Vigil Mechanism under Section 177 of the Companies Act, 2013

Table of Contents

Introduction

Vigil Mechanism provides adequate safeguard against victimization of persons. It is established for directors and employees to report their grievances and concerns. Rule 7 of Companies (Meetings of Board and its Powers) Rules,2014 describes about establishment of Vigil Mechanism for every Listed Company and companies prescribed below:

  • Companies which accept deposits from public.
  • Companies which have borrowed money from banks and public financial institutions in excess of Rs. 50 Crores.
    The Board of Directors shall nominate a director to play the role of Audit Committee for the purpose of Vigil Mechanism for reporting purpose. The aggrieved person will have direct access with the Chairperson/Nominated Director of the Audit Committee.

Sarbanes-Oxley Act,2002(SOX):

An Act enacted by U.S. congress in 2002 to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes. It is a set of standards that all U.S public companies and public accounting firms must comply and adhere with good quality reporting.

Clause 49 of the listing agreement is pretty much on the lines of Sarbanes Oxley Act of 2002 provided by SEC for companies listed on US stock exchanges. According to Clause 49, the top management becomes directly accountable for all financial statements and internal controls of the organization, which is also the bottom line in case of Section 302 of Sarbanes Oxley Act of 2002

Applicability:

Whether SOX is applicable in India? Yes, all companies, including Indian, which are listed on US stock exchanges, are required to comply with the requirements of the Act.

Corporate governance in India too has taken a folio from provisions of Sec. 404 of the Act. Provisions of SOX for whistle-blowers:

i. Make it illegal to “discharge, demote, suspend, threaten, harass or in any manner discriminate against” whistleblowers

ii. Establish criminal penalties of up to 10 years for executives who retaliate against whistleblowers

iii. Require board audit committees to establish procedures for hearing whistleblower complaints

iv. Allow the secretary of labor to order a company to rehire a terminated employee with no court hearing.

v. Give a whistleblower the right to a jury trial, bypassing months or years of administrative hearings

Penalty for Violation of Audit Committee Provisions:

The company shall be punishable with fine of Rs. 1 Lakh to Rs. 5 Lakhs and every officer of the company who is in default shall be punishable with imprisonment up to 1 year or with fine of Rs. 25,000/- to Rs. 1 Lakh, or with both.

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