In the month of April 2015, the US Securities and Exchange Commission (SEC) issued a settlement order for a case including an organization that obliged its representatives to consent to a confidentiality agreement when they were met in interior examinations for affirmations of potential infringement of government securities laws. The SEC decried the use of such confidentiality agreements as influencing against laws that required whistleblower protections, and imposed a fine on the company in addition to requiring it to amend its confidentiality agreement by removing such restrictions on its employees.
The case involved KBR, Ind., a company having headquarters in Houston. As a part of its compliance programwhen KBR received complaints, it would conduct internal investigations and interview employees. During such a process, employees were required to sign a confidentiality agreement that barred them from discussing the interview and its subject matter without the prior authorization of its law department. Although there was no evidence of KBR in fact preventing any employee from disclosing details to legal authorities or of KBR taking any action to enforce the confidentiality agreement, the SEC nevertheless found that the language of the confidentiality agreement by itself undermines the Whistleblower Provisions of Section 21F of the Securities Exchange Act of 1934 and Rule 21F-17. In a final settlement with the SEC, KBR agreed to pay a sum of $130,000 as a penalty to settle and revise its confidentiality agreements.
Despite the fact that this case includes an examination of the legitimate and contractual procurements as relevant in the US, the general tenor of SEC’s methodology would hold well in the Indian setting too. Provision 49 of the listing agreement has definite procurements obliging listed companies to set up whistleblowing arrangements and to give satisfactory insurance to informants against exploitation. The execution of the whistleblowing strategy falls inside thetransmit of the review panel, for which its administrator has essential obligation. Despite the fact that Clause 49 does not explicitly manage issues relating to confidentiality agreements, any serious limitations in that identifying with conceivable reporting of asserted infringement to legislative offices or the controllers could fall possibly afoul of such arrangements.
While Clause 49 primarily focuses on internal reporting of alleged violations, the Companies Act, 2013 in section 143(12) imposes a positive duty on auditors of accompany to report to the Central Government when in the course of performance of their duties they discover matters involving a potential offence of fraud. Any terms of the engagement between the company and its auditors (including confidentiality obligations) will be subject to this external reporting requirement.
If there is a KBR-like confidentiality situation in India and the internal whistleblowing policy of a company is rendered nugatory and if a member of the audit committee or a director is engaged in nullifying the effect of a company’s whistleblowing policy andwhat is the relief available to an employee apart from intimating the audit committee; the answer lies in Section 206-212 of the Companies Act, 2013.
The most obvious common thread that runs through these provisions is providing a safe route of communication which ensures anonymity between the whistleblower and the RoC/Central Government/SFIO. Thus, one can see that if a KBR-like situation arises in India, there is a safeguard provided for in the Indian Companies Act. This situation also revives an ancient principle of statutory law over-riding provisions of a non-disclosure agreement.