Aiming for stringent corporate governance norms, companies accepting public deposits as well as those which have borrowed above Rs 50 crore from financial institutions are now required to establish a vigil mechanism to address the grievances of their directors and employees.
According to the newly notified norms under the Companies Act 2013, the vigil mechanism would have to provide for "adequate safeguards against victimisation of employees and directors who avail of the vigil mechanism."
The mechanism would also have provide for "direct access to the chairperson of the audit committee or the director nominated to play the role of audit committee, as the case maybe, in exceptional cases."
All listed companies and certain classes of firms, including those which accept deposits from public or have borrowed money from banks and public financial institutions in excess of Rs 50 crore, would have to put in place a vigil mechanism.
The audit committee of a company has been mandated to oversee the vigil mechanism, under the rules.
In case of companies not having audit committees, their respective board of directors would be required to nominate a director (who would play the role of audit committee) for the purpose of vigil mechanism to whom other directors and employees may report their concerns.
According to the rules, repeated frivolous complaints by director or employee through this mechanism would be liable to face action, including reprimand.
Besides, members of the audit committee who have a conflict of interest in a given case would have to recuse themselves from the matter.
The vigil mechanism is popular in many developed nations, would provide an opportunity for employees to report any misdoings within their company.
Rolling out the new Companies Act, the government today notified rules for 10 more chapters, including those related to powers of boards and appointment of directors.
