CCI’s Investigation Against Amazon and Flipkart: A Timeline of Events
- Tanya Varshney
- Sep 23, 2021
- 5 min read
Posted on September 23, 2021
Authored by Thrisha Rai and Vivek Basanagoudar*
Image Source: The Indian Express
Introduction
In 2019, the ‘Delhi Vyapar Mahasangh’(“DVM”), filed a complaint under Section 19(1)(a) of The Competition Act,2002 (“Act”) against Flipkart and Amazon (“online sellers”) for indulging in practices in violation of the Act, i.e., allegations relating to anti-competitive agreements and abuse of dominance. The proceedings ahead prove to be imperative to competition law in India, especially as they concern regulation of two giant players in the e-commerce sector and their alleged anti-competitive practices. In this article, the authors aim to provide a background of the case and proceed to expand upon the four judgements pronounced by the Karnataka High Court and the Supreme Court of India.
Complaint
Amazon and Flipkart were accused of executing various vertical arrangements between them and their ‘preferred sellers’ on their e-commerce platforms, which in turn steers the other non-preferred sellers on the platform towards foreclosure. Reportedly, these ‘preferred sellers’ on these platforms, are in some way associated with Amazon and Flipkart. For instance, Amazon has listed Cloudtail India as a preferential seller, which is a joint venture between Amazon and Catamaran Ventures. According to the allegations in the complaint before the CCI, they have been offering deep discounts to these preferred sellers on their platform, which is detrimental to the other sellers conducting business on these platforms.
In addition, several sellers complained that Flipkart and Amazon have also endowed the ‘preferred sellers’ with preferential listing and search rankings which leads to better visibility for them. Allegedly, Cloudtail India’s products were the most listed products in a search result compared to another non-preferred seller’s products.
While these practices have stifled the profitability of other sellers, DVM has showed that both the companies had set up ‘Exclusive Tie-ups and Private Labels’, such as exclusive launches with smartphone companies. In essence, these private label brands were sold through their preference sellers and therefore gets a higher preference in sales. It is seen that this tactic is used by these companies in most of the product categories, especially smartphones. This compels consumers as well as the offline retailers to buy smartphones from the e-commerce platforms hence other competitors are excluded from the online market. The complaint also claimed that, selling at prices below the cost, has resulted in high entry barrier for any new entrant.
Lastly, the complaint argued that the companies have the power to terminate their agreements with their non-preferred sellers unilaterally, which compels these sellers to fall in with these rules. Hence, they asserted that these practices create vertical restraints which is prohibited under Section 3(4) of the Act.
DVM alleged that Flipkart and Amazon are holding a dominant position in the relevant market and are abusing their dominance in the present case by engaging and facilitating predatory pricing, which impacts the MSMEs and other retailers. Citing these observations DVM contested that both Amazon and Flipkart have an immanently anti-competitive approach, which should be investigated by the CCI.
CCI-Order
In view of DVM’s submissions, CCI noted that there are essentially four alleged violations: exclusive launch of mobile phones, preferred sellers on the marketplaces, deep discounting and preferential listing/promotion of private labels.
In January 2020, the CCI issued its prima facie opinion noting that the exclusive launch of products “coupled with preferential treatment to a few sellers and the discounting practices create an ecosystem that may lead to an appreciable adverse effect on competition”. Also, on the issue of deep discounting, it was observed that certain products (such as smartphone brands/models) were available at significantly discounted prices and primarily sold by the ‘preferred sellers’ on such platforms. This was also found to be interconnected with the allegations of preferential listings which, in the opinion of CCI, “warrant[ed] a holistic investigation to examine how the vertical agreements operate, what are the key provisions of such agreements and what effects do they have on competition”. Therefore, CCI It has to be investigated ordered an investigation by the Director General to determine whether the practice of exclusive agreements, deep-discounting and preferential listing by Amazon and Flipkart are in fact being used to eliminate and foreclose competition in contravention of the Act.
Interim Karnataka High Court Order
In February 2020, the order passed by the Commission was challenged before the High Court of Karnataka (“High Court”). An interim order was passed through which the CCI’s investigation was suspended due to the lack of evidence indicating a prima facie case of exclusive agreements between the producers and the online sellers. Furthermore, an investigation into the actions of the online sellers was already being conducted by the Enforcement Directorate (“ED”) under the Foreign Exchange Management Act. The online sellers claimed that an investigation could not be initiated by the Commission until the prior investigation was concluded. CCI also failed to provide notice to the online sellers and this fact was stressed upon by Amazon. The High Court took this into account and ruled in their favour.
Single Bench Karnataka High Court Order
In June 2021, the Single Bench of the High Court issued its order which overturned the interim order and allowed for the CCI to go forth with its investigation. The High Court, in its ruling, opined that Section 26(1) is merely administrative in nature and therefore, there was no requirement for CCI to provide notice to the online sellers. Additionally, the limitation created by the ED’s investigation was not a valid claim due to the fact that the ED was not an e-commerce regulator. If the ED were an e-commerce regulator, then its investigation would stall that of CCI. However, since the High Court ruled otherwise, CCI was thereby permitted to continue with its investigation. The High Court relied on the cases of CCI v. Steel Authority of India[2]and CCI v. Bharti Airtel Ltd. & Ors,[3] to arrive at the above-mentioned decision. The two cases were decided by the Supreme Court and the judgements established jurisprudence which allowed the High Court to opine that Section 26(1) was merely administrative and that the investigation would not interfere with the ED’s investigation.
Division Bench Karnataka High Court Order
Shortly after in July, the online sellers appealed before the Division Bench of the High Court, which dismissed the appeal stating that the CCI’s investigation would not be a hindrance and the notice provided by them was in accordance with the Act. It also opined that the online sellers were resisting the investigation regardless of the fact that the investigation allowed for them to provide the CCI with evidence that could potentially absolve them and thereby end the whole matter. To further the High Court’s point, it was also noted that the online sellers were immediately ready to approach the writ courts to avoid the investigation.
Supreme Court Order
In August 2021, the Supreme Court of India dismissed an appeal put forth by the online sellers and stated that it would not interfere with the judgment passed by the Karnataka High Court.
Conclusion
It is evident from the aforementioned proceedings that the two leading e-commerce platforms in question are actively seeking to avoid or delay the investigation by the CCI. While the issue of the alleged anti-competitive practices by these platforms is yet to be determined conclusively, it is interesting to note that the e-commerce framework in India is developing to address some of these concerns by requiring marketplace e-commerce platforms to, among other things, disclose any differentiated treatment which it gives or might give between goods or services or sellers of the same category, and explanation of its search ranking parameters. This is a step towards creation of a fair digital marketplace, and it will be interesting to see how CCI’s investigation takes shape going forward.
[1] Vivek is a third year law student at Jindal Global Law School. He has written several articles for IntellecTech Law in the domain of technology and antitrust laws. Thrisha Rai is a third year law student at Jindal Global Law School.
Certain inputs added by Tanya Varshney, Chief Editor
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