(94212023) India Law Journal.doc

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10/2/13India Law Journal

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Dawn Raids-Issues & Challenges under the Indian Competition Act, 2002

'Dawn Raids' colloquially known as 'unannounced search & seizure' is acommon tool that may be used by the investigating arm of a competitionlaw agency to gather documentary evidence in an anti-trust probe writesG.R. Bhatia.

Such visit s by officials oft he competit ion law agency are increasingly becoming a

global phenomenon.T he competition law jurisprudence also suggest s a higher rate ofdetect ion ofant 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 competit ion authorit ies launched a joint , fullysynchronized daw n raid on the refrigerat ion compressor indust ry across t hese tw o cont inent s and t he searches primarily cont ribut ed in proving t heinfringement oft he competit ion law provisions

(b) In Oct . 2006, in Singapore, t he CCS carried out daw n raids on six pest cont rolcompanies aft er a complaint ofcollusion in submitt ing t enders for termit e treatment 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 Authorit y undert ookbiggest daw n raids on major cement players.T he raid revealed document s int er-alia relat ing t o resale price maint enance for an unprecedent ed period of11 years and a tot al fine of 108 million euros w as imposedon seven cement makers

(d) In Sout h Africa, a daw n raid w as conduct ed on t he offices of Airlines Association ofSout hern Africa for alleged sett lement agreement ; in April 2007 , t heCommission unleashed a daw n raid upon t he t yre indust ry, seizing documents from Dunlop T yres Internat ional, Bridgest one SA and SA T yre Manufact urersConference; in May, 2010, raid w as conduct ed on four elect ric cable companies foralleged price fixing

(e) In Nov. 2010, in Brazil, t he Secret ariat Economic Law (SDE) has raided a handfulof companies and home of former Government official for suspect ed bid riggingconspiracy

(f) In June, 2009, in Japan, t heJFT C conduct ed daw n raids on t hree galvanized steel sheet makers for participating in a price fixing cart el and t hese companies were fined an aggregat e of 10 billionY en, t he highest amount yet imposed by t heJFTC

T hese surprise inspect ions occur wit hout w arning and are usually conduct ed at times w hen least expect ed oft en at t he crack ofdaw n and/or during w eekends.The raids are conduct ed in a covert manner leaving no scope wit h the part y underinvestigat ion t o scutt le t he search in any manner and also not t o give any opportunit y t o sanit ize t he records. In case of mult i-nat ional corporat ions, simultaneous raids can be coordinat ed in severaljurisdict ions and at different locat ions int he samejurisdict ion. Furt her, raids can be conduct ed regardless of size oft he enterprise, nat ure of business and bot h at business and personal premises. Cart elconduct is one of t he fert ile grounds for daw n raids. As obt aining convincingevidence on price fixing and ot her concert ed pract ices betw een rivals is ext remelyt ricky, there can be litt le doubt t hat t he frequency ofdaw n raids w ill be st eppedup st eeply in t imes t o come in such cases.

In line wit h internat ional t rend, t he Indian Competit ion Law also empow ers t heDirect or General (t he investigat ing arm oft he CCI) t o undert ake such search andseizure . 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 associations against w hich investigat ions are ordered pursuant t o commencement of anInquiry for suspect ed infringement of t he Act , run a risk of t heirpersonal/official premises being raided by t he Direct or General (DG) .T hus, t hereis immense need t o understand t he (I) t he limit s, condit ions and manner in w hicht he unannounced raid can be undert aken by t he DG, (II) the right s ofinvestigat



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ed ent erprise; (III) t he obligat ions of an ent erprise faced w it h such search andseizure and (IV) post raid actions.

T he scope, ambit and gravit y oft hese dimensions are of great relevance for an enterprise & it s principal officers as uneart hing ofdocument s in t he w ake of a raid ist he foundat ion and precursor t o t he final order of an Agency. Furt her, t here is anobligat ion t o cooperat e/assist t he investigat or failing w hich penal provisions canbe t riggered.The in-house legal counsel and also t he most senior execut ive oft hecompany 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 sdoor.

(I) Limits, Conditions & Manner in which unannounced raid can beundertaken by the Director General (DG):

(i)T hough, t he office of DG is meant t o assist t he CCI in investigat ing int oany contravent ion ofAct / Rules/ Regulat ions, how ever, it is incumbent upon t heDG t o be fair & impart ial in carrying out t he investigat ion as w ell in draw ing hisfindings/ conclusions in it s report . T he process and product of DG have t o bereasoned in order t o meet t he count er argument s oft he charged ent erprise or the 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 andformat ion of a prima face case of contravent ion oft he Act by t he CCI oughtnot influence t he investigat ion undert aken by t he DG

(iii)On receipt of order ofinvestigat ion, t he DG in t he first inst ance is t o senda quest ionnaire t o t he alleged charged part y t o respond and t o furnishdocument s/evidence in support t hereof.T he DG is vest ed wit h pow ers ofa civilcourt in carrying out investigat 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) noncompliance/ disobedience liabilit y devolves on t he addressee and (b) prompt s DG to invoke pow ers of search and seizure wit h t he approval of ChiefMetropolit anMagistrat e (CMM), Delhi;

(iv)T he analogous pow er in DG of seizure as are vest ed in an Inspect or under Section 240A oft he Companies Act,1956 are not open ended.T he search & seizure can be undert aken only w henhe has reasonable ground to 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 postulat es belief and t he exist ence of

reasons for t hat belief.T he wordreason means cause orjustificat ion and t he w ord believe means t o accept ast rue or t o have fait h in it .The belief may not be open t o scrut iny as it is t hefinal conclusion arrived at by t he officer concerned, as a result of ment al exercisemade by him on t he informat ion received.T he exist ence of reasons t o believe issupposed t o be t he check, a limitat ion upon t he power.

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 bereasonable and must be based on reasons w hich are material.

Belief must be held in good fait h. It can not be merely pret ence. It is open t ocourt t o examine whet 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 hepurpose oft he Sect ion.T o t hat limit ed extent , act ion oft he assessing officerin initiat ing proceedings under sect ion 147 can be challenged in a court oflaw.

T here must be reasons t o induce belief. T he same should be by reason ofomission or failure on t he part ofassessed 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 authorit y must bein possession of informat ion and t hat t here is reason t o believe t hat t headdressee w ould not disclose or t hat it w ill not part wit h; (b) the information must be in exist ence and it should not be merely rumour; (c) t he act iveapplicat ion of mind on the 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 ofsufficiency ofmat erial andt hat it w ill not sit in appeal.

T he jurisprudence evolved clearly indicat es t hat t he DG does not have unbridledpow ers t o invoke provisions relating t o unannounced raid at t he premises ofthe charged part y and/or person relat ed theret o and t hat law and precedent sdo prescribe t he limit s, condit ions and manner in w hich DG can resort t o search& seizure.

(II)The rights ofthe company facing raid:

(i) T he representat 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 investigat or t o w ait for t he arrival ofthe counsel;

(ii)T he representat ive has a right t o ask for t he identit y and t he order oft heCMM, Delhi and t he scope ofdawn raid. It is advisable t o confirm t he authenticity oft he daw n raid by t elephoning t he Direct or General; (iii)T ake steps w hich



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are necessary t o preserve t he document s or prevent any int erference w it h them;

(iii) Keep full record of all quest ions asked and answ ers given and make copies ofall document s copied by the officials;

(iv)T he representat ive can object t o t he review or t aking of copies of privilegeddocument s including confidential communicat ion betw een t he client and it s external attorney;

(v) It is not wit hin t he pow er oft he investigat ing officer t o (a) use force againstany person, (b) examine any document or t ake copy ofdocument s w hich are notrelevant for t he purpose of daw n raid and (c) document s w hich enjoy legalprivilege (d) compel answ ering a quest ion w hich leads t o selfincriminat ion; and

(vi)Seek clarificat ion from t he Invest igat or, if t he quest ionposed is complicat ed or vague.

(III) Obligations ofthe investigated company:

It is obligat ory on t he funct ionary oft he investigat ed company to:



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(i)furnish t o t he point and correct explanat ion/answ er relat ing t o a documentcovered in t he search.T he person answ ering on behalf of company should ensure that his response is not false or misleading beside being not based on speculat ionand keep a record of all quest ions and answers;

(ii)furnish locat ion of a document as per persons know ledge and belief, elect ronicinformat 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 investigat ion and which do notenjoy privilege. In case t he w hole email box is seized, t he inspect or can open t hebox subsequent ly in the presence ofaut horised official oft he invest igat ed enterprise and t he inspect or has t o ret urn all ot her mails w hich are personal and notconst rued t o be relevant for t he investigat ion. On 2nd November, 2010, t he ParisCourt ofAppeal has object ed t o t he seizure oft he w hole cont ent of email boxesby t he French Compet it ion Aut horit y. T he Court , how ever, ruled t hat t heseizure ofcert ain personal document s belonging t o employees or document s t hatmay be irrelevant t o t he investigat ion, does not invalidat e t he ent ire searchw hich w as pre approved by t he judge. How ever, t here is need t o st rike abalance betw een t he pow ers of DG during daw n-raids and t he dat a protectionand privacy oft he individuals.T he principle as t o legit imacy, proportionalit y andt ransparency during such daw n-raids needs t o be observed and t hese beincorporat 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 otherw ise falsify or conceal t hedocument s ofw hich product ion has been required;

(iv)not providing informat ion know ingly which 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 ohave copy of document s (bot h elect ronic and ot herw ise) t aken by inspect or,make a request for a copy ofwritt en records ofinterview s t aken by the inspect orand make a record in t he event of refusal. T ake a copy of minut es and ensurerecording of disput es and disagreement s t herein. In t he not es, classify printed/elect ronics document s int o t hree cat egories (i) not contested, (ii) out sidescope and (iii) privileged. In t he event of non resolut ion ofdisput e or doubt as t odocument being privileged or out side t he scope of invest igat ion, t he DG berequest ed t o keep t he document in t he sealed cover for lat ers considerat ion wit

h t he companys lawyers.

(b) After the DGLeaves

Compile all your not es, recheck inspect ors writt en records including interview sand comput er searches, prepare your ow n report and conduct final meet ing wit h the 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 hedocument s/ records seized for such period not lat er t han t he conclusion of t heinvestigat ion as he considers necessary and thereaft er t here is an obligat ion t oret urn t he same t o t he investigat ed company or any ot her person from w homcust ody t hese were seized .T he DG is also required t o inform t his posit ion t o t heCMM, Delhi wit h w hose approval t he daw n raid was undertaken.

Key TakeAways:



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Undoubt edly, daw n raids t arnish t he image and goodw ill of a raided company andit s management . It dampens the business prospect s oft he raided company in t heever grow ing compet it ive environment .T hus, it is imperat ive for business and their associat ions t o w ard off and t ake guard of such unpleasant visit s and visit ors.Prudence suggests t hat t he business and t he concerned t rade bodies should havein place a det ailed programme t o effect ively meet the 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 cooperation/assist ance and furnish complet e andcorrect information/document s wit hin t he given t ime. Adherence to t his goldenprinciple not only rules out t riggering ofpenalt y provisions but also minimises t herisk of being raided by the DG. How ever, t aking cue from global experience, sizeand success in business does att 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 Warden w ho should ensure a full fledged programme encompassing (i) daw n raid training, (ii) guidelines/checklist s before, during and after t he daw n-raids, (iii) instant response t eam during t he visit and (iv) follow up act ion. It is difficult t o suggesta tailor- made programme in view of variance as t o nat ure & size of business, tot almarket and struct ure t hereof, nat ure of t rade pract ices being probed et c andall t hese heterogeneit ies necessitat e a cust omised det ailed daw n raidprogramme.


(94212023) India Law Journal.doc

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