All about Vigil Mechanism

Monika Bahuguna | Last updated: 12 August 2023

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Quick Summary

The Vigil Mechanism is a mandatory system for companies, as required by the Companies Act, 2013 and SEBI (LODR) Regulations, 2015. It provides a channel for directors and employees to report genuine concerns or grievances without fear of victimisation. For companies with an audit committee, this committee oversees the mechanism, while other companies will have a nominated director fulfil this role.

Although the establishment of Vigil Mechanism is mandatory under the Companies Act, 2013 as well as in SEBI (LODR) Regulations, 2015, but the word used is ‘mechanism’ and not the ‘committee’.

However, it shall be worthwhile to narrate the relevant provisions of the vigil mechanism here;

Provisions of VIGIL MECHANISM Under the Companies Act, 2013

Section 177 read with Rule 7 of the Companies (Meetings of Board and Its Powers) Rules, 2014.

Understanding the Vigil Mechanism: Your Guide

Constitution as per Section 177(9)

Every listed company or such class or classes of companies as prescribed under Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014, shall establish a vigil mechanism for their directors and employees to report their genuine concerns or grievances

Rule 7. Establishment of Vigil Mechanism

The Companies which accept deposits from the public;
The Companies which have borrowed money from banks and public financial institutions in excess of 50 crore rupees.

The companies which are required to constitute an audit committee shall oversee the vigil mechanism through the committee and if any of the members of the committee have a conflict of interest in a given case, they should recuse themselves and the others on the committee would deal with the matter on hand.

In case of other companies, the Board of directors shall nominate a director to play the role of audit committee for the purpose of vigil mechanism to whom other directors and employees may report their concerns.

The vigil mechanism shall provide for adequate safeguards against victimization of employees and directors who avail of the vigil mechanism and also 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 may be, in exceptional cases.

In case of repeated frivolous complaints being filed by a director or an employee, the audit committee or the director nominated to play the role of audit committee may take suitable action against the concerned director or employee including reprimand.

Under SEBI (LODR) Regulations, 2015

Regulation 22 deals with the Vigil Mechanism.

The listed entity shall formulate a vigil mechanism for directors and employees to report genuine concerns.

The vigil mechanism shall provide for adequate safeguards against victimization of director(s) or employee(s) or any other person who avail the mechanism and also provide for direct access to the chairperson of the audit committee in appropriate or exceptional cases.

FAQ :

A Vigil Mechanism is a system established by companies to allow directors and employees to report genuine concerns or grievances.

Yes, the establishment of a Vigil Mechanism is mandatory under the Companies Act, 2013 and SEBI (LODR) Regulations, 2015.

In companies required to have an audit committee, the audit committee oversees the Vigil Mechanism. For other companies, the Board of Directors nominates a director to fulfil this role.

The Vigil Mechanism provides adequate safeguards against victimisation of employees and directors who report concerns.

Yes, the Vigil Mechanism allows for direct access to the Chairperson of the Audit Committee, or the nominated director, in exceptional cases.