Jurisdiction - India
Reports and Analysis
India – Dawn Raids: The CCI’s Super-Weapon.

16 February, 2015

 

 
In September 2014, the Competition Commission of India (‘CCI’), conducted its first ever ‘search and seizure’ operation at the premises of M/s JCB India Ltd (‘JCB’).1 Popularly known as a ‘dawn raid’, such an operation was a watershed event in the investigative history of CCI. Until now, the investigative arm of CCI, the office of the Director General (‘DG’), had primarily conducted its investigations by deposing witnesses, directing a person to furnish information and produce documents required for the purposes of the Competition Act, 2002 (‘Competition Act’)2 . This first ever ‘dawn raid’ marks the beginning of a new era of more pro-active investigations by DG. This article identifies the key provisions that empower DG/CCI to conduct dawn raids, discusses the procedure required to be followed by DG/CCI while conducting dawn raids, and highlights the potential concerns surrounding the operation of the legislative provisions on dawn raids.
 
Dawn raids are common investigative tools in the hands of competition regulators across the world. The potency of dawn raids as a weapon in the hands of competition regulators can be underscored by the fact that these raids need not only be confined to one jurisdiction. Competition regulators have conducted simultaneous raids in several jurisdictions and at different locations in the same jurisdiction. For instance, in February 2003, the European Commission (‘EC’), the United States Department of Justice, the Japan Fair Trade Commission and the Canadian Competition Bureau conducted coordinated dawn raids of the premises of companies suspected of being involved in a worldwide chemicals cartel. Typically, dawn raids can be conducted regardless of the size of the company, nature of the business and both at business and personal premises.
 
In India, DG is empowered to conduct a dawn raid under Section 41 of the Competition Act. This section stipulates that DG must conduct its investigation in accordance with the provisions of the Companies Act, 1956 (‘Old Companies Act’). Section 240A of the Old Companies Act prescribed that an inspector3 while examining allegations of misconduct, fraud or oppression etc. against a company and its officials could, after obtaining a warrant from the judicial magistrate, search the premises of the company and its officials when he had a ‘reasonable apprehension’ that books, papers or other material documents relating to the company or its associates may be destroyed, mutilated or falsified etc.4
 
A combined reading of Section 41 and Section 240A of the Old Companies Act indicates that DG could conduct a search and seizure operation, only after securing a warrant from the Chief Metropolitan Magistrate, Delhi. To issue a warrant, the Chief Metropolitan Magistrate had to be satisfied that books, papers or other material documents evidencing anti-competitive conduct, in relation to the company (or individuals associated with the company or otherwise), were likely to be destroyed, mutilated, altered or falsified, etc. in any way. Further, the Old Companies Act gave DG the discretion to seize or make copies of or take extracts from any books or documents, as would have been considered necessary, to evidence anti-competitive behavior and DG could keep such copies/excerpts of documents till the conclusion of the investigation.
 
Search and seizure operations are inherently intrusive and, therefore, are conducted only in rare circumstances. Perhaps, for this reason the legislature had required inspectors to firstsatisfy a judicial magistrate that there was a need for mounting a search and seizure operation under the Old Companies Act.
 
In 2013, the legislature, in a bid to modernize company law in India, repealed the Old Companies Act and introduced the Companies Act, 2013 (‘New Companies Act’). As discussed above, Section 41 of the Act defines the scope of DG’s powers through the boundaries specified in Section 240 and 240A of the Old Companies Act. However, these sections have now been repealed and replaced by Sections 217 and 220 of the New Companies Act. Sections 217 and 220 of the New Companies Act do away with the express requirement of a warrant from a judicial magistrate to conduct a search and seizure operation.
 
According to Section 220 of the New Companies Act, an inspector appointed by the Central Government5 may conduct a search and seizure operation when the inspector has ‘reasonable grounds to believe’ that documents or books etc. are likely to be destroyed, mutilated, falsified etc. There is no express requirement for DG to obtain a warrant. Since the Old Companies Act is no longer in force, principles of statutory interpretation require that the reference to Sections 240 and 240A of the Old Companies Act in Section 41 of the Competition Act be replaced by Sections 217 and 220 of the New Companies Act. Thus, on reading the New Companies Act mutatis mutandi, an inference may be drawn that, DG is not required to obtain a warrant from the Chief Metropolitan Magistrate, Delhi before conducting a dawn raid.
 
While it may be argued that DG is no longer required to obtain a warrant from a Magistrate, the DG is not prohibited from doing so under the New Companies Act. Importantly, the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) (‘CRPC’) apply to every search and seizure operation under Section 220 of the New Companies Act. Notably, the reference to the provisions of the CRPC also appeared in the Old Companies Act. Presumably, DG obtained a warrant from the Metropolitan Magistrate, Delhi as a matter of best practice before conducting a raid on the premises of JCB. While not a settled position, it appears that DG will continue to obtain a warrant to conduct dawn raids consistent with the procedures of the CRPC.
 
The CRPC empowers a Magistrate to issue a search warrant interalia when there is a reason to believe that a person summoned to produce a document would not do so.6 The person to whom the search warrant is issued is limited to the terms set out in the warrant. Generally, warrants specify the articles/documents to which the search must be confined and the place or part of the premises that the search must be restricted to7.
 
Although DG is required to satisfy a Magistrate that ‘reasonable grounds to believe’ exist that the books, papers or other documents of the company evidencing anti-competitive behavior would be destroyed, such search and seizure operations run the risk of turning into fishing exercises. Interestingly, in the context of the search and seizure operation conducted at the premises of JCB, it appears that DG, without first requisitioning documents from JCB, conducted a raid at its premises. However, when the validity of the search and seizure operation was challenged by JCB, the Delhi High Court directed the DG to submit an affidavit inter-alia setting forth the reasons that necessitated it to carry out the search and seizure operation8. The Delhi High Court is yet to determine the validity of JCB’s application. While arguably it is no longer necessary for DG to obtain a search warrant from a Magistrate, it would be preferable that DG/ CCI continues to obtain warrants to conduct dawn raids. Search warrants remain preferable because inter-alia, the terms of the search and seizure operation are set out in the warrant, the warrant is granted by an independent judicial officer, and both the CCI and targets of dawn raids would benefit from jurisprudence on the exercise of search warrants.
 
Conversely, should CCI determine that it does not require a warrant, it would be useful for CCI to issue guidelines on when and how search and seizure operations may be conducted, as well as the terms of such an operation. For instance, there is a need for clarity on when a company can consult a legal advisor during the course of a dawn raid, the level of assistance a person must provide during a dawn raid, and whether a representative of the company must give an oral explanation on the spot in relation to the documents that are the subject matter of the search and seizure operation. Antitrust authorities in relatively mature jurisdictions across the world, as a matter of best practice, have issued detailed procedures to be followed while conducting dawn raids. For example, the ‘Explanatory note to an authorisation to conduct an inspection in execution of a Commission decision under Article 20(4) of Council Regulation No 1/2003’ issued by the EC on March 18, 2013, provide procedural guidance in respect of dawn raids, such as the types of premises that can be inspected, the mode of delivery of a notice authorizing a raid, and the limits of the investigator’s powers in relation to questioning employees of the target company.
 
In the absence of clear guidelines on the procedure of conducting dawn raids and given the ambiguity in relation to judicial oversight at present, it is imperative that all companies doing business in India implement a response strategy and adequately educate their staff to handle such dawn raids. This is independent of whether DG comes knocking on the door with a search warrant or not. The response team should ideally be the sole point of contact between the investigator and the company. It is vital that this response team confirm the validity, legal basis and scope of the investigation from the outset of DG’s search and seizure operation.
 
When a company gets ‘raided’ it is under an obligation to ensure co-operation with the authorities. The Competition Act stipulates that the failure to comply with the directions of DG would attract a penalty of INR 0.1m per day of contravention, subject to a maximum of INR 10m.9 Antitrust authorities across the world have not taken kindly to companies hindering investigations. For example, EC increased the fine issued to KWS SAAT AG10 by 10% for inter-alia having denied inspectors entry to the company’s business premises. In another case in Poland, a fine of EUR 33m was imposed on a company for inter-alia refusing to grant access to a hard drive containing relevant email accounts, and for delaying the start of an inspection in order to consult with those members of the management board that were present on the premises.11 Further, complete co-operation with authorities at all times during the course of the search and seizure operation, sets a tone of transparency and forthrightness on the part of the target of the raid, thus assisting in putting the investigators at ease.
 
While it is necessary to co-operate with the investigation it is equally advisable for the response team to create a record of all documents inspected, questions asked and answers given for internal records, reference and perusal. The response team should ensure that, at all times, the activities of the officials are monitored and make efforts to ensure that the operation stays reasonably related to the scope and purpose of the investigation.
 
Given CCI’s active and robust investigation of allegations of anti-competitive behavior in the recent past, especially cartels, there can be little doubt that the frequency of dawn raids is likely to increase. However, taking note of the lack of defined procedures and clarity over the scope of judicial oversight, it is preferable that CCI continue to apply for search warrants from a Magistrate. Should CCI change course and no longer apply for search warrants from a Magistrate, it is imperative that both DG and companies proceed with caution and CCI provide further guidance in respect of the exercise of its search and seizure powers.
 
End Notes:
 
1 An Indian subsidiary of a UK based construction company.
 
2 Under Sections 36 and 41 the CCI and the DG respectively can require companies or their employees to furnish information and produce documents in furtherance of the investigation
 
3 Under Section 135 of the Old Companies Act, an inspector is a person appointed by the Central Government to conduct an audit of the cost accounts of the company. The inspector may also be appointed by the tribunal on application by 1/5th of the members of a company where there is no share capital; or at least 200 or 1/10th of the members of a company having share capital.
 
4 The bare text of Section 240A reads as below: “(1) Where in the course of investigation under section 235 or section 237 or section 239 or section 247, the inspector has reasonable ground to believe that the books and papers of, or relating to, any company or other body corporate or managing director or manager of such company or other body corporate, may be destroyed, mutilated, altered, falsified or secreted, the inspector may make an application to the Magistrate of the First Class or, as the case may be, the Presidency Magistrate, having jurisdiction for an order for the seizure of such books and papers. (2) After considering the application and hearing the inspector, if necessary, the Magistrate may by order authorise the inspector– (a) to enter, with such assistance, as may be required, the place or places where such books and papers are kept; (b) to search that place or those places in the manner specified in the order; and (c) to seize books and papers he considers necessary for the purposes of his investigation. (3) The inspector shall keep in his custody the books and papers seized under this section for such period not later than the conclusion of the investigation as he considers necessary and thereafter shall return the same to the company or the other body corporate, or the managing director or the manager or any other person, from whose custody or power they were seized and inform the Magistrate of such return: Provided that the inspector may, before returning such books and papers as aforesaid, place identification marks on them or any part thereof. (4) Save as otherwise provided in this section, every search or seizure made under this section shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1898, relating to searches 4 or seizures made under that Code.”
 
5 Section 210 of the New Companies Act stipulates that the Central government may, at the behest of the members of the company, the registrar of companies or the registrar’s inspector appoint one or more persons to investigate the affairs of the company and report thereon in such manner as the Central Government may deem fit.
 
6 Section 93(1)(a) of the CRPC.
 
7 Specifically, section 93(2) of the CRPC states: “The Court may, if it thinks fit, specify in the warrant the particular place or part thereof to which only the search or inspection shall extend; and the person charged with the execution of such warrant shall then search or inspect only the place or part so specified.”
 
8 Competition Commission of India v. JCB India Ltd. Case No. LPA 715/2014
 
9 Section 43 (b) of the Competition Act.
 
10 C(2013) 4167
 
11 Polkomtel Sp. z o.o. v Prezes Urze˛du Komunikacji Elektronicznej Case C-397/14

AZB 

For further information, please contact:

 

Zia Mody, AZB & Partners
[email protected]

 

Abhijit Joshi, AZB & Partners 
[email protected]

Shuva Mandal, AZB & Partners 
[email protected]

 

Samir Gandhi, AZB & Partners
[email protected]

Percy Billimoria, AZB & Partners 
[email protected]

 

Aditya Bhat, AZB & Partners 
[email protected]

Comments are closed.