Reassessing the Validity of Dawn Raid in Light of French Supermarket Judgment

[Shubham Gandhi and Sreeya Sengupta are students at NLU Jabalpur & Nirma Law Institute respectively.]

The Competition Act, 2002 (“Act”) vide section 41 grants the power to the Director General (“DG”) to carry out dawn raids, i.e., a sudden, unannounced raid on the company’s offices to seize relevant documents to corroborate the investigation. This power has been largely unguided and unbridled as there are no clear guidelines for its conduct and procedure, which prompts significant concerns about its constitutionality in light of the right to privacy, being declared as a fundamental right under Article 21 of the Indian Constitution.

In the recent judgment of French Supermarkets cases, the General Court of the European Union partially annulled four European Commission inspection decisions as they constituted arbitrary and unjustified interference with the privacy rights of the inspected companies. The judgment outlined requirements that must be met prior to starting dawn raids and legal recourse for the company and its employees.

The judgment became pertinent for our present discussion since it outlines crucial precautions that must be performed when conducting dawn raids so that it does not become arbitrary and unconstitutional, especially in light of the Competition Amendment bill 2022 (“Amendment Bill, 2022”), which expands the power of the DG to even inspect and produce as evidence document relating to attorney-client privilege, waiving the long-standing doctrine of common law privilege.

In this article, the authors will determine: 1) whether the current practices of conducting dawn raids infringe on the right to privacy; 2) whether judicial review can be recourse against dawn raids, and, finally; 3) whether the company can assert the protection of documents that constitutes as ‘sensitive personal data of employees.’

French Supermarket Judgment & Test of Sufficiently Serious Indicia

The General Court of the European Union (“General Court”) issued three judgments on 5 October 2020, partially invalidating the Commission’s inspection orders to raid various French grocery chains because it determined that the dawn raids were an excessive intrusion on their right to privacy.

Using the right to privacy as a justification, the applicants disputed the legitimacy of the inspection decisions. The applicants argued that the Commission’s failure to identify the businesses, locations, and individuals who would be subjected to inspection made the inspection decisions uncorroborated. The court agreed, stating that the Commission must at least provide a general identification of the businesses that will be raided.

In the second part of this plea, the applicants submitted that the inspection decisions were arbitrary. When the inspection decisions were adopted, the Commission did not possess sufficient evidence of a potential infringement. The General Court considered that it is required to assess whether the Commission had ‘sufficiently serious indicia’ capable of creating a suspicion of an infringement. In other words, the Commission is required to have some form of probable cause in order to be able to initiate inspections.

In India, the standard required to initiate a dawn raid is not laid down succinctly either by the Act or the rules. Moreover, there are no judgments on this issue to gain clarity. Hence, simply going by the wording of section 41, it is safe to say that the DG can carry out a dawn raid on mere suspicion with no probable cause being made out.

Section 26(8) of the Amendment Bill 2022 states that “when in the course of the inquiry, the Director General has reasonable grounds to believe that information”, implying that the standard of proof required to begin an investigation is lowered by the parliament in the amendment bill, which is not appropriate, since mere reasonable suspicion should not be a ground to abridge the fundamental right to privacy.

Dawn Raid vis-a-vis Right to Privacy

The Indian jurisprudence surrounding the right to privacy as a fundamental right goes back to the 1960s, wherein the Supreme Court, in the case of Kharak Singh v. State of UP, held that there is no inherent right to privacy available to a person under article 21. The same was overruled in 2016 by the nine-judge bench in the landmark case of K.S Puttaswamy v. Union of India. The court held that the right to privacy is an inherent part and parcel of ‘liberty’ falling within the ambit of article 21 of the Indian Constitution.

The court then went on to decipher the agreed test, i.e., the ‘test of proportionality’, which must be followed in India while assessing the case of violation of the right to privacy. It is to be borne in mind that the right to privacy is available to a natural and legal person, such as companies. It is Sanjay Kishan Kaul J., while writing the judgment in the case of K.S Puttaswamy v. Union of India, opined that proportionality could be ascertained based on the following:

  1. Action must be sanctioned by law;
  2. Proposed action must be necessary for a democratic society for a legitimate aim;
  3. The extent of such interference must be proportionate to the need for such interference;
  4. There must be procedure guarantees against the abuse of such interference.

The points mentioned above form part of the ratio of the judgment and are binding upon all courts, and the exercise of carrying out dawn raids must pass through the following points in order to be constitutionally valid.

In our opinion, the dawn raid carried out by the DG is constitutionally valid on all three fronts except the last point, as the Act does not lay down any procedural limitation or does not guarantee any procedural safeguard if, in turn, the dawn raid becomes arbitrary and violates the right to privacy.

Hence, the dawn raid, in the strict sense, may be challenged before the Constitutional court, as no procedural safeguard is inherent to its functioning.

Legal Remedy Against the Action of the Dawn Raid

The General court in the French Supermarket judgment faces a question as to whether the company could claim a legal safeguard of the document on behalf of their employees. The court answered the said question positively.

On the same lines, the authors argue that the Act allows the DG to inspect any document that, in his opinion, qualifies as evidence during a dawn raid. This creates a situation where the DG has seized documents or communications that could violate a person’s right to privacy rather than serving as evidence in the investigation.

In such a scenario, although the Act does not offer any legal recourse to ask the DG to refrain from inspecting such documents or to request their return, the corporation or the individual in question must have a legal recourse under Article 226 of the Indian Constitution to the High Court to seek an order that the documents in question, be removed from the investigation.

Secondly, the General court held that there is a possibility of judicial review of the dawn raid carried out by the DG as the seizure of documents during an inspection is not a separate legal act that produces legal effects separately from a final decision establishing a competition law infringement.

Hence, the Company shall have the right to object to the DG’s dawn raid because there are no strict guidelines governing it in the act, which could result in arbitrary state action.

So, a writ of the nature of mandamus shall always be available to the company to prove that the dawn raid was arbitrary, on any of the following grounds: –

  1. no probable cause was made,
  2. no evidence in the nature indicating a possible anti-competitive activity, 
  3. a description of the presumed facts it intends to investigate, which should be as precise as possible;
  4. the features of the alleged infringement under investigation;
  5. the alleged affected market;
  6. the sectors covered by the alleged infringement;
  7. the nature of the alleged infringement; and
  8.  an explanation of how the investigated company is considered involved or any other reason of like nature.

Concluding Note

The judgment delivered in the French Supermarket case has opened up a new debate, as the current law on carrying out dawn raids in either Indian or European jurisprudence does not extensively guarantee procedural safeguard and does not allow the parties to challenge the same on violation of its most fundamental and inviolable right of privacy.

There is a growing need for draft rules of privacy safeguard in dawn raids by antitrust agencies worldwide. One such privacy protocol which can be looked upon is the Privacy Protocol that the Irish Competition and Consumer Protection Commission introduced for dealing with such privacy claims.

Also, there is an urgent need to put in place an ad hoc procedure for assessing documents seized during a dawn raid by the commission, which is suspected of containing sensitive personal data of the company’s employees.

– Shubham Gandhi & Sreeya Sengupta

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