India's track record of chronic delays in prosecuting white-collar offenders needs to be rectified before the Narendra Modi government's efforts to reform the economy bear fruit. From scams related to allocation of 2G spectrum licences, ponzi schemes like Saradha to corporate frauds in Satyam Computers and Reebok, Indian prosecutors have thus far drawn a blank. Unless would-be economic offenders are dissuaded from the temptation of financial crime, no amount of reforms can reboot the economy.
The Competition Commission of India (CCI) is, in its own way, attempting to buck this trend. Unlike India's other regulators/prosecuting agencies, it is not relying on traditional methods of evidence collection and appreciation (issuance of summons, depositions, affidavits and written submissions) - methods that are routinely sabotaged through non-cooperation or destruction/falsification of critical evidence. From now on, firms being prosecuted by the CCI for anti-competitive market conduct may find the officers of the fair trade agency knocking on their doorstep unannounced, in search of critical evidence.
The CCI's permanent investigative arm, the Office of the Director General (DG), conducted its first unannounced search and seizure operation (colloquially termed a "dawn raid") on the Delhi and Faridabad offices of JCB India Limited (JCB). The CCI is currently prosecuting JCB for abusing its dominant position in the Indian market for back-hoe loaders (a particular type of earth-moving and construction equipment).
The DG, vested with the inquiry powers of a civil court, is an autonomous investigating agency exclusively responsible for all antitrust investigations in India. Unlike other economic intelligence agencies of India - the Central Bureau of Investigation, Serious Fraud Investigation Office or the Enforcement Directorate - the DG is not directly funded or administered by any ministry or government department and reports exclusively to the CCI. Being part of an expert regulatory body, the DG's investigations are better guided, co-ordinated and time bound. Besides, having its own trained staff and a statutory mandate to regulate its own procedure, the DG's investigations is devoid of political influence and inter-agency regulatory duplicity.
The DG has never used its intrusive search and seizure powers in the last five years of India's competition law regime being in force. The fact that it finally saw it fit to use such unprecedented powers could signify a shift in its mindset that will have a profound impact on industry. This shift could have been brought about by the DG's experience of routine non-cooperation of investigated firms in providing access to documents and other company records. Earlier in the year, the CCI penalised Google for non-cooperation with its investigation of anti-competitive practices of the internet giant.
Section 41 of the Competition Act empowers the DG, after obtaining a warrant from the Chief Metropolitan Magistrate, New Delhi, to conduct dawn raids upon the offices (and potentially private homes and vehicles of senior personnel) of firms under investigation in cases in which the DG reasonably suspects the possibility of relevant evidence being destroyed, mutilated or falsified.
The officers of the DG conducting a dawn raid typically may make copies of practically all documentation - both in physical and electronic form, including bookkeeping material, agreements, letters, emails, diaries, lists of calls and so on. Computers are often examined in order to discover which documents may have been erased. In certain jurisdictions, competition authorities have even sealed off the company's premises for a period to the extent necessary for investigation. Tape recordings, videos, emails, telephone records, account books and other kinds of records discovered during such raids are admissible in any proceedings before the CCI and may be relied upon while prosecuting such firms.
Dawn raids will not only deter strategic hold-ups of antitrust investigations, but also make it much easier for the DG to pick up incriminating evidence, bolstering the speed and efficacy of its investigations. The DG will also be able to act quickly and catch suspected firms unguarded, before they can cover their tracks. For many firms, a dawn raid could be the first time when they will come to know about a competition law investigation.
Further, evidence gathered through dawn raids will allow the CCI to substantially improve the quality of its antitrust assessments. Experts like Aditya Bhattacharjea, a professor of the Delhi School of Economics, writing for the Economic and Political Weekly (September 1, 2012), have criticised the CCI for its undue reliance on circumstantial evidence to prove anti-competitive market conduct. He writes that the CCI's lack of appreciation of "direct evidence" provides penalised firms - "an opportunity to appeal", challenging the merits of the CCI's order before the Competition Appellate Tribunal.
For example, in the cement cartel case, the CCI relied on the fact that the cartelising cement companies had simultaneously increased prices soon after two meetings of the Cement Manufactures Association (CMA), where the firms could have an opportunity to exchange information. Such circumstantial evidence of co-ordinated behaviour between firms could leave room for doubt. The CCI's antitrust assessment would have been much stronger, if it could have relied upon a letter or email exchanged between a cement firm and its dealer stating the need to enhance cement prices based upon the discussions of a CMA meeting. However, firms involved in a cartel seldom leave a paper trail. Even if a letter/email exists, it most likely would not be made available to the DG. The precise justification of an unannounced dawn raid is to uncover such incriminating evidence.
The success of the JCB dawn raid will determine how frequently the CCI will use this powerful weapon in its regulatory arsenal. Nevertheless, firms currently being investigated by the CCI should seek advice from their external legal advisors of appropriate measures to respond rapidly in the event of an unannounced dawn raid. For example, companies are encouraged to adopt antitrust compliance procedures providing a list of "dos" and "don'ts" in case of a dawn raid by CCI. Such a list should provide step-by-step guidance to the officers of a company regarding their course of action at the time of such raids.
Failure to co-operate during a dawn raid could lead to imposition of monetary penalties, besides being considered an aggravating factor while tabulating the aggregate penalty in case of finding of an anti-competitive conduct.
Competition lawyers in mature competition law jurisdictions have constituted specialist "Dawn Raid teams" to address such situations. Typically, lawyers provide their corporate clients with a "Dawn Raid hotline number" to be able to reach a member of the team, trained to assist the client during such raids, located nearest to the site of the investigation. While this might seem a little farfetched currently, the day when such legal services become a reality in India might not be far off.
The writer is a competition lawyer with the Competition Commission of India
These views are personal
These views are personal
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