India: Dawn Raids – When CCI (India) Comes Knocking? |

On 22 September, 2014, the Director General, Competition Commission of India (“CCI”), conducted its first-ever ‘dawn-raid’ at the premises of M/s JCB India Ltd., an Indian subsidiary of a UK based construction company (“JCB”). According to news reports, the raid was conducted due to JCB’s alleged non cooperation in the process of investigation by the Director General (“DG”) in an allegation of abuse of dominant position. The Indian Competition Act, 2002 (“the Act”) empowers the DG to conduct such raids after obtaining a warrant from the Chief Metropolitan Magistrate, Delhi. Whilst it was the first time that the DG conducted such a surprise raid, it will certainly not be the last. Notwithstanding the fact that it is important to co-operate and provide information to the DG to conduct its investigation, it is also important for the companies to be prepared in advance to handle dawn raids at its premises. This article seeks to briefly introduce dawn raids, the pre-conditions necessary for such raids to happen and how to be prepared for and manage a dawn raid by CCI.

Introduction

“Dawn raid” colloquially known as “unannounced or surprise search and seizure” is an investigative tool commonly used by investigative agencies around the World to probe into serious antitrust or competition law violations. These surprise inspections are made without warning and are usually conducted at times when least expected, often at the crack of “dawn” and/or during weekends. Hence the name. These are conducted generally when CCI has a strong suspicion that serious antitrust infringements have occurred. This could include typical cartel agreements (on pricing, volumes, and territories) or even serious allegations of abuse of dominance, as noticed in the JCB case. However, inspections are not confined to cases involving cartels. Even the exchange of sensitive company information between competitors, or setting resale prices for dealers, may trigger a dawn raid. Any company, no matter how small, can be subject to a dawn raid by authorities investigating a competition law infringement. By their nature, dawn raids are unannounced and unexpected. Understanding what will happen, and knowing what your obligations, and indeed your rights are, will help you ensure that the business cooperates fully, while minimising disruption and protecting your legal position. In line with international trend, the Indian Competition Law also empowers the Director General (DG) (the investigating arm of the CCI) to undertake such ‘search and seizure’. The ‘raids’ are conducted in a covert manner leaving no scope with the party under investigation to scuttle the search in any manner and also not to give any opportunity to ‘sanitize’ the records. In case of multinational corporations, simultaneous raids can be coordinated in several jurisdictions and at different locations in the same jurisdiction. Any unannounced inspection or dawn raid by a competition authority will create major disruption for your business and may signal the start of protracted proceedings, potentially leading to fines, damages actions and personal sanctions for individuals and disqualification for directors. In a dawn raid it is normal for between five to fifteen officials to show up, possibly with the police in tow. The officials are at will to enter business premises, look in lockers and desks, and search computers and servers. They are allowed to open safes (or have them forcibly opened), and private premises and vehicles may also be searched. If they find incriminating material, they are allowed to take copies of documents, if not the originals, away with them. Generally, they are most interested in e-mails, documents, calendars and travel documents. Employees may also be questioned and, in the case of investigations which last several days, entire rooms and computer servers may be sealed off. If you are subject to a dawn raid, you will need to take immediate steps to ensure your interests are protected on the day, making sure you understand the authority’s processes and procedures so as to be able to assess where you stand, enabling you to take an informed decision on how to react. Advance preparation for a dawn raid is, therefore, extremely important.

Essential Pre-conditions necessary for dawn raid

Dawn raids are a part of investigation to be made by the Director General of Competition Commission of India (“DG”). However, unlike in the erstwhile MRTP Act, 1969 (Since repealed) DG though the investigation arm of CCI, in not authorized to start an investigation of its own. Investigation by the DG can start only when CCI decides to initiate an inquiry in any matter and directs the DG by an order in writing to investigate the matter. The essential pre-conditions required for conducting a dawn raid are as follows:

Investigation is conducted by the Director General (DG) who is a functionally independent part of the CCI. Investigations by the DG can begin only after an order in writing is passed by the CCI after forming a prima facie opinion on the contravention of any provision of the Competition Act 2002 (the Act).
The order by the CCI forming a prima facie opinion ought not to influence the investigation to be undertaken by the DG and the DG is free to arrive at a contrary conclusion after the Investigation.
During the course of the Investigation, the DG may decide to conduct searches and, if required, seizure of documents etc. Search or seizure operations are, therefore, a part of the Investigation to be conducted by the DG.
Before conducting the search and /or seizure operation, the DG is required to obtain a legal search seizure warrant from the Chief Metropolitan Magistrate (CMM), Delhi.
Therefore, any unannounced inspection can begin only after the DG is armed with such a warrant from the CMM.
Under the law, only the CMM is authorized to issue such warrants for search / seizure by the DG1

What documents the DG officials must present before commencing the dawn raid?

a. You may ask for a copy of the CCI order directing investigation in the matter from the inspecting officials, though they are not obliged to supply this under the Act.

b. You must insist on the warrant / order of the CMM directing the search and / or seizure by the DG; examine it carefully and check:

Are your company’s premises mentioned as the place to be searched?
Is the offence suspected to have been committed by your company mentioned in the search warrant?
Is the “thing” to be searched mentioned in the search warrant?
Are the name(s) and designation(s) of the officer(s), including the police officers, authorised to conduct search / seizure mentioned in the search warrant?
Ask for the identity cards of the officers to verify that only those named in the search warrant conduct the search/seizure.

The rights of the company during the unannounced inspection (search):

a. To be allowed a reasonable time for calling the in-house counsel or external counsel to arrive. However, it is not obligatory for the investigator to wait for the arrival of the counsel;
b. To ask for the identity cards of the inspecting officials to verify their authority to conduct the search as per the warrant of the CMM and the scope of the dawn raid. It is advisable to confirm the authenticity of the dawn raid by calling the Director General;
c. To object to any inspection (search) in the absence of a search warrant from the CMM. However, do not attempt to stop the officials by use of force. Follow the same procedure if the officials extend the scope of the investigation on the spot;
d. To insist on receiving a copy of the “Seizure Memo” at the end;
e. To object to the review or taking of copies of “privileged documents” including confidential communication between the client and its external attorney;
f. To refuse to answer direct self-incriminating questions;
g. To insist on the presence of an independent witness during the search and seizure operations;
h. To ask for photocopies of the records / statements recorded during the search / seizure operation, including disputes, objections taken, if any, relating to privileged documents etc.

Obligations of the Company after the unannounced inspection (search):

The company is not to tamper with or break the official seals, if any, affixed by the officials inter alia, to premises, rooms, cupboards and documents, e.g. if an inspection lasts several days since breaking a seal is a criminal offence.

How to prepare for a dawn raid?

As may be noticed, a dawn raid in non-cartel investigation may be avoided by cooperating with the office of the DG during investigation i.e. by giving true and complete answers to the questions sent by the DG through notices and to timely respond for any personal examination by the DG. However, in cases of investigations in to hard-core cartels for which DG may not like to issue questionnaire, preparing an advance strategy on how to handle a dawn raid if required, including:

a. Advance and periodical trainings to all relevant employees, with focus on Reception staff, IT teams, PR and Legal teams.
b. Coordinated meetings of the security / reception top officials with IT, PR and Legal teams.
c. Setting up a dawn raid response team.
d. Training the response team on the dawn raid response process with the help of step by step Action Flow Chart.

How to manage a dawn raid?

As stated above, in cases of serious antitrust violations like participation in hard-core cartels, dawn raids are usually resorted to. In such a situation, the following tips may be useful to avoid further damage to the company.

a. Be prepared for a dawn raid- read the dawn raid check list/quick guide and the process chart periodically and consult legal department whenever in doubt.
b. Cooperate with the investigators without forcing information on them.
c. Avoid aggressive behaviour towards officials.
d. Make extensive notes/ copies of all documents/ data taken.
e. Never leave officials unaccompanied on company premises.
f. If possible, provide statements only in the presence of a lawyer.
g. Do not try to destroy or alter any documents on coming to know about the raid.
h. Never break an official seal.

The advance preparation of the dawn raid check list / quick guide and the process flow chart for each department along with the constitution of a dawn raid response team from the key departments which are likely to come or should remain in contact with the inspecting staff are absolutely necessary. Expert guidance from local perspective on these preparations are advisable.

Follow Ups:

After the conclusion of the dawn raid, the following essential steps are required

a. Conduct a review meeting taking inputs from all concerned.
b. Prepare a Press release and circulate it to the media to avoid wrong publicity in media through unreliable sources.
c. Secure the seizure memo, copies of the documents/notes prepared during inspection, including list of documents, electronic data taken/seized during inspection.
d. Prepare a de- brief note for the top management and external lawyers.
e. Forward the de brief note to the external lawyers, pointing out irregularities, if any, noticed during the raid and requesting for urgent opinion on action to be taken.

Footnotes

1.Section 41 of the Competition Act, 2002 (the Act) lays down the duties & powers of the Director General. DG generally has the same powers of a civil court for conducting the investigation as are available to the CCI. In particular, sub-section (3) of section 41 of the Act empowers the DG with the same powers relating to search and seizure, as they apply to an Inspector in terms of Section 240 and 240A of the Companies Act, 1956. In terms of Section 240A of the Companies Act, where in the course of investigation, the Inspector has reasonable ground to believe that the books and papers of , or relating to, any company or any other body corporate, may be destroyed, mutilated, altered, falsified or secreted, as the case may be, the Inspector may obtain on order of the Magistrate, to (a) enter, with such assistance, as may be required , to such places where such books or papers are kept, (b) to search that place in the manner specified in the order , and (c) seize the books and papers as he considers necessary for the purposes of his investigation . Further, in terms of an Explanation below sub section (3) of Section 41 of the Act , the DG has to obtain the warrant for the same from the CMM, Delhi, in accordance with the provisions of the Code of Criminal Procedure, 1973 *

The author heads the Competition law & Policy practice at Vaish Associates, Advocates, New Delhi. He served as Additional Registrar in Competition Commission of India. Can be reached at mmsharma@vaishlaw.com. Views expressed are personal.

About the author

MM Sharma

A practicising Antitrust/Competition Lawyer with Defence and CCI background with Masters in competition economics from the Kings College, London in the subject