparency.
 When the management or Board is taking any decisions, which would adversely
affect the rights of the shareholders or creditors or employees, then the
independent directors must have a significant role in such decisions, and they must
act in the welfare of the stakeholders.
 Further, they are required to review the related party transactions and also to
ensure the efficiency of “Whistle Blower”

These, essentially, safeguard the interests of the stakeholders.

Role in Committee Membership

The Companies Act, 2013, provides for mandatory appointment of independent directors in
following committees so as to meet the corporate governance requirements:

 Nomination committee
 Remuneration committee
 Committee related to investor relations,
 Audit committee.

Responsibilities of independent directors for a good corporate governance

Being a member of the Board, their role and responsibilities are very much similar to any
other director of the Board. The fiduciary duties of care, diligence and acting in good faith
apply equally to independent directors as to other directors.

Role towards the Board

It is the duty of the independent director to ensure that all those concerns that are important
for the company are properly addressed by the board of directors.  The objectives and duties
of the independent directors are same as that of the executive directors. However, as
compared to the executive directors the time that is needed to be devoted by the independent
director and the degree of skill and care required for the company, both are less.

Liability Of an Independent Director

Under the Act of 2013, the liabilities of the independent directors have been reduced, and are
limited:

 “Only in respect of acts of omission or commission by a company which had occurred with
his knowledge, attributable through board processes, and with his consent or where he had
not acted diligently”.

Question 6- Critically analyse the legislative framework of whistle-blower policy and its
implementation in India.
With the rise in whistle-blower complaints in India, the need for a robust legal regime for
protection of whistle-blowers has gained importance. Publicly-known attempts to grapple
with whistle-blower complaints in listed multi-national companies and banks have made it to
the front page of every leading newspaper and channel. In this context, we examine whether
the existing legal regime provides adequate clarity and support to companies and whistle-
blowers alike in the management and resolution of whistle-blower complaints.

Who is a whistle-blower:

Generally speaking, a whistle-blower is considered as any individual who makes a

‘disclosure’. Broadly, a disclosure refers to a concern, usually raised by an employee or
group of employees of the Company or even a third party, in writing and in good faith, which
discloses or demonstrates information about an unethical or improper activity with respect to
the Company and based on actual facts and which complaint is not speculative. The intent has
always been to give the terms ‘whistle-blower’ and ‘disclosure’ the widest possible
amplitude.

LEGAL REGIME IN INDIA:

Public Servants:

 India has 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 power/discretion 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.
 The Whistle Blowers Act may be utilized by any person to make a public interest
disclosure. An amendment to the aforementioned Act was proposed in the form of the
Whistle-blowers Protection (Amendment) Bill, 2015 (“Amendment Bill”). The
Amendment Bill sought to, inter alia, incorporate necessary safeguards against
disclosures which may prejudicially affect the sovereignty and integrity of the
country, security of the State, etc. However, the Amendment Bill was not passed by
the Rajya Sabha and consequently, it lapsed.
Law applicable to Listed Companies:

 The Companies Act, 2013, and rules thereunder, provide that certain companies
should establish a ‘vigil mechanism’ to report genuine concerns. Further, the
Companies Act states that such mechanism should be accompanied by adequate
safeguards against the victimization of persons who use the mechanism. There is an
additional requirement of publishing the details of the mechanism on the company’s
website and in the report of the board of directors. The Companies and (Meetings of
Board and its Powers) Rules, 2014 further provides that 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 director or the employee including reprimand.
 The Securities Exchange Board of India (“SEBI”) has mandated that every listed
company should have a whistle-blower policy and make employees aware of such
policy to enable employees to report instances of leak of unpublished price sensitive
information. With effect from December 2019, the SEBI has also introduced a reward
mechanism for incentivizing ‘Informants’ to report violation of insider trading laws to
SEBI.
 Listed companies are required to make a disclosure of material events to the stock
exchange(s) pursuant to Regulation 30 of the Securities and Exchange Board of India
(Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”).
 Recently, the Companies (Auditor’s Report) Order, 2020 was issued (“CARO 2020”)
by the Ministry of Corporate Affairs, in line with its objective of strengthening the
corporate governance framework under the Companies Act, 2013. The Order applies
to every company, including a foreign company as defined in the Companies Act,
2013. CARO 2020 necessitates enhanced due diligence and disclosures on the part of
auditors of eligible companies and has been designed to bring in greater transparency
in the financial state of affairs of such companies. The revisions have also put greater
onus on companies to share information with the auditors, especially on whistle-
blower complaints received during the course of the year, for the consideration of the
auditor, who usually then seeks to know the manner in which the company has dealt
with such complaints, including nature of complaint and quantum involved.

Private Employers:
  There is no specific law on whistleblowing applicable to private employers in India.
Some progressive companies (especially subsidiaries of MNCs) have incorporated a
whistle-blower policy as part of extending their global policies which includes
individual employees or group of employees and in some cases even third parties.
The purpose of any whistle-blower policy is to encourage employees (or any other
person for that matter) to report matters without the risk of subsequent victimization,
discrimination or disadvantage.

Practical implementation:

 There is no procedure provided under Indian law for companies when faced with such
situations. It is driven by the policy, where such policy exists. However, when a
whistle-blower complaint is received, it is generally evaluated and investigated basis
the nature of issues raised.

 Such complaints allow the company to get ahead of the issue and take action well in
time before any regulator comes knocking at their doorstep.

 While the management of the company is primarily responsible for implementing

policies, procedures and controls for prevention and detection of fraud, the onus of
governance for prevention and detection of fraud is also placed on the board of
directors/audit committees.

 Directors of a company are vested with the fiduciary duty to inter alia act in good
faith, the duty to act in the best interests of the company, its employees, the
shareholders, and the community and for the protection of the environment, etc. They
are, thus, required to make necessary disclosures as and when required.

 Even the investigation team in question is something that can be tweaked keeping the
nature of issues in mind. There is no straightjacket formula. With a view to maintain
legal privilege, such investigations may also be led by legal counsel who then work
with appropriate forensic teams, as may be required.

 The manner in which the statutory auditor now seeks information has also evolved. It
is not unusual for the statutory auditor to seek a detailed explanation from the
company or even the investigation team and satisfy themselves that the team looked at
the length and breadth of the allegations sufficiently. Where not satisfied, there have
been instances that the statutory auditor has gone back and refused to sign the
 accounts until and unless steps as identified by them were not carried out to their
satisfaction.

Recent Examples:

Lately, there have been several whistle-blower complaints in listed companies. In this
section, we have examined how one of India’s largest multi-national company in the IT
sector dealt with disclosures pertaining to a whistle-blower complaint to the Bombay Stock
Exchange. In September 2019, the company received a whistle-blower complaint signed by
‘Ethical Employees’ alleging that its CEO and CFO, inter alia, were not adhering to
accounting standards pertaining to revenue recognition. In October 2019, the company
released a statement wherein it noted that these complaints were placed before the Audit
Committee, which retained a law firm and an independent internal auditor to investigate into
the allegations.

The Bombay Stock Exchange sought a clarification for not making a disclosure pursuant to
Regulation 30 of the LODR with reference to receiving a whistle-blower complaint.
Subsequently, the company released a statement in response to the request by BSE stating
that before the conclusion of the investigation of the generalized allegations in the
complaints, a disclosure under Regulation 30 of the LODR was not required. In January
2020,  the IT giant issued a statement that the Audit Committee has concluded a rigorous
investigation and found no wrong doing by the company and its executives, including the
CEO and CFO. In this statement, a summary of the scope of investigation and key findings
was also provided.

Further, several other large listed companies have received and handled whistle-blower
complaints which made it to the headlines in the recent past. Recently a leading private bank
was struck by a whistle-blower complaint addressed to the Prime Minister and the Finance
Minister alleging that its then Chairman, granted a loan to a company, whose Chairman had
business connections with her husband.09 This has been one of the most talked about
complaints in the country leading to initiation of several civil and criminal proceedings
against the then Chairman by multiple law enforcement agencies including Enforcement
Directorate, Central Bureau of Investigation and income tax authorities.
In another instance, a whistle-blower in a leading pharmaceutical company approached the
SEBI complaining about alleged financial irregularities in the company. 11 Eventually, SEBI
did not find any merit in the allegations. However, the stocks of the company witnessed
several fluctuations due to the complaint. Similarly, several other institutions including
private banks, financial institutions, audit and consultancy services have grappled with
whistle-blower complaints. All of this is what is available in the public domain and is, quite
probably, the tip of the iceberg.

LACUNAE IN THE LAW?

 Law applicable to listed companies and certain other classes of companies in India
mandatorily need to comply with framing a whistle-blower policy providing adequate
protection to whistle-blowers. This is followed by requirement to promptly disclose
material events to the stock exchange, which may include whistle-blower complaints.

 Interestingly, there is no mandatory requirement for private, unlisted companies to

adopt a whistle-blower policy / a policy to protect whistle-blowers (except the specific
classes of companies prescribed under the Companies Act). However, certain large
multinational companies have adopted international best practices and included
whistle-blower policies. Such policies are voluntary in nature; and a failure to create
or adhere to such policies would not normally attract legal repercussions. The rolling
out of CARO 2020 is possibly one step towards addressing such an issue.

 While the intention of the legislations and regulations are laudable, the manner of
investigation into whistle-blower complaints and ensuring compliance with
regulations is unclear. For instance, the yardstick is unclear as to when, or at which
stage of investigation, a disclosure pertaining to whistle-blower complaint needs to be
made before the stock exchange.

 It is also unclear as to what the process/procedure for conducting an internal

investigation into whistle-blower complaints should be. While the Companies Act,
2013 and rules thereunder provide that a vigil mechanism must be in place and
adequate safeguards must be taken to protect whistle-blowers, there is no prescription
of how such a mechanism should operate and how investigations into complaints are
required to be done. Again, rolling out of CARO 2020 is possibly one step towards
addressing this i.e. by ensuring that the statutory auditor is required to look into how
each whistle-blower complaint is addressed.

Interestingly, a former employee of Tata Consultancy Services made a complaint to SEBI

questioning the robustness of the vigil mechanism itself.12 Such instances go to show that
there is a need for further clarity on the manner of implementation of whistle-blower policies
and the manner of investigation into whistle-blower complaints.