Breaking The Silence: Whistleblower Mechanisms In India

Breaking The Silence: Whistleblower Mechanisms In India

A robust, confidential, and non-retaliatory reporting system, backed by proper training and adequate resources, will empower employees and stakeholders to report misconduct without fear of retaliation.

Introduction

In a world where unethical practices and misuse of power often go unchecked, whistleblowers play a vital role in exposing wrongdoings and upholding integrity. The term “whistleblower” originates from the practice of using a whistle to signal a violation or alert others about misconduct. Historically, the term was linked to law enforcement officers in the 19th century who used whistle to notify the public or fellow officers about crimes. Sports referees also adopted the same practice to indicate foul plays. In ancient India, the idea of reporting fraud was already present, where individuals exposing embezzlement were rewarded with a portion of the recovered funds, provided their claims were substantiated.

Whistleblowing refers to the act of individuals disclosing illegal, unethical or morally questionable activities within private or public organizations. Whistleblowers are categorised into various types depending on the nature of their disclosure and the parties involved. Internal whistleblowers include employees who report wrongdoing to higher-ups within the organization while external whistleblowers include stakeholders such as vendors, members, government departments and customers.

The power of whistleblowers: Exposing corporate fraud and misconduct

Whistleblowing has become a key tool in corporate governance, uncovering fraud and unethical practices. According to the¹ “Occupational Fraud 2024: A Report to the Nations” published by the Association of Certified Fraud Examiners, occupational fraud refers to the fraud committed by employees against the organizations they work for. The report emphasizes that whistleblowing is the most common way fraud is discovered, with 43% of cases being reported by a whistleblower tip. This is more than three times as many cases as those detected through other methods such as internal audits, management reviews, document checks, account reconciliations, automated transactions or surveillance.

In January 2025,² a large-scale Ponzi scheme was uncovered, defrauding over 125,000 investors through false promises of high returns. An internal auditor within the organization exposed the fraudulent operation, revealing that senior executives had misappropriated funds and mislead investors. After reporting the discrepancies, the whistleblower faced significant threats, including an offer of a bribe to remain silent. The case involved the manipulation of funds and the creation of fake investment opportunities.

Notably,3 due to stronger reporting mechanisms, whistleblower complaints in Indian companies have increased by 8% year-on-year in financial year 2024-2025, based on data collated for Bombay Stock Exchange (BSE)-50 companies.

A⁴ notable instance of whistleblower-driven enforcement surfaced in January 2026, when SEBI issued a show-cause notice to Bank of America’s unit for allegedly violating insider trading regulations and breaching internal “Chinese walls” during a March 2024 share sale of Aditya Birla Sun Life Asset Management (ABSL AMC). The investigation, triggered by a whistleblower complaint in 2024, found that the deal team, while holding unpublished price-sensitive information, directed the bank’s broking, research, and Asia-Pacific syndicate teams to contact potential investors and share confidential valuation reports.

Whistleblower Regulations in India: Addressing challenges and expanding scope

India has taken steps to establish mechanisms that protect whistleblowers and encourage the reporting of unethical practices. The concept of a whistleblowing mechanism was introduced in the Corporate Governance Voluntary Guidelines, 2009, which encouraged companies to set up systems for reporting fraud or violations of their ethics policies. This led to the adoption of a vigil mechanism in the Companies Act, 2013 (“CA, 2013”), recognizing the importance of safeguarding whistleblowers. Under CA, 2013, certain companies are required to establish a mechanism for directors and employees to report concerns about unethical behaviour. Under Companies (Auditor’s Report) Order, 2020 (“CARO”), statutory auditors are required to verify and report on whistleblower complaints received by a company and the subsequent actions taken. As per Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI LODR”) the listed entities are required to devise an effective vigil mechanism/whistle blower policy enabling stakeholders, including individual employees and their representative bodies, to freely communicate their concerns about illegal or unethical practices.

In a significant development, SEBI introduced Chapter VA for High Value Debt Listed Entities (HVDLEs) in SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015. The provisions of this chapter apply to listed entities that have only non-convertible debt securities listed, with an outstanding value of INR 10,000 million or more. The amendment mandates that such entities implement a formal vigil mechanism and whistleblower policy with safeguards against victimization, aligning their governance standards with those of equity-listed companies. This significantly broadens the compliance requirements for debt issuers regarding internal reporting and anti-victimization measures. Subsequently, on January 22, 2026, SEBI revised the threshold from INR 10,000 million to INR 50,000 million.

Escalating Corporate Fraud in India and Challenges in Whistleblowing

Upon reviewing the provisions of the aforementioned Acts, it becomes clear that while private limited companies and certain unlisted public companies are required to establish a vigil mechanism, this obligation primarily aims to protect directors and employees. However, this provision fails to address other important stakeholders such as shareholders, suppliers, creditors and vendors, leaving them without a formal channel to report misconduct.

Additionally, although the Board of Directors and the audit committee are responsible for safeguarding against the victimization of employees or directors who use the vigil mechanism, their obligations are limited. They are only required to ensure access to the Chairperson of the Audit Committee or a nominated director in exceptional cases, with no broader accountability for ensuring the effectiveness of the mechanism.

Moreover, there is no requirement for the board or audit committee to disclose key information such as the number of cases registered within a specific time frame, the resolution status of these cases, or the number of pending issues. This lack of transparency has led many private and unlisted public companies to implement a vigil mechanism in name only, with a whistleblower system that allows employees to report misconduct. Unfortunately, these companies often fail to take meaningful corrective actions following reports, ultimately undermining the very purpose of the mechanism.

Challenges for Whistleblowers

Despite legal provisions, whistleblowers in India face numerous challenges. These include retaliation, such as job loss or harassment, legal and financial risks, and the difficulty of gathering sufficient evidence to support claims. Additionally, the lack of adequate resources and support for whistleblowers in many organizations further complicates the reporting process. Public exposure can lead to damaging their reputation and making them targets of public vilification. In severe cases, whistleblowers face physical threats or harm, particularly when exposing serious corruption or illegal activities.

Implementation of Comprehensive Vigil Mechanism for better Corporate Governance

To enhance the effectiveness of vigil mechanism the threshold for establishing a vigil mechanism in a company should be lowered or removed, making it mandatory for all companies. Organizations must develop robust policies guaranteeing confidentiality, non-retaliation and independent oversight through an ethics or audit committee/board. Regular training and awareness programs should educate employees on reporting channels and ethical responsibilities. Further the companies must provide multiple, accessible reporting channels, such as anonymous hotlines, emails and online portals, ensuring whistleblowers feel secure when reporting misconduct and these compliant reporting requirements must not be limited to the auditor’s report alone. It should also be disclosed in the board report along with a statement from the directors outlining the measures taken to address the issue. Adequate financial and human resources should be allocated for effective case management and timely investigations. To prevent misuse, companies must clearly define what qualifies as a whistleblower complaint, distinguishing ethical concerns from HR grievances. This can be achieved by communicating case outcomes (without revealing identities) and recognizing ethical behaviour within the organization. Outsourcing hotline management to third-party providers can help filter complaints effectively, ensuring genuine concerns receive appropriate attention.

Conclusion

As India struggles with increasing corporate fraud and unethical practices, the role of whistleblowers has become crucial in ensuring accountability and transparency within organizations. While the regulators through legal frameworks like the CA, 2013 and SEBI regulations have taken steps toward protecting whistleblowers, challenges persist in creating a truly effective and inclusive whistleblowing culture. To strengthen these mechanisms, it is essential to lower the threshold for establishing vigil mechanisms, ensuring that it is mandatory for all companies, regardless of their size. A robust, confidential, and non-retaliatory reporting system, backed by proper training and adequate resources, will empower employees and stakeholders to report misconduct without fear of retaliation. Moreover, it is critical for companies to move beyond merely establishing a reporting system and ensure meaningful follow-up actions. Regular disclosures, transparency about the number of cases reported, and the measures taken to address concerns will foster trust in these systems. By incorporating these reforms, India can promote a culture of ethics and accountability, making whistleblowing an integral part of corporate governance that not only deters misconduct but also promotes long-term integrity and trust in business practices.

Disclaimer – This publication is intended for informational purposes only and does not cover all aspects of the topics discussed. It is based on an understanding of the role, legal implications and compliance requirements for vigil mechanism in India. This publication should not be construed as legal, financial or professional advice. Readers are encouraged to seek appropriate professional guidance before making any decisions.