India: Supreme Court Allows CCI Appeal Against JCB -Permits Material Seized During Dawn Raid To Be Used As Evidence

Last Updated: 21 May 2019

Article by MM Sharma, Head Competition Law & Policy Practice, Vaish Associates, Advocates, New Delhi, India

The Supreme Court vide order dated 15.01.2019 has allowed an appeal preferred by the Competition Commission of India ("CCI") challenging the order dated 02.06.2016 of the Delhi High Court (DHC) which restrained the Director General of Competition Commission of India ( "DG") from acting on the evidence seized during the first ever "dawn raid" conducted by the DG on 19.09.2014 as the part of the investigation into an alleged abuse of dominant position by JCB India Limited (JCB).

The Supreme Court, while allowing the appeal observed that provisions of Section 240A of the Companies Act, 1956 do not merely relate to an authorization for a search but extend to the authorization of a seizure as well. Unless the seizure were to be authorized, a mere search by itself will not be sufficient for the purposes of investigation. Having due regard to the provisions of Section 240A and the underlying purpose of Section 41(3) of the Act, the blanket restraint which has been imposed by the DHC on the DG from acting on the seized material for any purpose whatsoever was not warranted. The DHC has blocked the investigation on an erroneous construction of the powers of the DG.

Background of the case

In the present case, CCI passed an order dated 11.03.2014 under Section 26(1) of the Competition Act, 2002 ("the Act") directing the DG to initiate investigation into an alleged abuse of dominant position by JCB. However, JCB filed a writ petition before the DHC against the aforesaid order of the CCI. DHC passed an interim order dated 04.04.2014 on the said writ petition directing that the DG may require JCB to furnish the information called by the DG but, no final order/report shall be passed by the CCI. During the pendency of the writ petition, the DG filed an application before the Chief Metropolitan Magistrate ("CMM") under Section 41(3) of the Act read with Section 240A of the Companies Act, 1956 seeking authorization to conduct a search in the premises of JCB for recovering incriminating documents and papers related with the case. CMM allowed the application of the DG on 17.09.2014 . Accordingly, an unannounced search operation (popularly known as "dawn raid") was carried out by the DG for the first time in India , on 19 09.2014 in the JCB premises and all incriminating documents, hard drives and laptops found by the inspecting team during the course of the " dawn raid" were seized. Thereupon, an interim application was filed by JCB before the DHC in the pending writ petition for quashing the search and seizure and for return of all documents, hard drives and laptops seized during the course of the search and seizure operation and for a stay on the investigation. The DHC vide its order dated 26.9.2014 stayed further proceedings before the DG.

In the appeal by CCI , the Division Bench of DHC vide order dated 2.12.2014 directed that the parties would be at liberty to raise their contentions before the learned Single judge and left it open to the CCI or, as the case may be, the DG to apply for vacating the order for a stay on the investigation. Pursuant to the above direction, CCI filed an application for vacating the interim order before the learned Single Judge. In the meanwhile , JCB filed another writ petition before the DHC praying for setting aside of the search and seizure. It is in that writ petition that the impugned order dated 2.6.2016 was passed by the learned Single Judge of DHC restraining DG from acting on the seized material for any purpose whatsoever till the next date of hearing. The CCI then filed the present Special Leave Petition (SLP) before the Supreme Court against this interim order of the Single Judge Bench of DHC.

SC observations

The Supreme Court after hearing both sides observed that the provisions of the Companies Act, 1956 read with Section 41(3) of the Act which enabled the DG to conduct investigation were designed to authorize the DG to conduct both, searches and seizures. It was further observed that unless a seizure was authorized, a mere search would not be sufficient for the purposes of investigation in terms of the Act. Therefore, any interpretation imposing a restraint on seizure where the CMM had already granted a warrant for searches would be inappropriate. Accordingly, Supreme Court vacated the impugned order of injunction and remitted back the pending writ petitions to the DHC to determine whether and if so to what extent a reference to the seized material should be permitted to be made for the purposes of testing the issue of jurisdiction.

This article first appeared on the Antitrust & Competition Law Blog, 7th February 2019 .

Specific Questions relating to this article should be addressed directly to the author.

© 2018, Vaish Associates Advocates,
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Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

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