Amazon and Flipkart found violating Competition law in India-DG investigation report out
In a significant legal development, the division bench of the Madras High Court (MHC) vide its judgment dated 19th January 2024, upholding the judgment pronounced by the single bench of the same High Court on 3rd August 2023 , held that the High Court lacks jurisdiction on the original side to admit a civil suit for declaration against the terms and conditions of the payment/billing arrangements between the App developers and Google , due to statutory bar against role of civil courts in competition law related matters under India’s competition law , being reserved for exclusive domain of the fair market regulator, the Competition Commission of India (“CCI/ Commission”).
Google’s Play Billing System (GBPS) / User Choice Billing (UCB) continues to hurt start-ups and App developers in India due to lack of choice for online payments for In-App purchases (mandated only through Google Pay) and being excessive /unfair , a blanket 15% or 30%, as the case may be, for all payment transactions through GPBS or 11% or 26% through UCB , while other online payment modes such as Debit Card powered by RuPay, Unified Payment Interface (UPI) charge a minimal 0 to 3 % . Further, Google itself does not mandate payment through GBPS for purchase made through its own YouTube and thus discriminates against other third-party Applications.
BACKGROUND –
This issue was earlier decided against Google by CCI , which , vide its “online app based order” dated 25.10.2022 held Google guilty of abusing its dominant position in the “Market for App Stores for Android OS in India through its Google Play policy of mandatory use of Google Play Billing System (“GBPS”) for App purchase and In-App purchases and differentiating between Google Pay UPI app and other competing UPI apps. In the said order , the Commission found that by mandatory imposition of the GPBS tantamounted to (i) limiting technical development in the market for In-app payment processing system , in violation of Section 4(2)(b)(ii) of the Competition Act, 2002 ( the Act), which also resulted in (ii) in denial of market access for payment aggregators as well as app developers, in violation of the provisions of Section 4(2)(c) of the Act , and that the practices followed by Google resulted (iii) in leveraging its dominance in market for licensable mobile OS and app stores for Android OS, to protect its position in the downstream markets, in violation of the provisions of Section 4(2)(e) of the Act.
Accordingly, under Section 27 of the Act, CCI directed Google to cease and desist from indulging in the above anti-competitive practices and directed Google, inter alia, to undertake the correcting measures, including, ensuring complete transparency in communicating to app developers, services provided, and corresponding fee charged and to publish in an unambiguous manner the payment policy and criteria for applicability of the fee(s). Further, Google was specifically directed not to discriminate against other apps facilitating payment through UPI in India vis-à-vis its own UPI app, in any manner and not to charge any unfair, unreasonable, discriminatory, or disproportionate fee to the app developers.
The appeal filed by Google against the above order dated 25.10.2022 is pending before the National Company Law Appellate Tribunal (NCLAT) and since no stay was granted by NCLAT against the above substantive directions and Google, of its own, did not implement the above-mentioned market corrections[1] on its GPBS policy, the App developers first approached CCI to prosecute Google for the offence of contravention of CCI orders under Section 42 of the Act[2] and while their application was still pending before the Commission, the App developers chose to avail alternate remedy under common civil law by filing a civil suit for declaration that Google’s GPBS violates the Sections 23 and Section 27 of the Indian Contract Act, 1872 (ICA) besides violating the specific provisions of the Payment and Settlement Systems Act, 2007 (“the PSS Act, 2007”), regulated by the Reserve Bank of India (RBI) for online transactions in India.
Litigation Before the Single Bench of MHC
The start-up’s/App developers , led by Naukri.com filed civil suit against Google Inc. and its subsidiaries in India , before the Madras High Court, (MHC), at Chennai, seeking a declaration on Google’s payments terms policies relating to Service Fees, Terms and Conditions relating to the implementation of Google Play Billing System (GPBS)/User Choice Billing (UCB)/Consumption-Based Model vis-à-vis the Android based Mobile Application , as implemented by Google as illegal and unenforceable. The plaintiffs further sought a declaration that the definition of “Authorized Provider” and Clauses 15.3 of the Developer Distribution Agreement (DDA), effective as of 03.10.2022, as unconscionable, illegal and unenforceable and prayed for a consequential relief for permanent injunction, against the defendants, Google.
Defending the abovesaid, Google filed an application seeking rejection of the plaint purportedly under Order VII Rule 11(d) of the Civil Procedure Code, 1908 (“CPC”) on the ground that the suit is barred in view of the provisions of the Competition Act, 2002 (Act of 2002) and the PSS Act, 2007. The Single bench of MHC on 03.08.2023 allowed the application filed by the defendants/Google and rejected the plaints, inter alia observing that the plaints filed by the plaintiffs are barred by Section 61 of the Act of 2002.
Litigation Before the Division Bench of the MHC
The Plaintiffs/ App developers filed an appeal against the above order dated 03.08.2023 of the single bench. The division bench of MHC after navigating through the provisions of the Act of 2002 and the PSS Act, 2007 affirmed the observations of the single bench and observed that the reliefs claimed by the plaintiffs mirror the contentions raised by them before the CCI. Therefore, the reliefs as claimed were not beyond the realm of CCI constituted under the Act of 2002 and the RBI, under the PSS Act, 2007.
Noticeably, both the single bench and the division bench of MHC did not enter the merits of the case and rejected the plaint/civil suit on the preliminary objection of lack of jurisdiction due to the statutory bar created under Section 61 of the Act of 2002 against entertainment of civil suits by Courts of law in competition law matters.
The MHC, thus, left the issue whether the rates or charges or commission levied by Google at the flat rates of 30% on each In-App purchase is “unfair” or “excessive” or arbitrary and hence “unreasonable “or not, in terms of the CCI order dated 25.10.2022, open for determination by the NCLAT.
Note- The App developers have filed an appeal/SLP against this decision of Madras High Court in the Supreme Court of India . Lets wait and watch the outcome!
COMMENTS:
I have two comments.
Firstly, on the judgment of the Madras High Court.
In my view, the Hon’ble MHC has rightly upheld the jurisdiction of the CCI and RBI in the present case and rejected the plaint under Order VIII Rule 11(d) of the CPC. The High Court has clarified the interplay of Sections 61 of the Act of 2002 , which excludes the jurisdiction of civil courts to adjudicate upon matters reserved for determination of the Commission and the NCLAT under the Act of 2002 vis -a vis Section 62 of the same Act of 2002, which declares that the provisions of the Act of 2002 are in addition and not in derogation of any other law in force in India. The judgment reflects the spirit behind tribunalisation of the justice delivery system in India [since the famous judgment of the 7-Bench judgment of the Supreme Court in L Chandra Kumar Vs Union of India ( AIR 1997 SC 1125) upheld the creation of specialized tribunal (CAT) to adjudicate upon service matters without impinging upon the extraordinary writ jurisdiction of the High Courts ] and follows the contemporary judicial trend of respect for the domain knowledge of the specialized and expert market /banking regulators, like the CCI and the RBI. This trend is visible, not only in the ongoing litigations by the Big Tech in India, be it by Amazon, Flipkart , Intel or Meta-WhatsApp but also in traditional sectors like Auto sector, where many High Courts dismissed the Writ petitions filed by many OEMs against CCI prima facie order directing investigation against refusal to open aftermarkets of Car spare parts and Car servicing in India. The MHC emphasized that some of the plaintiffs had already sought recourse before the CCI under the Act of 2002, where relief had been granted and therefore, there was no justifiable reason for these plaintiffs not to approach the CCI once again for resolution.
Here it is also important to distinguish with cases of clash of jurisdiction between the sector regulators and the overarching fair market watchdog, CCI , like the debate on SEP under FRAND terms in the Erriccson case or the Star TV case or the Bharti Airtel Case , where there was a clash between the CCI and the relevant IPR regulator , the Copyright Board or the Telecom Regulator, the TRAI and the question before the High Court , who was the most appropriate regulator to decide the reasonable ness of the amount of royalty or the interconnection charges etc. and the decision was in favour of the sector regulator .
Secondly, on the role of the CCI.
I am constrained and pained to submit that the Commission has not been able to retain its trust or credibility as a no-nonsense and strict fair market regulator when it comes to enforcing compliance with its orders. Many a times the substantive “cease and desist” orders passed by CCI to correct market failures and stop abuse of market power are flouted by the accused parties with impunity with clever court crafting. The present case against Google is such a case, where my friends from the Media, shared with me the utter frustration felt by the Startups and App developers with the CCI’s lack of teeth despite having a modern competition law (often called a “state of art” law by its forefathers, like my ex-boss in CCI, Mr Vinod Dhall. The plaintiffs in the present case went to the Madras High Court to “try out” the alternate remedy available under the common civil law, after getting disillusioned with the speed with which CCI was considering their application under Section 42 of the Act, for prosecution of Google for contravention of its earlier orders under Section 27 of the Act. In my humble view, CCI has not been able to appreciate the full potential of its powers under Section 42 of the Act so far (except when used against MSMEs, like Rajasthan Cylinders case) and has not been able to rein in large belligerent Corporates, like Grasim or now Google. The CCI needs to be reminded of the legislative intent behind not making Section 42 appealable as being the only provision under the Act to ensure compliance of its orders by large corporates in India. Hope the first lady Chairperson of CCI can rise to the occasion.
#Google
#Naukri #Googlepay #Abuseofdominance #Competitionlaw
[1] Unlike some other related measures arising out of another CCI order dated 20.10.2022, whereupon, on failing to obtain stay orders from both the appellate tribunal NCLAT as well as from the Supreme Court, Google , on 25th January , 2023 unilaterally announced changes in its App policies for OEMs, the Smartphone makers in India by allowing them to license Applications individually. For details , please read my earlier blog https://www.competitionlawyer.in/google-concedes-defeat-in-india-agrees-to-change-india-app-store-policy-after-cci-order/
[2] Section 42 of the Act empowers the CCI to (i) punish the enterprises failing to comply with its orders or directions issued , inter alia, under section 27 of the Act , by fine upto INR one lakh ( 0.10 million) per day subject to a maximum of INR Ten Crores ( INR 100 million ) , and on failure to comply with orders so issued or to pay such fine (ii) to prosecute such enterprise before the Court of the Chief Metropolitan Magistrate (CMM), Delhi for the offence which is punishable with imprisonment upto three years or with fine upto INR 25 Crores ( INR 250 million), or both as the CMM , Delhi may deem fit.
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