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Dawn Raids-Issues & Challenges under the Indian Competition Act, 2002
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Dawn Raids' colloquially known as 'unannounced search & seizure' is a common tool that may be used by the investigating arm of a competition law agency to gather documentary evidence in an anti-trust probe writes G.R. Bhatia. Such visit s by officials of t he compet it ion law agency are increasingly becoming a global phenomenon. T he compet it ion law jurisprudence also suggest s a higher rat e of det ect ion of ant i- t rust infringement s in cases w here raids are undert aken. T o ment ion few : (a) In Feb. 2009, EU and US compet it ion aut horit ies launched a joint , fully synchronized daw n raid on t he refrigerat ion compressor indust ry across t hese t w o cont inent s and t he searches primarily cont ribut ed in proving t he infringement of t he compet it ion law provisions (b) In Oct . 2006, in Singapore, t he CCS carried out daw n raids on six pest cont rol companies aft er a complaint of collusion in submit t ing t enders for t ermit e t reat ment project s w as received and recent ly t hese six companies w ere fined S$ 262,759.66 (c) In Dec. 2009, in Poland, t he Polish Compet it ion Aut horit y undert ook biggest daw n raids on major cement players. T he raid revealed document s int eralia relat ing t o resale price maint enance for an unprecedent ed period of 11 years and a t ot al fine of 108 million euros w as imposed on seven cement makers (d) In Sout h Africa, a daw n raid w as conduct ed on t he offices of Airlines Associat ion of Sout hern Africa for alleged set t lement agreement ; in April 2007 , t he Commission unleashed a daw n raid upon t he t yre indust ry, seizing document s from Dunlop T yres Int ernat ional, Bridgest one SA and SA T yre Manufact urers Conference; in May, 2010, raid w as conduct ed on four elect ric cable companies for alleged price fixing (e) In Nov. 2010, in Brazil, t he Secret ariat Economic Law (SDE) has raided a handful of companies and home of former Government official for suspect ed bid rigging conspiracy (f) In June, 2009, in Japan, t he JFT C conduct ed daw n raids on t hree galvanized st eel sheet makers for part icipat ing in a price fixing cart el and t hese companies w ere fined an aggregat e of 10 billion Y en, t he highest amount yet imposed by t he JFT C T hese surprise inspect ions occur w it hout w arning and are usually conduct ed at t imes w hen least expect ed oft en at t he crack of daw n and/or during w eekends. T he raids are conduct ed in a covert manner leaving no scope w it h t he part y under invest igat ion t o scut t le t he search in any manner and also not t o give any opport unit y t o sanit ize t he records. In case of mult i-nat ional corporat ions, simult aneous raids can be coordinat ed in several jurisdict ions and at different locat ions in t he same jurisdict ion. Furt her, raids can be conduct ed regardless of size of t he ent erprise, nat ure of business and bot h at business and personal premises. Cart el conduct is one of t he fert ile grounds for daw n raids. As obt aining convincing evidence on price fixing and ot her concert ed pract ices bet w een rivals is ext remely t ricky, t here can be lit t le doubt t hat t he frequency of daw n raids w ill be st epped up st eeply in t imes t o come in such cases. In line w it h int ernat ional t rend, t he Indian Compet it ion Law also empow ers t he Direct or General (t he invest igat ing arm of t he CCI) t o undert ake such search and seizure . An irrefut able fact is t hat a raid is t he most int rusive and disrupt ive experience t hat is faced by an alleged delinquent . Businesses and t heir associat ions against w hich invest igat ions are ordered pursuant t o commencement of an Inquiry for suspect ed infringement of t he Act , run a risk of t heir personal/official premises being raided by t he Direct or General (DG) . T hus, t here is immense need t o underst and t he (I) t he limit s, condit ions and manner in w hich t he unannounced raid can be undert aken by t he DG, (II) t he right s of invest igat

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ed ent erprise; (III) t he obligat ions of an ent erprise faced w it h such search and seizure and (IV) post raid act ions. T he scope, ambit and gravit y of t hese dimensions are of great relevance for an ent erprise & it s principal officers as uneart hing of document s in t he w ake of a raid is t he foundat ion and precursor t o t he final order of an Agency. Furt her, t here is an obligat ion t o cooperat e/assist t he invest igat or failing w hich penal provisions can be t riggered. T he in-house legal counsel and also t he most senior execut ive of t he company at t he premises also need t o t ake not e of t his aspect of law as he/she is t he first port of call for a company w hich is faced w it h ant i t rust inspect or at it s door. (I) Limits, Conditions & Manner in which unannounced raid can be undertaken by the Director General (DG): (i)T hough, t he office of DG is meant t o assist t he CCI in invest igat ing int o any cont ravent ion of Act / Rules/ Regulat ions, how ever, it is incumbent upon t he DG t o be fair & impart ial in carrying out t he invest igat ion as w ell in draw ing his findings/ conclusions in it s report . T he process and product of DG have t o be reasoned in order t o meet t he count er argument s of t he charged ent erprise or t he referrer, as t he case may be

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(ii)Invest igat ion by t he DG begins only w hen direct ed by t he CCI and format ion of a prima face case of cont ravent ion of t he Act by t he CCI ought not influence t he invest igat ion undert aken by t he DG (iii)On receipt of order of invest igat ion, t he DG in t he first inst ance is t o send a quest ionnaire t o t he alleged charged part y t o respond and t o furnish document s/evidence in support t hereof. T he DG is vest ed w it h pow ers of a civil court in carrying out invest igat ion and t herefore, it is advisable for t he addressee t o furnish correct & complet e informat ion/document s failing w hich (a) non compliance/ disobedience liabilit y devolves on t he addressee and (b) prompt s DG t o invoke pow ers of search and seizure w it h t he approval of Chief Met ropolit an Magist rat e (CMM), Delhi; (iv)T he analogous pow er in DG of seizure as are vest ed in an Inspect or under Sect ion 240A of t he Companies Act , 1956 are not open ended. T he search & seizure can be undert aken only w hen he has reasonable ground t o believe t hat t he books and papers of, or relat ing t o, any company or ot her body corporat e may be dest royed, mut ilat ed, alt ered, falsified or secret ed. T he expression reason t o believe has been view ed as: T he crucial expression reason t o believe post ulat es belief and t he exist ence of reasons for t hat belief. T he w ord reason means cause or just ificat ion and t he w ord believe means t o accept as t rue or t o have fait h in it . T he belief may not be open t o scrut iny as it is t he final conclusion arrived at by t he officer concerned, as a result of ment al exercise made by him on t he informat ion received. T he exist ence of reasons t o believe is supposed t o be t he check, a limit at ion upon t he pow er. T he expression reason t o believe is st ronger t han t he expression is sat isfied. Belief should not be irrat ional and arbit rary. T o put it different ly, it must be reasonable and must be based on reasons w hich are mat erial. Belief must be held in good fait h. It can not be merely pret ence. It is open t o court t o examine w het her reasons for belief have a rat ional nexus or a relevant bearing t o t he format ion of belief and are not ext raneous or irrelevant for t he purpose of t he Sect ion. T o t hat limit ed ext ent , act ion of t he assessing officer in init iat ing proceedings under sect ion 147 can be challenged in a court of law . T here must be reasons t o induce belief. T he same should be by reason of omission or failure on t he part of assessed t o disclosed fully and t ruly his income. (v)T he principles as emerged from t he case law (s), are (a) t he aut horit y must be in possession of informat ion and t hat t here is reason t o believe t hat t he addressee w ould not disclose or t hat it w ill not part w it h; (b) t he informat ion must be in exist ence and it should not be merely rumour; (c) t he act ive applicat ion of mind on t he informat ion is a condit ion precedent and is open t o scrut iny; (d) t he court w ill not go int o t he quest ion of sufficiency of mat erial and t hat it w ill not sit in appeal. T he jurisprudence evolved clearly indicat es t hat t he DG does not have unbridled pow ers t o invoke provisions relat ing t o unannounced raid at t he premises of t he charged part y and/or person relat ed t heret o and t hat law and precedent s do prescribe t he limit s, condit ions and manner in w hich DG can resort t o search & seizure. (II) The rights of the company facing raid: (i) T he represent at ive(s) of a raided company may request t he DG t o allow a reasonable t ime for t he in-house counsel or ext ernal counsel t o arrive. How ever, it is not obligat ory for t he invest igat or t o w ait for t he arrival of t he counsel; (ii) T he represent at ive has a right t o ask for t he ident it y and t he order of t he CMM, Delhi and t he scope of daw n raid. It is advisable t o confirm t he aut hent icit y of t he daw n raid by t elephoning t he Direct or General; (iii) T ake st eps w hich
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are necessary t o preserve t he document s or prevent any int erference w it h t hem; (iii) Keep full record of all quest ions asked and answ ers given and make copies of all document s copied by t he officials; (iv) T he represent at ive can object t o t he review or t aking of copies of privileged document s including confident ial communicat ion bet w een t he client and it s ext ernal at t orney; (v) It is not w it hin t he pow er of t he invest igat ing officer t o (a) use force against any person, (b) examine any document or t ake copy of document s w hich are not relevant for t he purpose of daw n raid and (c) document s w hich enjoy legal privilege (d) compel answ ering a quest ion w hich leads t o self incriminat ion; and (vi)Seek clarificat ion from t he Invest igat or, if t he quest ion posed is complicat ed or vague. (III) Obligations of the investigated company: It is obligat ory on t he funct ionary of t he invest igat ed company t o:

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(i)furnish t o t he point and correct explanat ion/answ er relat ing t o a document covered in t he search. T he person answ ering on behalf of company should ensure t hat his response is not false or misleading beside being not based on speculat ion and keep a record of all quest ions and answ ers; (ii)furnish locat ion of a document as per persons know ledge and belief, elect ronic informat ion t o be produced in hard or soft copy. DG can seize only t hose mails/elect ronic records w hich are relevant t o t he invest igat ion and w hich do not enjoy privilege. In case t he w hole email box is seized, t he inspect or can open t he box subsequent ly in t he presence of aut horised official of t he invest igat ed ent erprise and t he inspect or has t o ret urn all ot her mails w hich are personal and not const rued t o be relevant for t he invest igat ion. On 2nd November, 2010, t he Paris Court of Appeal has object ed t o t he seizure of t he w hole cont ent of email boxes by t he French Compet it ion Aut horit y. T he Court , how ever, ruled t hat t he seizure of cert ain personal document s belonging t o employees or document s t hat may be irrelevant t o t he invest igat ion, does not invalidat e t he ent ire search w hich w as pre approved by t he judge. How ever, t here is need t o st rike a balance bet w een t he pow ers of DG during daw n-raids and t he dat a prot ect ion and privacy of t he individuals. T he principle as t o legit imacy, proport ionalit y and t ransparency during such daw n-raids needs t o be observed and t hese be incorporat ed in t he Manual of Office Procedure w hich is under preparat ion by t he Office of DG ; (iii)not t o obst ruct or recklessly dest roy/shred or ot herw ise falsify or conceal t he document s of w hich product ion has been required; (iv)not providing informat ion know ingly w hich is mat erially false. (IV) Post dawn raid steps by the Investigated Company: (a) Before the DG team departs: T here is need t o det ermine if/w hen t he inspect or w ill ret urn next day, ensure t o have copy of document s (bot h elect ronic and ot herw ise) t aken by inspect or, make a request for a copy of w rit t en records of int erview s t aken by t he inspect or and make a record in t he event of refusal. T ake a copy of minut es and ensure recording of disput es and disagreement s t herein. In t he not es, classify print ed/elect ronics document s int o t hree cat egories (i) not cont est ed, (ii) out side scope and (iii) privileged. In t he event of non resolut ion of disput e or doubt as t o document being privileged or out side t he scope of invest igat ion, t he DG be request ed t o keep t he document in t he sealed cover for lat ers considerat ion w it h t he companys law yers. (b) After the DG Leaves Compile all your not es, recheck inspect ors w rit t en records including int erview s and comput er searches, prepare your ow n report and conduct final meet ing w it h t he in-house legal head/ext ernal counsel for review t o ident ify pot ent ial issues, analyse and assess risk and scope of enquiry. T he DG can keep in his cust ody t he document s/ records seized for such period not lat er t han t he conclusion of t he invest igat ion as he considers necessary and t hereaft er t here is an obligat ion t o ret urn t he same t o t he invest igat ed company or any ot her person from w hom cust ody t hese w ere seized . T he DG is also required t o inform t his posit ion t o t he CMM, Delhi w it h w hose approval t he daw n raid w as undert aken. Key Take Aways:
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Undoubt edly, daw n raids t arnish t he image and goodw ill of a raided company and it s management . It dampens t he business prospect s of t he raided company in t he ever grow ing compet it ive environment . T hus, it is imperat ive for business and t heir associat ions t o w ard off and t ake guard of such unpleasant visit s and visit ors. Prudence suggest s t hat t he business and t he concerned t rade bodies should have in place a det ailed programme t o effect ively meet t he requirement s of such search & seizure. Ent erprises against w hich enquiries have already commenced should in t he first inst ance ext end full cooperat ion/assist ance and furnish complet e and correct informat ion/document s w it hin t he given t ime. Adherence t o t his golden principle not only rules out t riggering of penalt y provisions but also minimises t he risk of being raided by t he DG. How ever, t aking cue from global experience, size and success in business does at t ract scrut iny t hrough such mode. It is t herefore, crit ical for such t arget company t o designat e an officer(s) as a Daw n Raid W arden w ho should ensure a full fledged programme encompassing (i) daw n raid t raining, (ii) guidelines/checklist s before, during and aft er t he daw n-raids, (iii) inst ant response t eam during t he visit and (iv) follow up act ion. It is difficult t o suggest a t ailor- made programme in view of variance as t o nat ure & size of business, t ot al market and st ruct ure t hereof, nat ure of t rade pract ices being probed et c and all t hese het erogeneit ies necessit at e a cust omised det ailed daw n raid programme.

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