[By Alay Ninad Raje]
The author is a student at the Institute of Law, Nirma University.
Introduction
The heat of Dawn Raid was recently faced by Beer Companies who were held responsible for violating the provisions of the Competition Act, 2002 (“the Act”) by forming and operating an all-India cartel, by the Competition Commission of India (“CCI”) vide an order dated 24.09.2021.This order relied upon pieces of evidence uncovered by the Director General (“DG”), through a Dawn Raid (“DR”) conducted on 10.08.2018 at the offices. A DR can be described as an unexpected search and seizure operation conducted by the investigation arm of antitrust watchdogs, on the premises of accused enterprises for collecting evidence in an antitrust probe.
This brings the concept of DRs back to light, and here the author seeks to analyse the concerns arising from DRs, and the party’s/enterprise’s right to counsel during the DRs.
Understanding DG’s powers vis-à-vis Dawn Raids
The DG is empowered through Section 41(3) of the Act, r/w Section 220 of the Companies Act, 2013 (“CA”)for conducting a DR and; (i) search through documents and digital data;(ii) use reasonable force to access office premises, domestic premises, and different modes of transportation for the firm’s personnel; (ii) seize required materials; (iii) seal any business premises, books or records for the period; (iv) keep in its custody such documents and digital data so seized until the conclusion of the investigation, if necessary; and (v) depose concerned personnel under oath.
The DG can exercise these powers after obtaining a search warrant from Chief Metropolitan Magistrate, New Delhi, if there exist ‘reasons to believe’ that evidence pertaining to the violation of the Act are likely to be destroyed, mutilated, falsified or hidden. For instance, one of the alleged entities of a cartel, files a leniency application before the CCI. This leniency application provides information regarding the existence of evidence indicating cartelization, and that the other alleged entity(s) are inclined at disposing or burning down these evidences. In such a case, the CCI can ask the DG to conduct a DR. Here, the phrase ‘reasons to believe’ has not been categorically defined, and the width of its scope has not been measured. However, it can be understood as a certainty based on prima-facie evidence arrived at through non-arbitrary measures and application of mind. Hence, given the ambiguity and wideness of scope, the DG has the ability to misuse its above-given powers.
Can Dawn Raids be Misused?
The intrusive and invasive nature of DG’s power with regards to DRs, makes it necessary for analysing circumstances wherein the DG could misuse the power to unduly harm the interests of enterprises.
- Seizure of materials ultra-vires the scope of the DR search warrant: For instance, a Firm manufactures two different types of food products, which are not considered easily substitutable by consumers, but the CCI wrongly delineates the relevant market such that both the products are considered as a part of one market. Therefore, since the delineated market is now of a broad nature, the DG during the DR will not only collect evidence and material regarding Product-1 but also of Product-2 which could be utterly unnecessary and amount to undue seizure, and breach of business privacy. Or the Firm manufactures two distinct types of stainless-steel products, Grade-1 and Grade-2, the investigation pertains to one of them, but the DG during the DR collects material pertaining to both of them. A similar situation was observed in the European Union (“EU”), wherein the General Court recognized this concern as substantial. In that case, instead of delineating the market of ‘high-voltage underwater electric cables’, it delineated the market of electric cables and hence during the DR, collected materials pertaining to all electric cables.
- Use of collected evidence in different investigations: The evidence collected during a DR for one investigation, could be misused in another investigation which relates to the same enterprise but different anti-competitive activity. For example, in an investigation over a Motor-Vehicle Manufacturing Company, allegations have been raised over its anti-competitive practise in the market of ‘sale of spare-parts’, subsequently, in a different case the same Company is alleged to participate in a cartel in the market of ‘sale of car’s ball bearing and axle’. Now, while conducting a DR concerning investigation in the latter case, the DG gathers and makes copies of evidence pertaining to the Company’s anti-competitive conduct in the market of ‘sale of spare-parts’. Even though these are two separate investigations, the DG leveraged its position in the DR and conducted search and seizure of materials for the former. This issue was raised during a case in the EU, where while conducting a Dawn Raid for the investigation of ‘discriminatory rebate scheme’, the officials collected materials concerning the same Company’s anti-competitive practises in the market of ‘rail transport’.
- Conflict regarding legally privileged documents: Any confidential communication between an enterprise and its legal counsel is protected, and not subject to disclosure. However, in absence of any rules/ guidelines for deciding what documents and data would be considered as legally privileged, during the DR deciding the same rests upon the discretion of the DG. This could be troublesome because the raided firm would not be able to stop the DG from incorrectly deciding upon this matter and seize even legally privileged documents.
- Absence of Right against self-incrimination: Article 20(3) of the Constitution of India (“CoI”) protects against self-incriminating testimonial compulsion. But while the European jurisprudence offers a right against self-incriminating testimonies during the DR, the same is not provided in India. This is because, Article 20(3) of CoI only applies to criminal prosecutions, whereas the proceedings under Section 41(3) of the Act are civil in nature. Thus, during the DR, the officials can depose the employee(s) of the firm under oath, and ask questions regarding the seized materials, that might incriminate either the firm or the employee(s) itself.
The author is of opinion that these issues raise a concerning eye over the powers of DG during a DR. Further, it is to be noted that there is no statutory right for a lawyer to be present during a DR. Since these problems are highly technical, in absence of a lawyer, there is a chance that the enterprise will be rendered defenceless during the DR.
Presence of a lawyer during the Dawn Raid- Significance and Proposed Benefits:
Significance:
The right to legal representation is enshrined within the principles of natural justice and due process, and if the same is denied, it would be a miscarriage of justice, as it renders the person vulnerable to the arbitrary exercise of powers by the authorities. In AM&S v. Commission, the importance of the right to legal representation and the right to defence during the investigation process was recognized. Thus, the absence of a lawyer can be compared to denial of a fair trial.
A lawyer’s presence during the DR becomes an utmost necessity to avoid it from turning into a Fishing Expedition. In the jurisprudentially mature EU, a statutory right for the presence of a lawyer representing the firm is not recognized. However, on plethora of occasions it has been accepted by the judicial bodies that had a lawyer been present during the search and seizure exercise, firms’ rights and interests would have been effectively protected. In one such case, i.e., the Deutsche Bahn case, the European Court of Justice recognized the intrusive and invasive nature of a DR and stated that the presence of a lawyer is of utmost necessity to avoid abuse of force by authorities and upholding the right to defence of the firm. The lawyer’s presence can also aid in preventing irregular and arbitrary search and seizure.
Proposed Benefits-
The author is of the opinion that a lawyer can protect an enterprise’s right to defence by; (a) perusing the search warrant and identifying its true scope; (b) preventing the seizing of material beyond its scope; (c) supervising the raid; (d) taking notice of the evidence being collected and avert the collection of evidence pertaining to another investigation; (e) assisting officials in identifying whether or not documents being collected are privileged; and (f) seeing to the fact that employee(s) are not providing self-incriminatory testimonies. Moreover, the presence of a lawyer during the search seizure operation is beneficial to both sides since he/she can help in identifying the relevant documents, materials and speed up the process.
Concluding Remarks:
The existence of a legal vacuum over the rights against illegal or unduly intrusive DR hurts the bona fide objectives of Competition Law. The law is silent regarding challenging/cancelling the DRs, and returning the evidence collected if found that the DR was an undue exercise of power. Moreover, provision for penalizing the officials for their arbitrary actions during the DR is absent. Thus, for ensuring that such raids do not turn into fishing expeditions, legal provisions to have the enterprise’s lawyer present during the raids are the need of the hour. This will be a step against the coercive measures applied by authorities and aid in striking a balance between the enterprises’ business interests and competent competition investigations.