LIMITED LIABILITY PARTNERSHIP-PART-XIII - Whistle Blowing

[Dr. Sanjiv Agarwal]

Section 31 of LLP Act, 2008 seeks to provide that the Court or Tribunal may reduce or waive any penalty leviable against any partner or employee of a LLP in case such partner or employee has provided useful information during investigation of such LLP for finding out the offence. The clause further seeks to provide that no such partner or employee shall be discharged, demoted, suspended, threatened, harassed or in any other manner discriminated merely because of his providing information to the Court or Tribunal.

 The purpose of section 31 of LLP Act, 2008 is to create a mechanism whereby the frauds committed by an LLP may be detected at the least cost to the Government and to the society. For this the Act introduces the concept of a "whistleblower". The term whistleblower derives from the practice of English bobbies, who would blow their whistles when they noticed the commission of a crime. The whistle would alert both law enforcement officers and the general public of danger.

In India, we do not have a general whistle blowing law while in US and European countries, there are general as well as statute specific whistle blowing law. One of the significant aspect of a whistle blowing law is that it is to have sufficient provisions to protect the interests of the whistle blower. This is for the first time in India that a statute specific whistle blowing provision has been introduced.

Benefit to Whistle Blower [Section 31(1)]

The provision provides that a whistle blower - who could be a partner or an employee of the company can be benefited from waiving off /reduction of his penalty if he-

(a) provides useful information ( what information could be 'useful' is left to the discretion of court or Tribunal) during investigation of LLP, or

(b) provides an information whether or not during investigation, which leads to conviction of LLP or its partner or employee

Thus a person can blow whistle (or provide information to the Government) regarding wrongs committed or being committed by an LLP/partner/employee at any time- during investigation or otherwise. The motivation to a whistle blower is waiver/reduction of penalty against him in case of his involvement - thus the provision is particularly meant for the person who is party to fraud.

Protection to Whistle Blower's Interest [Section 31(2)]

It is very important to protect a whistle blower's interest from the wrath of the persons against whom the whistle is blown because such persons are generally in power, i.e., persons having control of the affairs of the organization.

In US, there are statutes on both the state and federal levels that protect individuals from retaliation from employers against an employee who cooperates with a governmental investigation or who reports wrongdoing of the employer. These statutes are commonly referred to as "whistle blowing" laws. Under these laws, an employee cannot be terminated, denied employment or denied advancement due to his or her attempts to alleviate illegal or improper conduct by his or her employer. This prohibition not only covers reports to government agencies, but reports of illegal activity to supervisors and refusals to go along with illegal activities of fellow employees and/or supervisors.

On the similar lines, section 31(2) provides that no partner or employee of any limited liability partnership may be discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against the terms and conditions of his limited liability partnership or employment merely because of his providing information or causing information to be provided pursuant to sub-section 31(1). A moot question here is how far the above provision will be able to control the harassment of a whistleblower.

Penalty

In this chapter, penalty is relevant only in context of Section 30 which provides that for the offence committed under section 30 (1) by every person who was knowingly a party to the carrying on of the business in the fraudulent manner, such person shall be punishable with imprisonment for a term which may extend to two years and with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.