Recently, a large-scale investigation was ordered into Walmart-owned Flipkart and Amazon after a Delhi-based retail group named Vyapar Mahasangh (DVM), the retailer’s body, complained about anti-competitive practices being carried out by e-commerce giants to gain a superior grip on the market. The Competition Commission of India (CCI), which is the local antitrust body, has raised a range of issues including offering deep discounts on online smartphone sales, hand-picked sellers, predatory pricing and anti-competitive practices. The CCI highlighted the arrangement between smartphone sellers and e-commerce platforms to sell certain cell phones only in online mode, which also led to certain sellers being favored. The chief executive has also been instructed by the antitrust body to check whether deep discounts are offered by e-commerce giants (Flipkart and Amazon) in the market for promoting their labels. Therefore, the ICC ordered an investigation through its Managing Director into Flipkart and Amazon based on the allegations made by the DVM for violation of Article 3(4) read together with Article 3(1). ) and section 4(2) read in accordance with section 4(1) of the Competition Act 2002.
The MSME company alleged that the two e-commerce companies were engaged in various vertical agreements with their preferred sellers on the platforms, thus preventing other non-preferred sellers from accessing the online market, which contravened the provisions of section 3(4) read with section 3(1) of the Competition Act 2002. It has also been alleged that Flipkart and Amazon are involved in offering deep discounts to a few preferred sellers, which negatively impacts other non-preferred sellers who are unable to compete. Additionally, Flipkart and Amazon lend words such as “assured seller” and “fulfilled” respectively to their favorite sellers, which gives rise to search bias as the first pages of search results are dominated by these favorite sellers while Products from non-preferred sellers with the same ratings are displayed on the following pages. It was further alleged that the aforementioned companies had exclusive ties and private labels with the smartphone companies, which resulted in exclusivity through discounts and preferential listings. In addition, there were claims made under Sections 4(2)(a)(ii); 4(2) (b) (ii) and 4(2) (c) of the Act alleging that they abuse their dominant market position by jointly exercising a dominant position. It has been argued that Amazon and Flipkart which are huge players in the market have excellent databases which help them advertise to their targeted consumers which has resulted in the creation of barriers to entry high in the market, marginalizing other competitors. Therefore, the MSME company prayed for an investigation taking into consideration the above allegations.
The Commission carefully considered all the information mentioned and found that the allegations made against the two e-commerce companies under Article 4 of the law could not be deliberate. Section 4 of the law which deals with abuse of dominance does not call for investigation of issues of joint or collective dominance as this is not provided for in the law, so the assessment regarding the Article 4 can only be undertaken by the ICC. However, the Commission noted that these e-commerce entities act as intermediaries for sellers on the one hand and consumers on the other. Therefore, these platforms and the sellers operate at different levels of the vertical chain, such that any agreement between the sellers and these platforms would amount to an investigation under Article 3(4) of the Act. The ICC was of the view that the issues at issue in the complaint were interconnected and therefore constituted prima facie evidence for the Director-General’s investigation to determine whether the e-commerce companies had violated the provisions of the section 3(4) read with section 3(1) of the Act.
India is considered one of the most important overseas markets by both e-commerce companies. This investigation would pose a great difficulty for the two e-commerce companies since Walmart had recently acquired a majority stake in Flipkart and Amazon has invested $5 billion in its Indian business. During the ongoing investigation, the ICC said “the informant alleged that Flipkart and Amazon have established an inherently anti-competitive model for e-commerce.” To this, the Flipkart spokesperson replied that the Flipkart Group is fully aware of all relevant and applicable laws and regulations and is proud to provide access to several MSMEs, vendors, artisans and small businesses who are striving to making the best quality products available to consumers. paving the way for a transparent market and creating thousands of job opportunities.
A writ petition has been filed in the Karnataka High Court challenging the ICC investigation order. However, it was dismissed as the Court held that there was no reason for the appellants to avoid the investigation if they were not involved in unfair practices. The e-commerce companies argued that they had received no notice of the investigation, to which the Court replied that there is no mention in Article 26(1) of the law that ‘there must be notice issued to any party before or at the time the ICC forms an opinion to initiate an investigation based on the information received. The Court ultimately held that “an order for an investigation is expected to be supported by ‘some reasoning’, which the Commission has fulfilled. Therefore, it would be unwise to prejudge the issues raised by the petitioners in these brief motions at this stage and derail the investigation. Consequently, the contested order does not call for any interference. It was also stated by the Court that there is no problem in having a parallel investigation by its Managing Director when there is already an ongoing investigation by the Enforcement Directorate against the two companies. for alleged breach of FEMA provisions, 1999. Trade and Industry Minister Piyush Goyal also said that if companies are not involved in anti-competitive practices, they should not hesitate to allow the investigation.
Flipkart, unhappy with the order of the Karnataka High Court, went to the Honorable Supreme Court to challenge the High Court’s judgment. Flipkart, in its 700-page appeal, argued that the CCI failed to comply with its demands before ordering the investigation because it did not identify any agreement that violated competition law provisions. and that there was no prima facie evidence to show that there was a breach of the Competition Act. Flipkart, in its appeal, also argued that the High Court had lowered the threshold required to open an investigation under section 26(1) of the Act.
The High Court order was appealed to the Honorable Supreme Court challenging CCI’s investigation into smartphone sales. The Court decided not to interfere with the Karnataka High Court’s order and said that “we see no reason to interfere. However, we allow four weeks at the expiration to submit to the investigation. India’s Chief Justice remarked that “we expect big organizations like Amazon and Flipkart to voluntarily surrender to the investigation and you don’t even want that? You must submit an application must be authorized. Amazon and Flipkart suffer a huge setback with the ongoing ICC investigation as they already grapple with the prospect of tougher e-commerce regulations and accusations from retailers accusing the companies of having a complex business structure which escapes Indian laws.