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.
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.
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