Scared of CCI’s dawn raids, cos hiring consultants to train staff on what to expect

Better safe than sorry is what many industries are clearly seeing in the case of dawn raids conducted by the anti-monopoly regulator Competition Commission of India (CCI).

Many companies subject to CCI penalties in the past for cartelisation in sectors such as cement, auto components, pharmaceuticals and real estate, especially in MNCs in developed economies, are pre-emptively engaging consultants and lawyers here to train their staff by conducting mock dawn raid drills within their premises.

According to multiple people working with consulting agencies, companies have become far more serious in the last few quarters about training their staff regarding competition practices than ever before. These individuals spoke to VCCircle on the condition of anonymity as their firms have signed non-disclosure contracts clients. Under Section 41 (3) of the CCI, the director general has the power to conduct search and seizure operations wherever the regulator finds the violation of either abuse of company’s dominant position or cartelisation between the parties.   

Dawn Raids, as the name suggests, are search and seizure investigations that take place at a time that startles employees, typically ‘at the break of dawn.’

“Mock dawn raids bring out the level of awareness and adherence of the organisation and its employees to the requirements of the anti-trust law as well as to the company’s frameworks for dealing with such situations. It assesses the level of awareness of the employees to their rights and obligations with respect to dealing with regulators in actual dawn raid situations,” says Gagan Puri, Partner-Forensic and Dispute Practice at PwC India. “This enables companies to take mitigating measures as well as self-report to the regulators as required by law.”

The fair-trade regulator CCI had imposed a fine of Rs 6,700 crore collectively on 10 cement companies in the beginning of September. The cement makers including ACC, Lafarge, Ultratech, Jayprakash Associates and Binani Cement along with their industry body Cement Manufacturers Association (CMA) are facing huge penalties, where the cement makers are contesting the penalty at Competition Appellate Tribunal.

Similarly, CCI also investigated five domestic tyre companies in the beginning of the year for alleged cartelisation and the final order in the matter is awaited. Most of the companies, who are hiring law firms or consultants, are training their staff to make them aware about the laws regarding cartelisation. Under the CCI laws, a cartel implies arrangement among more than two firms aimed at increasing prices through tactics such as cut in production. Cartelisation leads to high prices, poor quality and fewer-choices. As per the Competition Act, the maximum penalty for cartelisation is three times a company’s profit or 10% of its turnover, whichever is higher.

The high penalty is what is driving companies to engage law firms. KPMG, PwC, EY, Deloitte, JSA, AZB & Partners, DSK Legal, and even independent advisories such as Kroll are helping companies to conduct mock dawn raids. Basically, advisories with forensic advisory departments are doing this.

“The number of companies approaching us for such programmes has significantly increased,” said Vaibhav Choukse, Principal Associate of law firm J Sagar Associates. “This may be attributed to the fact that the CCI has imposed significant fines on companies involved in anti-competitive practices and also that its investigating arm, Office of the Director General, has raided the premises of large corporations for indulging in anti-competitive practices including cartelisation. The fact that the DG finally saw it fit to use such unprecedented powers could signify a shift in its mindset that will have a profound impact on industry.”

According to Vishal Narula, Director of Forensic Services at PwC, awareness is generally higher in sectors where there have been anti-trust issues either in India or globally. “Any sector in which there is a potential for an anti-trust enquiry or where there is a precedent are also more proactive in conducting compliance exercises involving dawn raids,” says Narula.

So far only two publicly available dawn raids have been carried out in India—at the Indian subsidiary of UK-based construction and agriculture equipment maker JCB in 2014 and at dry-cell battery maker Eveready Industries in the same year. Both the raids were in connection with abuse of dominant position.

Terming the trend of mock dawn raid drills very new in India Inc., Reshmi Khurana, Managing Director and Head of South Asia of Kroll, a corporate investigation and risk consulting firm says, “Companies are more aware about the hazards of not complying with the competition laws and they, particularly Indian subsidiaries of MNCs, are not only training their staffs on various levels but also recruiting specialists.”

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