Companies Act 2013

Vigil mechanism

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What the Companies Act 2013 states

  • Sec 177 (9) - Establish a vigil mechanism
    • Every listed company or such class or classes of companies, as may be prescribed, shall establish a vigil mechanism for directors and employees to report genuine concerns in such manner as may be prescribed
  • Sec 177(10) - Safeguard against victimization
    • Policy against victimization of persons using the mechanism
    • Provide for access to Chairperson of Audit Committee in appropriate or exceptional cases
    • Display policy on the company website, if any
    • “Vigil mechanism” to be included in Board’s report
  • Schedule IV - Code for independent directors
    • Ascertain and ensure that the company has an adequate and functional mechanism
    • Ensure that interests of a person who uses the mechanism are not prejudicially affected

EY insights

  • Applicability
    • Listed companies
    • Companies which accept public deposits
    • Companies which have borrowed money from banks and public financial institutions in excess of 50 crores
  • Operation of the vigil mechanism
    • The Audit Committee to oversee the operation of the mechanism
    • For companies that do not need an audit committee, a director to be nominated by the Board to oversee
    • Companies may consider developing a fraud response plan and obtaining Audit Committee's approval
  • Audit Committee member to recuse if conflicted
    • If a member of the Audit committee is conflicted in a given case, he should recuse himself
  • Safeguard against victimization
    • The mechanism should provide for adequate safeguards against victimization
  • Frivolous complaints
    • Audit committee or the director to take suitable action (including reprimand) against repeated frivolous complaints