Sri Lanka needs to protect its corporate whistle-blowers

• Why the law must distinguish between Independent Non-Executive Directors from Executive Directors

Sri Lanka’s company law has a blind spot that is quietly discouraging honest professionals from serving on corporate boards: it does not create a comprehensive statutory classification of directors into ‘Executive’, ‘Non-Executive; and ‘Independent Non-Executive directors. For example, section 201 simply requires a public company to have at least two directors. The Registrar of Companies currently lists the Companies Act No. 7 of 2007 together with the Companies (Amendment) Act No. 12 of 2025.  These acts do not clearly distinguish between an Executive Director who is involved in the executive and management functions of the company whilst the Independent Non-Executive Director participates in the Board but is not part of the company’s executive management. The Independent Non-Executive Director is required to watch over it through governance and oversight. The Companies Act establishes the legal office and duties of a “Director”; the listed-company governance regime establishes the more sophisticated distinction between Executive, Non-Executive and Independent Directors.

That distinction, however, is very much alive in the rules governing listed companies. The Colombo Stock Exchange’s Listing Rules (Section 9) explicitly separate directors into three categories: Executive, Non-Executive, and Independent Non-Executive. Listed companies must disclose which category each director falls into, and current rules require that at least two directors — or one-third of the board, whichever is greater — be independent. The Securities and Exchange Commission’s revised Corporate Governance Rules, in force since 1 October 2023, add further requirements on board composition and independence.

The functional difference is straightforward: an Executive Director is embedded in day-to-day management, while a Non-Executive Director sits on the board without executive responsibilities. Independent Non-Executive Directors (INEDs) go a step further — under CSE rules, their role is specifically one of governance and oversight, but not management.

One law, two very different roles

The problem is that the Companies Act does not carry this distinction through into liability. It treats all directors — executive and independent alike — as equally exposed to suspicion or prosecution when fraud comes to light, regardless of their actual role. In practice, this means an Independent Non-Executive Director (INED) who discovers wrongdoing and reports it to the relevant regulator can find themselves bundled in with the very executives they exposed.

The mere fact that fraud occurred on a company’s watch while an INED was serving does not, by itself, mean the INED committed it. Yet without a legal framework that recognises this, the law offers no protection to the whistle-blower. That is a serious deterrent for exactly the kind of independent, arms-length professionals that good governance depends on. Why would a qualified professional take on an oversight role that carries real exposure but no legal shield for doing the job properly?

The worst-case scenario

In an event where an INED observes a deliberate fraud committed by the Executive Directors and makes discloses to the Regulatory Body and other relevant authorities, such INED runs the risk of being bundled with the very Executive directors that he/she exposed and handed over to the CID/FCID for investigation. Even though the INED is cleared of any suspicion nor accusation by the CID/FCID, the INED can be arrested by an order of the Attorney-General’s Department on the basis of the Companies Act 7 of 2007.

What international standards already require

Sri Lanka does not need to invent this protection from scratch — it is already a well-established principle of international law.

The United Nations Convention against Corruption (UNCAC), now with 192 States Parties as of July 2026, addresses this directly in Article 33. It calls on states to protect any person who, in good faith and on reasonable grounds, reports suspected corruption to the authorities from unjustified retaliation. The UN Human Rights Council has gone further, warning that whistle-blowers and anti-corruption activists around the world have faced threats, arbitrary detention, enforced disappearance and even killing for coming forward.

There is also a growing recognition that whistle-blowing is a matter of free expression: a person should not be punished simply for disclosing wrongdoing that is genuinely in the public interest. For a country working to strengthen its anti-corruption framework, aligning with this global standard is not optional — it is foundational.

Sri Lanka has already laid some groundwork

The Anti-Corruption Act, No. 9 of 2023 shows that Parliament has already accepted the principle. Section 77 empowers the Commission to Investigate Allegations of Bribery or Corruption (CIABOC) to provide legal representation to informers, whistle-blowers and witnesses — including in Magistrate’s Court and High Court proceedings — where they themselves become the target of retaliation.

What is missing is a comprehensive, independently enforceable regime that extends this protection consistently, including to INEDs acting within their statutory duty to report fraud.

For a country such as Sri Lanka, this is especially relevant to developing a strong good-governance and anti-corruption framework

Gaps in protection of ‘Whistle Blowers

Advocacy groups like Transparency International Sri Lanka (TISL) note that comprehensive legal guarantees remain weak, leaving many whistleblowers vulnerable to punitive transfers or disciplinary actions under older The Limitation for Whistleblowers. It further notes that the protection afforded to Whistle Blowers in Sri Lanka is below standard; if not non-existent. Certain statutes in fact discourage accountability and seem to grant a sense of security and freedom to those resorting to and/or espousing corruption, maladministration or malpractice.

The need of the hour

Although the Right to Information Bill proposed by the Government has a specific clause on protection of whistleblowers, it is reliably understood that there are moves afoot by any public officials to discourage the incorporation of these provisions. Thus, a single statute on the protection of Whistle Blower may be the need of the hour.

The time is now opportune for the Government to consider amending the Companies Act No. 7 of 2007 to expressly distinguish Independent Non-Executive Directors (INEDs) from Executive Directors, rather than placing both categories under the single, overarching definition of “Director.” The absence of such a distinction creates a significant legal and governance concern, as Independent Non-Executive Directors may potentially be exposed to allegations or legal proceedings in respect of fraudulent or unlawful activities committed by Executive Directors, despite having neither participated in, nor had knowledge of, such conduct. A clear statutory distinction between the respective roles, responsibilities and liabilities of Executive and Independent Non-Executive Directors would strengthen corporate governance, provide greater protection to bona fide and professionally responsible INEDs, and ensure that liability is appropriately attributed to those responsible for the underlying misconduct. Failure to address this issue could also discourage competent professionals and subject-matter experts from accepting appointments as Independent Non-Executive Directors, thereby depriving Sri Lankan companies of valuable independent expertise and weakening the effectiveness of corporate boards.

Getting the balance right

None of this should come at the expense of due process for the accused. As the International Labour Organisation has emphasised, protecting whistle-blowers and ensuring fairness for those they report are not competing goals — both must be built into the same framework.

Nor should whistle-blowers be required to prove their allegations before qualifying for protection. The right test is that they act in good faith and on reasonable grounds — believing, with justification, that the information is substantially true. Asking them to establish guilt first would defeat the purpose: an Independent Non-Executive Director would effectively have to conduct their own investigation before being protected, when their actual duty is simply to report. The principle should be straightforward — the whistle-blower reports, and the competent authority investigates.

The way forward

Sri Lanka has the foundation it needs in the 2023 Anti-Corruption Act and the National Anti-Corruption Action Plan 2025–2029. What remains is the political will to build on them: to write into law a clear distinction between executive and independent directors, and to guarantee that professionals who step forward to expose fraud are shielded, not punished, for doing so. Until that happens, the law will keep sending the wrong signal to the very people boards most need — and corruption will keep finding it easier to hide.

(The author is a much sought-after Management Consultant and Personal Development Coach. He was a former Regional Director Sterling Winthrop East Africa and thereafter, Regional Head of Special Projects and Regional HR Consultant Smithkline Beecham Southeast Asia and India. He has served as Consultant to CEB, Sri Lankan Airlines (2000 to 2007)), SLTPB, SLT and several Blue-chip companies and MNCs)