Background
The requirement to establish a Vigil Mechanism arises from the need to promote ethical conduct, prevent misconduct, and encourage transparency in corporate operations. It provides directors and employees with a secure channel to report concerns relating to fraud, unethical behavior, or violations of company policies, without the fear of retaliate on. This aligns with global governance standards and supports the broader intention of the Companies Act, 2013 to foster responsible and accountable management practices within companies.
As per Section 177 of the Companies Act read with Rule 7 of The Companies (Meetings of Board and its Powers) Rules, 2014:
Every listed company and such other class or classes of companies as mentioned below are required to establish a Vigil Mechanism:
(a) the Companies which accept deposits from the public;
(b) the Companies which have borrowed money from banks and public financial institutions in excess of fifty crore rupees.
This mechanism must enable:
to report genuine concerns related to unethical behavior, fraud, violation of company policies, or misconduct, in a prescribed manner.
The companies which are required to constitute an audit committee shall oversee the vigil mechanism through the 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.
The Vigil Mechanism serves as a structured channel for raising concerns in good faith. It ensures:
The mechanism must incorporate:
Requirement | Description |
Protection Against Victimization | Individuals reporting concerns in good faith shall not be retaliated against or subjected to any adverse employment consequences. |
Direct Access | In exceptional or appropriate situations, the whistleblower must be able to directly approach the Chairperson of the Audit Committee. |
These safeguards promote trust and prevent fear-driven silence among personnel.
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.
The company must disclose the existence and details of the Vigil Mechanism:
This ensures transparency and informs stakeholders of the channels available for reporting concerns.
Vigil mechanism in case of Listed Companies and HVDLE (Regulation 22 & Regulation 62J)
(1) The HVDLE and the listed company shall formulate a vigil mechanism/ whistle blower policy for directors and employees to report genuine concerns.
(2)The vigil mechanism shall provide for adequate safeguards against victimization of director(s) or employee(s) or any other person who avail the mechanism and also provide for direct access to the chairperson of the audit committee in appropriate or exceptional cases.
Penalties & Punishments
Listed entity/any other person who contravenes any provision of the regulations/HVDLE shall be liable for one or more of the following penalties/actions as deemed fit by the regulator :
a) action as per Securities Law,
b) fine,
c) suspension of trading,
d)freezing of promoter/promoter group holding of designated securities, as may be applicable, in coordination with depositories,
e) any other action specified by Board
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