In September 2014 in the case of JCB India Limited, the Director General (“DG”) of the Competition Commission of India (“CCI”) took a bold new step in exercising its investigatory powers under the Competition Act, 2002, when it conducted its first ever dawn raid. A dawn raid is a search and seizure; one of many tools within the CCI’s arsenal used to monitor and combat anti-competitive conduct. We had the opportunity to speak with Samir Ghandi, Partner and Head of the Competition Practice at AZB & Partners, to learn more about dawn raids, the trickle-down effect of JCB India Ltd. and the lessons learned from it. Here is what he had to say.
Conventus Law: September 2014 marks the first ever ‘dawn raid’ by the Competition Commission of India (“CCI”), but they have had this power for years. Why do you feel the CCI has finally acted?
AZB: A dawn raid is merely one of the several tools available to the CCI’s investigation arm, the Director General (DG), to conduct investigations. Dawn raids are inherently intrusive, and therefore most regulators use this tool sparingly and generally in situations where other regular means to unearth evidence do not yield adequate evidence to establish an anti-competitive conduct.
As a relatively new regulator, the CCI appears to be taking one step at a time. The first dawn raid on JCB India Limited’s premises in September 2014, after almost 5 years of the operationalization of the Competition Act, 2002 (CA02), should be seen as a sign of careful progression towards use of the wide powers vested with the CCI/DG under the CA02. Also, dawn raids could be resource intensive and would require specific skill sets in gathering data.
Over the course of the last 5 odd years, the CCI has been interacting and working closely with foreign antitrust enforcement authorities such as the Federal Trade Commission on capacity building on various aspects of antitrust enforcement, including on conduct of investigations and forensic techniques. The dawn raid in September 2014 shows that the CCI/DG have developed sufficient capacity and would now exercise the power, should they consider necessary.
Conventus Law: Do you see the raid on JCB India Ltd. as the first of many?
AZB: The dawn raid on JCB India Ltd.’s premises did not go down very well with the Delhi High Court, which had earlier directed the CCI to not take any coercive actions. The Delhi High Court directed the DG to furnish a personal affidavit indicating the material available before it and the reasons for conducting the dawn raid. The High Court appears inclined to assess whether the DG had exhausted all means for gathering evidence and had compelling reasons for conducting the dawn raid. The Delhi High Court’s order may dissuade the DG from conducting dawn raids at least till the time the case is finally settled. Again, this is part of the evolutionary process that the DG/CCI have to go through, and once the practices and procedures become clear, like in other jurisdictions, the DG/CCI will use their power to conduct dawn raids.
Conventus Law: Since a dawn raid is effectively a search and seizure subject to the New Companies Ordinance and the Code of Criminal Procedure, what protections exist for a company to guard against fishing exercises and otherwise illegal searches and seizures?
AZB: According to Section 220 of the (New) Companies Act, 2013 read with the CA02, the DG may conduct a search and seizure operation on permission from the CCI after satisfying the CCI that there exist ‘reasonable grounds to believe’ that documents, books etc. are likely to be destroyed, mutilated, or falsified. There is no express requirement for the DG to obtain a warrant from the chief metropolitan magistrate unlike the position under the (Old) Companies Act, 1956.
While it may be argued that DG is no longer required to obtain a warrant from a chief metropolitan magistrate, the DG did seek a warrant from the chief metropolitan magistrate before conducting the dawn raid on JCB India Ltd.’s premises.
Importantly, the provisions of the Code of Criminal Procedure, 1973 (Cr.P.C.) continue to apply to every search and seizure operation under Section 220 of the (New) Companies Act, 2013 and, by implication, under the CA02. Thus, the power to launch a dawn raid is not unfettered, and the DG must have, and be able to show, cogent grounds for launching one.
Conventus Law: To what extent must a company comply with the Director General during a raid, and are there penalties for noncompliance?
AZB: The CA02 empowers the CCI to penalize a party for failure to comply with its orders and the penalty can extend up to INR 0.1 million per day of contravention, subject to a maximum of INR 10 million. Obstruction during dawn raid could be viewed as non-compliance with the CCI/DG’s orders. Additionally, non-cooperation with the DG may be viewed as obstructing a public officer in discharge of its functions and invite penal sanctions (including imprisonment up to 3 months) under the Indian Penal Code, 1860. Moreover, non-cooperation during the raid may be used as an aggravating factor resulting in higher quantum of penalty should the CCI finally hold the target company guilty of infringing the provisions of the CA02. Accordingly, during a raid, the target company must cooperate with the DG and its officials.
Conventus Law: In light of the CCI having flexed its muscles with the JCB India Ltd. investigatory raid, how would you advise other companies moving forward?
AZB: I would not necessarily call the conduct of dawn raid on JCB India Ltd.’s premises as “flexing of muscles”. The CCI/DG has the power to conduct dawn raids and it exercised it, rightly or wrongly. JCB India Ltd., considered the exercise as inappropriate, and the Delhi High Court has yet to rule on this issue conclusively.
In any event, there are lessons to be learnt for everyone. First, each company must endeavor to ensure that they provide all information that the DG may ask for during an investigation, and therefore not give rise to a situation where a dawn raid may ensue. Second, companies must put in place robust dawn raid response measures, including by forming response teams comprising of personnel who are trained specifically for handling such situations as well as general training for company personnel. Companies could put in place dawn raid guidelines and also appoint external counsel available at short notice to ensure proper compliance, keeping in mind the company’s obligations as well as rights.
For further information, please contact:
Samir Ghandi, Partner, AZB & Partners
samir.gandhi@azbpartners.com
