Antitrust Dawn Raids in India: Suggestive Measures to Prevent Fishing Expeditions

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Dawn Raids refer to various surprise search and seizure activities conducted by Antitrust Agencies in order to catch suspects off guard. Dawn raids are inherently intrusive in nature and therefore conducted sparingly to unearth the evidence to establish an anti-competitive practice. Section 41 of the Competition Act, read with Section 220 of the Companies Act, empowers the Director-General of investigation to conduct a search and seizure operation after obtaining necessary permissions, if there exist reasonable grounds to believe that documents relating to the infringement are likely to be destroyed, mutilated or falsified.

There is a considerable lack of literature surrounding antitrust dawn raids in India. Furthermore, considering the wide scope and ambiguity of the term “reason to believe”, there is a need to find a middle ground approach to preserve business rights and interests, and promote effective competition investigation at the same time. This article aims to analyze the issue in a holistic manner and provide some suggestive measures to prevent these dawn raids from turning into “fishing expeditions”, which are harmful to business interests.

Background and Certain Procedural Aspects

Since dawn raids are invasive in nature, the following procedural aspects are to be observed before conducting any dawn raid:

  1. DG is the investigating arm of the Competition Commission of India (CCI) and is required to be impartial during investigation. The CCI may direct the DG to investigate anti-competitive practices without seeking any comments or representation by the party being investigated.
  1. An unexpected raid can be conducted by the DG only on reasonable grounds of suspicion that evidence that would uncover anti-competitive practices are likely to be destroyed or mutilated.
  1. The most important and logistical pre-requisite is to obtain the authorization for carrying out a raid by the Chief Metropolitan Magistrate.

Furthermore, the logistical requirements that are to be completed before the dawn raid is conducted act as safeguards against unscrupulous exploitation. In the JCB case, the CCI directed the DG to furnish a personal affidavit indicating that the material available before it and the DG’s reasons for conducting the dawn raid were compelling enough to justify it. The dawn raid in the JCB case was the first-ever to be conducted in India and formed part of the investigation into JCB India Limited’s alleged abuse of its dominant position.

Dawn Raids Under The Competition (Amendment) Bill Of 2012

The aforementioned bill was introduced in Lok Sabha in December of 2012 with the following highlights regarding dawn raids:

  1. The Chairperson of the CCI may direct the DG to conduct a dawn raid if during the investigation the investigator has a reason to believe that the party has concealed or omitted to provide some vital information or documents or if there exists any threat of the evidence getting distorted or destroyed.
  2. Reasonable force can be used by the authorities to carry out the dawn raids.

The bill itself adds teeth to the investigating powers of the DG but simultaneously puts checks and balances on the arbitrary use of this power by the DG. The DG gets the authority to conduct a dawn raid only if he has sufficient “reason to believe” that a dawn raid is the only tool that can expose relevant information of the defaulting party.

However, it must be noted that the judicial history of the term “reason to believe” has shown that it has wider connotations and, according to many experts, the Commission might undertake fishing activity in the garb of dawn raids. For example, in the case of Rai Bhadur Seth Sreeram Durga Parasd Ltd. Visakhapatnam, the Court noted that “it is not possible to lay down precisely or exhaustively as to what constitutes ‘reason to believe’”. It would depend on various circumstances. The process of issuance of a warrant may involve the following elements:

  1. article of search
  2. place in which they are hidden
  3. manner in which they are hidden
  4. the person who is in possession of the articles of search or the place where they are hidden

The Departmental Authorities may issue a warrant even if they do not know for certain the name of the person who is in possession of articles of search or the place where they are hidden. All that the court can consider is whether there are grounds that prima facie justify the statement in the warrant by the warrant officer. Further, the bill clearly omits the judicial check by the Chief Metropolitan Magistrate and is highly criticized for bestowing unfettered power on the Commission.

Dawn Raids In Other Jurisdictions

Mature competition law jurisdictions, like the European Union (EU), have extensive laws relating to the subject of dawn raids by virtue of precedents. A number of rulings by the European Court of Justice and the European Court of Human Rights (ECHR) suggest that a dawn raid should be justified by some degree of suspicion. The obligation to specify the subject matter and purpose of the investigation is a fundamental requirement in order to justify the raids. Although, Article 20 of EU Regulation 1/2003, which empowers the Commission to conduct dawn raids, does not contain an explicit provision to the same effect.

The fact that the Commission must have reasonable grounds of suspicion on targeted companies for unlawful behavior implies that it would be likely that the evidence sought is to be found at the premises searched. Further, searches of roving or fishing to find incriminating documents are not permissible in law. Before ordering or commencing a search, the authority must have sufficient material to form a reasonable belief that such a search is necessary. Similar criteria are applied to fulfilling the probable cause standard in the United States.

Inherent Safeguards In The European Union: The Proportionality Doctrine

Search and Seizure operations limit the rights of individuals and companies. It is therefore important that such limitations should serve a legitimate purpose and be necessary, reflecting the principles of proportionality. The proportionality principle is one of the main grounds to challenge dawn raids conducted by the Commission in the European Union.

The European Court of Justice in the landmark case Roquette Frères stipulated that the national courts have the task of ensuring that, in the specific circumstances of each individual case, the coercive measures used carry out the inspection are not arbitrary or disproportionate to the subject-matter of the investigation. The court further observed that:

“It must be open to the competent national court to refuse to grant the coercive measures applied for where the suspected impairment of competition is so minimal, the extent of the likely involvement of the undertaking concerned so limited, the evidence sought so peripheral, that the intervention in the sphere of the private activities of a legal person, which a search using law-enforcement authorities entails, necessarily appears manifestly disproportionate and intolerable in the light of the objectives pursued by the investigation”.

An important aspect of the proportionality analysis is the necessity, or least restrictive means, test. The necessity test asks that the use of the measure in question is required, or if the purpose cannot be achieved through the use of any other means that would equally satisfy the purpose of investigation.

Further, the proportionality test seeks to determine whether the combination of certain levels of rights-enjoyment combined with the achievement of other interests is acceptable. The test essentially determines the balance between two competing interests; that of an effective competition enforcement and the right of an individual or company not to subjected to disproportionate measures.

The proportionality test is an apt mechanism to effectively balance the business interests of enterprises and effective competition investigations. Considering the cemented adoption of the doctrine to scrutinize state measures in India, courts must extensively adopt the doctrine in hearing challenges to search and seizure operations.

Poisonous Tree Or Exclusionary Doctrine

The legal doctrine of “fruits of the poisonous tree” was established in the United States. The fruits of a poisonous tree doctrine stipulate that if the source of the evidence (the “tree”) is poisoned, then anything gained from it (the “fruit”) is poisoned as well. The books and records apprehended in Weeks v. United States were the first creation fruit of an unlawful search and seizure. They were not included as evidence because:

“If letters and personal credentials can thus be seized and used as evidence in a criminal trial against an accused of an offense, the safeguard of the Fourth Amendment declaring his right to be protected against such searches and seizures is of no significance, and, so far as those placed are apprehensive, might as well be incapacitated from the Constitution.”

However, since the Weeks case, “fruits of the poisonous tree” jurisprudence has developed significantly. It has been ruled that the doctrine has no application when the connection between the lawless conduct of the authorities and the discovery of the challenged evidence has become so attenuated as to dissipate the taint.

The doctrine has been applied in Europe as well. In ITC Film Distributors Limited, the courts excluded evidence that had been obtained illegally. Further, the exclusionary rule protects against unreasonable searches and seizures and excludes any evidence which has been gathered through an illegal search and seizure.

Although more suitable for criminal proceedings, the doctrine has been indirectly applied in competition cases as well. For example, in the landmark case of Deutsche Bahn the Commission dawn raided the premises of Deutsche Bahn and some of its subsidiaries. The ECJ opined that the Commission had proceeded to procure evidence falling outside the scope of the inspection. The Commission’s agents possessed information unrelated to the subject matter of the inspection and proceeded to seize documents falling outside the scope of that inspection. This failure, in turn, “poisoned” the second and third inspection decisions because the Commission relied on information it discovered during the first inspection.

Conclusion: Suggestive Measures To Adopt

India has mostly relied on the Competition Law of European Union to develop its jurisprudence and so the ‘poisonous tree doctrine’ (as far as search and seizure operations are concerned) has not been directly adopted in India. There exists a huge gap of legislation covering illegal dawn raids and unscrupulous exploitation of small players in the market. India should partially adopt the doctrine so as to not completely nullify the raid in cases with relevant evidence. A solution could be to start new investigations on the basis of the information and evidence obtained upon legal search operations.

The procured evidence can be used as bait to reveal any possible concealment of anti-competitive activities. Secondly, Competition Law should have sufficient provisions deterring the CCI from conducting fishing expeditions in the garb of dawn raids. Thirdly, any innocent party upon which such a fishing expedition is carried out should be amply compensated and should be free to retrieve all the documents found during the search and seizure operation. Lastly, the proportionality doctrine should be adopted to ensure that over-arching abusive measures are not carried out by the Commission.

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