CCI’s Expedited Approach to tackle violations in the E-Commerce Industry: In the light of the Investigation against Amazon & Flipkart

[By Devashish Srivastava

The author is a student at the National Law University, Odisha.

Introduction

The E-commerce industry has been on a drastic rise over the last decade, generating revenue of billions of dollars in India every year. Similar to the revenue, the e-commerce industry brings in a plethora of regulatory and compliance complexities. Owing to the business model of the e-commerce industry, multiple sector-specific laws and regulations are applicable, which results in the involvement of different regulatory and adjudicatory authorities. This often gives rise to jurisdictional issues between different sectoral regulators and statutory overlaps.

Anti-trust and competition regulators, more often than not have to deal with the complexities of the e-commerce industry.  Given the reliance of consumers on the e-commerce industry, the e-commerce entities have established themselves firmly in the retail market and command a substantial market power. It wasn’t long after that this market power started detrimentally affecting the competitors in the retail business, giving rise to anti-competitive agreements and an abuse of the market power by the e-commerce entities.

The Competition Commission of India (CCI), has been dealing with violations of competition law by the e-commerce entities for the past few years but failed to take any substantial action against them. The reason behind this is often claimed to be the fact that certain commercial laws like the Competition law in India are not as developed as their global counterparts and are lacking in experience and certain expertise. However, there seems to be a shift in India’s approach towards the e-commerce entities and their blatant disregard for the laws and compliances in place. CCI’s ongoing investigation against Amazon and Flipkart is a clear indicator of this adamant approach, wherein, the backing and support from the judicial setup of the country are also visible.

CCI’s Probe into Allegations against Amazon and Flipkart

Background of the Case

In January last year, the CCI passed an order[i] initiating an investigation into the allegation brought against Flipkart Internet Services Pvt. Ltd. (Flipkart) and Amazon Seller Services Pvt. Ltd. (Amazon). These allegations were brought up in a piece of information filed before the CCI by Delhi Vyapar Mahasangh (DVM), an organisation that comprises traders from numerous Micro, Small and Medium Enterprises (MSMEs), relying on the trade of smartphones and their accessories.

The allegations brought forward included predatory pricing, exclusive partnerships with smartphone brands, preferential treatment towards certain specific sellers which included the sale of their private label brands and deep discounts. The information also alleged that both Amazon and Flipkart are guilty of cross-subsidising across their platforms in order to maintain the pricing of some products below cost. The CCI was of the opinion that the evidence (screenshots of messages offering certain smartphones only on the OP’s platforms and emails stating preferential agreements with certain sellers) produced before it by the informant were sufficient enough to merit an investigation. Aggrieved by this order, Amazon filed a writ petition before the Karnataka High Court.

Amazon pleaded before the court that the CCI’s order directing an investigation was passed without there being any prima facie evidence which is a prerequisite to initiating an investigation under section 26(1) of the Competition Act, 2002 (Act). It was further argued that Amazon is already under an investigation by the Enforcement Directorate for alleged violation of FDI norms under the Foreign Exchange Management Act, 1999 and CCI cannot conduct a parallel investigation. This argument was supported by the Supreme Court’s judgment in CCI vs. Bharti Airtel & Ors. in which the ED’s investigation was a result of multiple petitions filed by the Confederation of All India Traders (CAIT) before the Delhi High Court and the Rajasthan High Court. DVM (informant) being an affiliate of CAIT was said to have filed the information before the CCI out of malice and ill intention as Amazon was already under investigation by a specialized regulatory authority and a collateral investigation by CCI was unfair. The High Court stated that the CCI, in an information filed by All India Online Vendors Association (AIOVA) against Flipkart, invited Amazon for comments, but failed to do so in the present case and passed the order without allowing Amazon to be heard. Relying on the aforementioned arguments and reasoning, Karnataka High Court sided with Amazon and granted an interim stay on CCI directed DG’s investigation.

Following this decision, Flipkart also filed a petition before the Karnataka High Court for a stay on the DG’s investigation which was accepted and subsequently an order staying the investigation was passed.

In October of last year, the CCI approached the Supreme Court against Karnataka High Court’s order staying CCI’s investigation against Amazon and Flipkart. The Supreme Court directed the matter back to be heard by the Karnataka High Court. In January, earlier this year, Karnataka High Court listed Flipkart’s petition to be heard alongside Amazon’s petition jointly, where CCI, DVM and CAIT were made respondents. Over the course of the first half of this year, Karnataka High Court heard the arguments put forth by all the parties involved, before finally dismissing both Amazon and Flipkart’s petition allowing for CCI to go ahead with its investigation in June, 2021.

Firstly, on the point of an order passed under section 26(1) of the act. Taking into account the judgement passed by the Supreme Court in Competition Commission of India v Bharti Airtel Ltd. and Ors.[ii] (Bharti Airtel case) and Competition Commission of India v. Steel Authority of India Ltd.[iii] (SAIL case), Karnataka High Court stated that such orders by CCI are administrative directions to its investigation wing under the DG and nowhere in the provision it is required for issuance of a notice to any party involved before initiating an investigation. Secondly, the court looked into the information filed by DVM along with the evidence produced which were sufficient enough to warrant a prima facie investigation. The court said that the CCI analysed the allegations in the information under separate heads in detail and applied its mind before passing the investigation order. The Karnataka High Court subsequently passed the order[iv], dismissing the writ petition filed by Amazon and Flipkart allowing for CCI to move forward with its investigation.

Aggrieved by the order passed by the single bench of Karnataka High Court allowing CCI to move ahead with its investigation, Amazon and Flipkart filed a petition before the Karnataka High Court itself challenging the order. On 23rd July 2021, a division bench comprising of Justice Satish Chandra Sharma and Justice Nataraj Rangaswamy dismissed the petition, stating that the petition is “devoid of merits and substance”. They were of the opinion that this decision would have an impact on the entire e-commerce industry in India. The bench did not find any cause to intervene with CCI’s investigation and subsequently dismissing the petition.

Amazon and Flipkart have approached the Supreme Court against this order of the Karnataka High Court. However, this effort of theirs, too was in vain as the Supreme Court refused to interfere with the High Court’s order allowing the CCI to move ahead with the investigation.

Conclusion & Analysis

The Competition Commission has dealt with similar cases against Amazon and Flipkart in the past. An information was filed in 2014[v] against both Amazon and Flipkart for anti-competitive agreements under section 3, and abuse of dominance under section 4 of the act but was dismissed by CCI on the grounds that there were no prima facie contraventions by the opposite parties for which an investigation can be conducted. Again in 2018, information[vi] was filed by All India Online Vendors Association against Flipkart for abuse of its dominant position in the market, the CCI, yet again, dismissed the information as it did not find merit in the allegations. These are just two of the numerous instances when e-commerce giants like Amazon and Flipkart have been brought to the CCI for alleged contraventions of the law and CCI has been unable to establish any merit to the allegations against them.

Earlier, CCI’s mandate while going through anti-competitive conduct in the e-commerce industry was bound by the limitations of the Act. However, over the course of time, the competition regime in India developed on similar lines to its global counterparts to tackle the big tech conglomerates, especially in the e-commerce industry. The developments in the antitrust laws in the European Union and the United States have influenced the growth of Competition law in India, making it more comprehensive, encompassing new aspects and approaches. The recent development of the e-commerce industry brought numerous complex issues which overlapped sectorial jurisdictions and sector-specific laws. This has forced the government in India as well as other countries to approach these issues in a conjoined manner giving due considerations to the mandate of other sector regulators.

This investigation against Amazon and Flipkart paints a completely different picture of CCI’s newfound approach to target violations in the e-commerce industry. While such investigations in India take a long time to be concluded, the CCI plans to expedite this investigation, which has already been delayed for more than a year. CCI has been on the neck of Amazon and Flipkart, giving them short deadlines to furnish the necessary documents and information, without any relaxations. Another aspect of this revamped approach is the decrease of judicial intervention in the functioning of regulatory authorities, in order to prevent unnecessary delay, which happens to be the biggest flaw in the Indian judicial system. The Karnataka High Court after its first stay order on CCI’s investigation refused to stay the investigation any further and allowed for CCI to move forward with the investigation against multiple petitions filed by Amazon and Flipkart. The Supreme Court agreed with the order of the High Court and refused to interfere, giving CCI the nod to move ahead with the investigation. This explicitly showed that this approach to tackle violations in the e-commerce industry is universally adopted by the entire judicial system of the country.

Such a change in approach was inevitable, given the irregularities in the e-commerce industry. There was a lack of active involvement of sector-specific regulatory authorities in the industry which is gradually being done away with. Just like CCI, other sectoral regulators too lacked the necessary expertise but are desperately trying to make up for their shortcomings, which has resulted in a revamped regulatory approach in the e-commerce industry. This investigation, along with the investigation being conducted by CCI against MakeMyTrip and OYO[vii] shows that this approach of CCI is taking a turn towards the global antitrust narrative of curbing the market power of tech firms and huge e-commerce conglomerates. This change in outlook towards the e-commerce industry is not limited to India but to all nations where the anti-trust and competition authorities are adopting a much stricter regime to tackle the violations at the hands of the e-commerce entities on a global scale.

[i] Competition Commission of India, Case No. 40 of 2019.

[ii] Competition Commission of India v. Bharti Airtel Ltd. and Ors. Civil Appeal No. 11843 OF 2018, SC.

[iii] Competition Commission of India v. Steel Authority of India Ltd. Civil Appeal No.7779 OF 2010, SC.

[iv] Amazon Seller Services Private Limited v. Competition Commission of India & Ors. Writ Petition No. 3363 of 2020.

[v] Competition Commission of India, Case No. 80 of 2014.

[vi] Competition Commission of India, Case No. 20 of 2018.

[vii] Competition Commission of India, Case No. 01 of 2020.

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