A Critical Analysis of the Informant Mechanism under the SEBI (Prohibition of Insider Trading) Regulations, 2015 vis à vis Global Best Practices on Whistleblowing

Whistleblowers perform a key social function. They expose wrongs that would otherwise have been difficult, if not possible, for State authorities to detect. This is the advantage of their proximity to the internal affairs of the organization they were, or are, employed with. Whistleblowers thus play a key role in upholding public ethics, by contributing to the detection of, and the enforcement of remediation measures and sanctions against, wrongs. Whistleblowing is particularly useful for securities law enforcement actions. These actions tend to rely heavily on circumstantial evidence, which is often difficult for a regulator to procure without disclosure from a whistleblower. The informant mechanism under the Regulations allows whistleblowers to report information concerning insider trading directly to SEBI. While the mechanism is well-intentioned, it falls short of global best practices on whistleblowing on multiple counts. Firstly, it fails to vest in employees a right to refuse to follow a direction from a superior reasonably believed to be unlawful. Secondly, it imposes an unwarranted burden on the informant to satisfy themselves that the conduct they are disclosing is wrongful. Thirdly, there is inadequate guidance on the extent to which SEBI will keep the informant’s identity in confidence. Fourthly, the mechanism omits to protect the family members of informants against retribution. Fifthly, a protected person cannot seek a remedy against retribution as a matter of right. Finally, the burden of proof necessary to prove retaliation appears to be disproportionately high, with the odds of success stacked against the claimant