Amazon and Flipkart found violating Competition law in India-DG investigation report out
Amazon wins the first battle -Karnataka High Court stays CCI order directing investigation against Amazon and Flipkart
In a major relief to India’s leading online market players , Amazon and FlipKart , the Hon’ble High Court of Karnataka at Bangalore , vide its order dated 14.2.2020 , has stayed Competition Commission of India (CCI) order dated 13.1.2020 directing investigation by the Director General (DG) to investigate whether the exclusive arrangements, deep-discounting and preferential listing of Amazon Seller Services Pvt. Ltd (“Amazon’) and Flipkart Internet Pvt. Ltd (“Flipkart”) have resulted in foreclosure of competition leading to Appreciable Adverse Effect on Competition in India. For details of the CCI order dated 13 .1.2020 see here.
Delhi Vyapar Mahasangh – a group representing small and medium sized business- approached the CCI alleging business malpractices by Amazon and Flipkart such as preferential treatment to sellers affiliated with it or controlled by it, predatory pricing and exclusive arrangements with mobile phone brands. CCI, after forming a prima facie opinion that the practices of Amazon and Flipkart may be in contravention of Section 3(4) of the Act, directed investigation by the DG vide its above order dated 13.1.2020. Amazon, by way of Writ Petition, challenged this order before the High Court .
Let us see how Amazon (as also FlipKart) was able to convince the High Court to exercise its writ jurisdiction to withhold the impending Antitrust investigation.
Gist of Arguments- The writ petition and the arguments advanced by Amazon before the High Court were based primarily on the difference in treatment meted by CCI to Amazon in the context of on an earlier decided case filed by the All India Online Vendors Association (AIOVA) against FlipKart making similar allegations of deep discounting , preferential sellers etc before the CCI against Flipkart in which Amazon (though not a party in the information) was also invited to participate in the proceedings to understand the nuances of the online retail sector. The said case was closed by CCI vide order dated 06 November 2018 as none of the online market platforms were considered as dominant in the market for “services provided by online marketplace platforms for selling goods in India”.
Amazon pointed that the earlier two Writ Petitions before the Hon’ble Delhi High Court[1] and the Hon’ble Rajasthan High Court[2] filed by the Confederation of All India Traders (“CAIT”) on similar issues and that it was the CAIT which got DVM to file the information before CCI. Amazon placed reliance on the Demand Draft deposited in the CCI along with the information and pointed out that the demand draft had been purchased by CAIT and stressed that the petitioner before the two High Courts and the informant before the CCI are one and the same. Amazon challenged the jurisdiction of CCI to entertain the matter by placing reliance on the counter affidavit filed by Union of India before the High Court of Delhi in a Writ Petition[3] filed by the Telecom Regulatory Authority of India (“TRAI”) which was disposed of after the Delhi High Court recorded Union of India’s submission that investigation under the FEMA, 1999 was in progress against Amazon and Flipkart. Amazon submitted that if any violation of FEMA Act, Rule or Regulation is found, it will be liable for penalty under Section 13 of the FEMA Act and since the matter is seized before the Central Govt. to investigate the CCI should have issued notice to Amazon to explain its stance and should have awaited the outcome of investigation by the Central Govt.
Flipkart submitted that the order of the CCI does not disclose jurisdictional facts and satisfaction of CCI with regard to a prima facie case was not made out and unless a prima facie case is made out, the CCI cannot direct investigation.
On the other hand, the counsel for the Delhi Vyapar Mahsangh submitted that an order under Section 26(1) leads to no civil consequences and it is a mere direction to conduct investigation by the DG. The CCI can close the case after receiving the investigation report and the CCI can pass orders only after hearing the party, therefore, no prejudice would be caused. CCI also submitted that it is just a mere direction to conduct investigation which is ordered after careful examination forming a prima facie opinion that there appears to be exclusive partnership between smartphone manufacturers and the e-commerce platforms and therefore the investigation is just and appropriate.
Decision of the High Court-The High Court acknowledged that investigation under the provision of the FEMA Act, 1999 is in progress against Amazon and Flipkart and in view of the penal provision under the FEMA Act, 1999 and that in view of the undertaking given by Union of India , the ratio decidendi laid down by the Hon’ble Supreme Court in Bharti Airtel Limited v Competition Commission of India applies to this case. (For the Supreme Court decision in Bharti Airtel Case read here .)
Moreover, the High Court also took note that it was not disputed that the demand draft submitted by DVM was purchased by CIAT which leads to inference that they have joined hands. The Court also expressed concerns as to why Amazon was not invited to put forth its case, as it was invited to join the proceedings in the earlier information against Flipkart in which it was not even a party. This was significant in the opinion of the Court since the information filed before the CCI had referred to the earlier information and the decision of CCI therein. The Court also noted that the submission of Amazon that the CCI has imagined some agreement between the mobile phone brands and the e-commerce platforms had merit since the CCI in its order recorded that there ‘appears’ to be exclusive partnership between the brands and the e-commerce platforms, although, the agreements were on record before the CCI. The High Court held that CCI should have formed a prima facie opinion that there exists an agreement, however, in this case the CCI has recorded an inference that there ‘appears’ to exist an agreement without there being any material on record.
Accordingly, the High Court admitted the writ petitions of both Amazon and Flipkart for hearing and stayed the order dated 13.01.2020 passed by the CCI.
Comments: The stay order passed by the Karnataka High Court against the CCI’s prima facie order of investigation ,based on cogent reasons and on the ratio decidendi of an earlier Supreme Court judgment in Bharti Airtel case ,can be seen as an attempt by the e-commerce platforms to frustrate the regulation of the growing e-commerce sector in India by CCI. The stay order again revives the conflict of jurisdiction issue between CCI and other sector regulators , which was thought to have been put to rest by the Supreme Court in the Bharti Airtel case.
[1] W.P (C) No. 9332/2018
[2] W.P (C) No. 14400/2019
[3] W.P (C) No. 7907/2018
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