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Ethical Reasoning
The junior officers in your department are not happy about the conduct of a senior who they allege is asking for unethical favours like nepotism.
Course of actions:
1: Warn the juniors and other officers against talking to the concerned officer and reprimand the concerned officer.
2: Order an internal Inquiry to find out the truth about the allegations.
3: Order an officer to keep an eye on the activities of the concerned officer and report to you in strict confidence.
An internal inquiry (action 2) is the proper course when serious allegations are made against a senior officer. Warning juniors against talking (action 1) could be seen as cover-up, and surveillance (action 3) is inappropriate without establishing facts. Only action 2 follows due process and natural justice principles.