dawn raids issues & challenges under the indian competition act, 2002 by g. r. bhatia 1

8/7/2019 Dawn Raids Issues & Challenges Under the Indian Competition Act, 2002 by G. R. Bhatia 1

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Dawn Raids Issues &Challenges Under The IndianCompetition Act, 2002G. R. Bhatia1, Partner & Head of CompetitionLaw Practice, Luthra & Luthra Law Offices, NewDelhi.

e-mail:gbhatia@ luthra.com

Dawn Raids are unannounced search and seizure operations by competition authorities and is intended to gather evidences in an antitrust probe. Sincraids tarnish the image and goodwill of the entity, it becomes imperative to wand guard against such unpleasant visits. This article enlightens on several imaspects of Dawn Raids.

AND PURPOSERaids' colloquially known as 'unannounced search ands a common tool that may be used by the investigating

of a competition agency to gather documentary evidencech visits by officials of the competitionphenomenon. Theof

of anti trust infringements in cases where raids areTo mention a few :

In February 2009, EU and US competition authoritieslaunched a joint, fuJiy synchronized dawn raid on therefrigeration compressor industry across these twocontinents and the searches primarily contributed inproving the infringement of the competition lawprovisions;In October 2006, in Singapore, the CCS carried out dawnraids on six pest control companies after a complaint ofcollusion in submitting tenders for termite treatmentprojects was received and recently these six companieswere fined S$ 262,759.66;In December 2009, in Poland, the Polish CompetitionAuthority undertookbiggest dawn raids on major cementplayers. The raid revealed documents inter-alia relating

is 'Competition law Expert' of London international Court ofArbitration. He is a former Additional Director General of the Competitionof India (CCI) and Monopolies & Restrictive Trade Practices(MRTPC), New Delhi. The views expressed are personal views of

to resale price maintenance for an unprecedenof 11 years and a total fine of I08 million Eimposed on seven cement makers;

(d) In South Africa, a dawn raid was conducteoffices of Airlines Association of Southern Aalleged settlement agreement; in April 2Commission unleashed a dawn raid uponindustry, seizing documents from DunlInternational , Bridgestone SA and SManufacturers Conference; in May, 2010,conducted on four electric cable companies fprice fixing;

(e) In November 2010, In Brazil, the Secretariat Law (SDE) has raided a handful of companiesof former Government official for suspected bconspiracy; and

(f) In January 2008, in Japan, the JFTC conducraids on three galvanized steel sheet maparticipating in a price fixing cartel and these cwere fined an aggregate of 15.5 billion Yen, thamount yet imposed by the JFTC.These surprise inspections occur without warninusually conducted at times when least expected ofcrack of dawn and during weekends. The 'raids' are cin a covert manner leaving no scope with the painvestigation to scuttle the search in any manner anto give any opportunity to 'sanitize' the records. Imulti national corporations, simultaneous raid


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Dawn Raids - Issues & Challenges Under The Indian Competition

the same jurisdiction. Further, raids can be conductedof size of the enterprise, nature of business and

business and personal premises.is a fertile ground for dawn raids. As obtaining

evidence on price fixing and other concertedtricky, there can be littleof dawn raids will be stepped up

in times to come., the Indian Competition law

(the investigating arm ofdertake such 'search and seizure '2 . An irrefutable

the most intrusive and disruptive experienceis faced by an alleged delinquent. Businesses and their

ns are ordered pursuantof an Inquiry for suspected infringement

the Act, run a risk of their personal/official premises being' by the Director General. Thus, there is immense need

raid' can be undertaken by the DG, (II) theof investigated enterprise; (III) the obligations of an

actions.e scope, ambit and gravity of these dimensions are of great

for an "enterprise and its principal officers' asof documents in the wake of a raid is the foundation

of an Agency. Further, there isto cooperate/assist the investigator failing whichare triggered. The Company Secretary who

a compliance officer of a company or in-house legal counseltake note of this aspect of law as he/she is the first

of call for a company which is faced with anti trustat its door.

& MANNER IN WHICHRAID' CAN BE UNDERTAKEN

GENERAL(DG)Though, the office of DCP is meant to assist the CCI ininvestigating into any contravention of Act/Rules/Regulations, however, it is incumbent upon the DG tobe fair & impartial in carrying out the investigation aswell in drawing his frndings/conclusions in the Report.The process and product of DG have to be reasoned in

Such power was never invoked by the Director General (Investigation &) under the repealed MRTP Ac t, /969.DG means the Director General appointed under sub-section (1) of Section

y Additional, Joint, Deputy or Assistant Director Generalction 16(1) of the Act.

order to meet the counter arguments of thenterprise or the referrer, as the case may be;

(ii) Investigation by the DG begins only when dthe CCI and formation of a prima facecontravention of the Act by the CCI ought nothe investigation undertaken by the DG;(iii) On receipt of order of investigation, the DGinstance is to send a 'questionnaire' to the allegparty to respond and to furnish documents/esupport thereof. The DG is vested with powercourt in carrying out investigation and thereadvisable for the addressee to furnish correct &information/documents failing which (a) non codisobedience liability devolves on the addressprompts DG to invoke powers of 'search anwith the approval ofChiefMetropolitan MagisDelhi;

(iv) The analogous power in DG of seizure as arean Inspector under Section 240A of the Comp1956 are not open ended. The 'search & seizuundertaken only when he has reasonable groundthat the books and papers of, or relating to, anyor other body corporate may be destroyed, altered, falsified or secreted. The expressionbelieve' has been viewed as:The crucial expression 'reason to believe'postuand the existence of reasons fo r that belief'reason' means cause or justification and'believe' means to accept as true or to haveThe belief may not be open to scrutiny as it iconclusion arrivedat by the officer concerned,of mental exercise made by him on the inreceived. The existence ofreasons to believe isto be the check, a limitation upon the power"The expression 'reason to believe' is strongeexpression 'is satisfied'. Beliefshould not beand arbitrary. To pu t it differently, it must be rand must be based on reasons which are mateBeliefmust be held in good faith. It can notpretence. It is open to court to examine whethfor belief have a rational nexus or a relevanto the formation of belief and are not extr

4. In Barium Chemicals Limited v. Company Law Board (MA1966 : 36 Comp Cas 639 (SC) : 1966 Suppl SCR 311 at 361: A295 AT 324.5. In Ganga Saran & Sons (P) Ltd v. TTO : MANUISCI0297130 ITR 1 (SC).


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- Issues & Challenges Under The Indian Competition Act, 2002

irrelevant or the purpose of he Section. To that limitedextent, action o f the assessing officer in initiatingproceedings under section 147 can be challenged in acourt of aw6.There must be reasons to induce belief The same shouldbe by reason ofomission or ailure on the partofassessedto disclose fully and truly his income7.

) The principles which emerge from the case law, are (a)the authority must be in possession of information andthat reason to believe that the addressee would notdisclose; (b) the information must be in existence and itshould not be merely rumour; (c) the active applicationof mind on the information is a condition precedent andis open to scrutiny; (d) the court will not go into thequestion of sufficiency of material and that it will notsit in appeal8.urisprudence evolved clearly indicates that the DG doesnbridled powers to invoke provisions relating to

announced raid' at the premises of the charged party and/person related thereto and that law and precedents do

ribe the limits, conditions and manner in which DG can& seizure' .

GHTS OF THE COMPANY FACING ' RAID'The representative of a raided company may request theDG to allow a reasonable time for the in-house counselor external counsel to arrive. However, it is notobligatory for the investigator to wait for the arrival ofthe counsel;

representative has a right to ask for the identity andthe order of the CMM, Delhi and the scope of dawnraid. It is advisable to confirm the authenticity of thedawn raid by telephoning the Director General;Take steps which are necessary to preserve the documentsor prevent any interference with them;Keep full record of all questions asked and answers givenand make copies of all documents copied by the officials;

) The representative can object to the review or taking ofcopies of privileged documents including confidentialcommunication between the cl ient and its externalattorney; and

S. Narayanappa v. CIT MANU/SC/012411966: (1967) 63 ITR 219 (SC)R. Dalmia v. UOI MANU/DE/040811971: (1972) 84 ITR 616

an d Listing (2003) p. 282 by K

(vi) I t is not within the power of the investigating(a) use force against any person, (b ) exadocument or take copy of documents whicrelevant for the purpose of dawn raid and (c) dwhich enjoy legal privilege.

OBLIGATIONS OF THE INVESTICOMPANYIt is obligatory on the functionary of the investigatedto:

(i) furnish to the point and correct explanatiorelating to a document covered in the search arecord of all questions and answers;

(ii) furnish location of a document as per person's kand belief, electronic information to be producor soft copy. DG can seize only those mails/records which are relevant to the investigation aenjoy privilege. In case the whole e-mail boxthe inspector can open the box subsequently in thof authorised official of the investigated entethe inspector has to returnall other mails which arand not construed to be relevant for the investig2d November, 2010, the Paris Court of Aobjected to the seizure of the whole contentboxes by the French Competition Authority. Thowever, ruled that the seizure of certaindocuments belonging to employees or documentbe irrelevant to the investigation, does not invaentire search which was pre approved by thHowever, there is need to strike a balance bepowers of DG during dawn-raids and the data and privacy of the individuals. The princilegitimacy, proportionality and transparency dudawn-raids needs to be observed and these be incin the Manual of Office Procedure whichpreparation by the Office of DG10 ;

9. Jansssen-Claig case illustrates how the investigative pocompetition authority may conflict with employee's right to shows that there is a possible conflict of laws betlveen data prand competition law. While the plainti ff argued that the competihad used unnecessary and disproportionate means to gather thincluding global and massive se izures. which disrupted functioning of the company. However, the court cancelled seizcomputer files but validated the investigation on the grounds tevidence that the officials had not selected in advance theseized, nor that the seizure was disproportionate. The Court alsthe investigation on the grounds that it had used only methothem to preserve the accuracy and reliability of the relevant 10. Presentation by the Director General on 19th October, 2International Conference on Competition Law, held in Necommemorate the 1st Anniversary of the Competition Appellate


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Dawn Raids - Issues & Challenges Under The Indian Competition

not to obstruct or recklessly destroy or otherwise falsifyor conceal the documents of which production has beenrequired; andnot providing information knowingly which is materiallyfalse.

DAWN RAID STEPS BY THECOMPANYBefore the DG team departs

is need to determine if/when the inspector will returnday, ensure to have copy of documents (both electronic

d otherwise) taken by inspector; make a request for aof written records of interviews taken by the inspector

d make a record in the event of refusal. Take a copy ofand ensure recording of disputes and disagreements

After the DG Leaveserviews and computer searches, prepare your own

and conduct final meeting with the in-house legal head/counsel for review to identify potential issues, analyse

of enquiry.e DG can keep in his custody the documents/records

such period no t later than the conclusion of thehe considers necessary and thereafter therean obligation to return the same to the investigated

or any other person from whom custody theseseized 1 The DG is also required to inform this position

the CMM, Delhi with whose approval the dawn raid was

'dawn raids' tarnish the image and goodwill ofcompany and its management. It dampens the business

of the raided company in the ever growingit is imperative for businessward off and guard of such unpleasant

and visitor. Prudence suggests that the business and thebodies should have in place a detailed

to effectively meet the requirements ofsuch searchseizure.

Before return of these seized documents, the DG can place identificationof proviso below Section 240(1A) of the Companies Act,.

Enterprises against which enquiries have already coshould in the first instance extend full cooperation/aand furnish complete and correct information/dwithin the given time. Adherence to this goldennot only rules ou t triggering of penalty provisionminimises the risk of being raided by the DG.taking cue from global experience, size and sbusiness does attract scrutiny through such motherefore, critical for such target company to desofficer(s) as a ' Dawn Raid Warden' who shouldfull fledged programme encompassing (i ) dtraining, (ii) guidelines/checklists before, duringthe dawn-raids, (iii) instant response team duringan d (iv) follow up action. It is difficult to stailor-made programme in view of variance as & size of business, total market and structurekind of trade practices being probed etc. andheterogeneities necessitate a customised detailed dprogramme. 0

VOLUNTARY OBTAINING OFSECRETARIAL COMPLIANCECERTIFICATE

Consequent to the announcements being puregularly in Chartered Secretary with regard to vobtaining of Secretarial Compliance Certificatepractising Company Secretary, the Institute is plpublish the names of the following companies whvoluntarily obtained Secretarial Compliance Cert

Persistent Systems Limited (for the financi2005-06 to 2009-10).

HCL Coronet Systems & Services Limitedyears 2003 to 2010).

Persistent Systems Limited is listed on the NationExchange of India Limited (NSE) and the BombaExchange Limited (BSE) since April 2010. Furcompany has a paid-up share capital of Rs. 40 crper financial year 2009-10).HCL Coronet Systems & Services Limited is an company, having a paid-up share capital ofRs 12.8(as per financial year 2009-10).

dawn raids issues & challenges under the indian competition act, 2002 by g. r. bhatia 1

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