USFDA-hit Indian pharma looks for whistleblowers

Dec 14 2013, 08:55 IST
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SummaryIndian laws do not make it binding for a company adopt whistleblower policy.

Gurgaon-based Ranbaxy Laboratories’ troubles began when Dinesh Thakur, who had served on the board of the drug firm between 2003 and 2005, approached the US Food and Drug Administration and department of justice with proof that the company had indulged in data tampering, supply of falsified data to the regulator and production and sale of substandard drugs. It now turns out that one reason why Thakur chose to invoke the US’ robust whistleblower policy (which forced Ranbaxy to cough up $500 million) rather than first take up the matter with the company’s top management was that the company then lacked a whistleblower policy.

Clause 49 of the listing agreement with the Securities and Exchange Board of India (Sebi) mandates disclosure of whether an entity has a whistleblower policy or not. However, Indian laws do not make it binding for a company adopt such a policy.

While some Indian pharma companies have adopted whistleblower policies, others, including some top-notch firms, haven’t. Lupin, Dr Reddy’s Laboratories, Wockhardt and Piramal Enterprises have defined their whistleblower policies, according to responses received from the companies to FE queries and disclosures in their annual reports. Lupin and Dr Reddy’s have even constituted an internal mechanism to handle such complaints.

A Lupin spokesperson said: “Our top management itself is responsible for (the policy) and any such incidents get reported directly to an email box called ombudsperson@lupinpharma.com. A copy of the mails go to the vice-chairman, managing director and CFO of the company, so people have access to the very top tiers of the company (and) if they want to talk about anything they can do so fearlessly.”

Dr Reddy’s said: “We have a robust whistleblower policy. The chief ombudsperson is internal.” Mumbai-based Sun Pharmaceuticals, India’s largest pharmaceutical company by revenue, said it is in the process of implementing a whistleblower policy.

With Indian pharma and biotechnology companies competing on a global platform, having whistleblower policies would enable them to try and resolve employee grievances within the internal framework of the company, without causing them to precipitate in the open.

Anand Mehta, partner, Khaitan & Co, said the amended Companies Act, 2013, has a new construct called vigil mechanism which makes it mandatory for a certain class of companies to have adequate safety measure to prevent victimisation of those employees who have blown the whistle.

However, the relevant rules have to be notified for this provision to be in force. “Having seen corporates work for last 20 years, I would believe that (any complaint) is best handled internally because there would be no way one would operate with a third-party outsider,” Mehta said, adding that an insider will understand the internal affairs of the company better and would handle complaints more effectively than an outsider.

However, some lawyers say there is an inherent conflict of interest when the top management is in charge of a committee sitting in judgement on whistleblower revelations. They would recommend a third-party ombudsperson overlooking the process. “Lawyers are instructed these days on how to handle a whistleblower policy so that they are able to professionally guide a company on how the policy should be managed very systematically,” ALMT Legal founding partner Sameer Tapia said.

Sandeep Parikh, a corporate lawyer in Finsec Law Advisors and ex-executive director with Sebi, said any such policy has to be well-designed. “It doesn’t have to be an agent of the company, it can be someone independent. Someone retired from the Central Vigilance Commission, or people like that who know well about the policy are ideal for the job (of handling whistleblower complaints),” Parikh said.

Ranbaxy learnt the lesson of not having a policy the hard way. The company, in 2013, pleaded guilty of various cGMP (current good manufacturing practices) violations and was levied a penalty of $500 million. Three of its manufacturing facilities still face an import ban into the US and the recent quarterly results reflected the reduction in sales. However, after the Thakur debacle, Ranbaxy has now instituted a whistleblower policy. It’s website says law firm P&A Law Offices is the designated ombudsperson for administering the policy. The employee can complain on a website that is managed by a third-party contractor and is run on a server independent of the one that hosts Ranbaxy’s websites. Employees have the option to complain online or over the phone and can choose to remain anonymous, if required.

With the new Companies Act empowering independent directors, the whistleblower revelations can be acted upon within the company, as the promoter-directors would have to pay heed, some analysts feel.

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