Companies Act 2013

Vigil Mechanism

  • Share

Do you have a question? Click here to post a query

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

Vigil mechanism acts as a buffer for the management. As per the guidance note issued by ICAI on fraud reporting under section 143 (12), in case a fraud has been reported through the company’s vigil mechanism and has been remediated by the management and informed to the auditor, then he will not be required to report the same under section 143(12), as he has not per se identified the fraud.