Amazon and Flipkart found violating Competition law in India-DG investigation report out
I
The Karnataka High Court at Bangalore, vide its judgment dated 23 August 2022 came down heavily on Intel Inc. USA and its Indian subsidiary, the Intel Technology India Pvt Ltd. (in short, Intel) for holding the investigation against its India specific warranty policy by dismissing the writ petition filed by Intel with a heavy cost of Rupees Ten Lakhs ( One Million ) . The High Court described the petition and the Interim stay order dated 14 November 2019, as an “abortive attempt by the petitioners to scuttle the innocuous statutory proceedings.” Such observations by the High Court are unprecedented and rare in an Antitrust case in India.
Background of the case
Acting on an information filed by Matrix Info Systems Pvt. Ltd (“Matrix”) , a Delhi based Information Technology (IT) trading company engaged in the business of importing, wholesaling, distributing and supplying a wide range of IT products, against, Intel Corporation , the fair market watchdog , Competition Commission of India (“CCI/Commission” ) ,after finding a prima facie case of abuse of dominant position by Intel , directed an investigation by its director general (DG) vide its order dated 09 August 2019. This prima facie order was challenged by Intel by way of a writ petition before the Karnataka High Court at Bangalore and after initial hearings, a Stay order dated 14 November 2019 was passed by the High Court against the investigation proceedings by the DG. This stay order was also challenged by the CCI before the Supreme Court of India by way of a Special Leave Petition (SLP)[1] and the Supreme Court vide order dated 26 October 2020, though did not vacate the stay order but directed the High Court to dispose off the writ petition expeditiously within a period of six weeks. However, despite these directions by the Apex Court, another Judge of the same High Court vide order dated 02 July 2021 decided to await the verdict of the division bench of the High Court in another Writ Appeal filed by Flipkart and Amazon against a similar order passed by the CCI directing investigation against Amazon and Flipkart[2] . The said writ appeals were dismissed by the DB of the High Court by a common order dated 23 July 2021 and the SLP filed by Flipkart and Amazon against the said decision were also dismissed by the Supreme Court vide order dated 09 August 2021. [ You may like to refer to my blog Can Amazon be tamed in India -Antitrust probe – Will it be forced to modify its modus operandi in India? ] Finally, after this final disposal of the Amazon and Flipkart’s appeals by the Apex Court in India, the Karnataka High Court decided to hear the writ petition of Intel and has now dismissed the same on merits as aforesaid.
What was the complaint about?
The information filed by Matrix was against the new warranty policy by Intel, whereby, Intel only entertains warranty requests for Intel’s Boxed Micro Processors in India only if the same are purchased from an authorized Indian distributor of Intel and that too when purchased in India only. In other words, Intel does not acknowledge warranty requests on its Boxed Micro- Processors that are purchased from anywhere else in the world, even if the purchases are made from authorized distributors of Intel in some other nations. On a preliminary examination, CCI, after finding that Intel holds a dominant position in the relevant market of markets of Micro-Processors for Desktop and Laptop PCs in the territory of India, found it to be a fit case for investigation for alleged abuse of dominant position and vide its order dated 09 August 2019 directed investigation by the DG. The Commission was of the prima facie view that the India specific policy has the potential to lead to denial of market access to the parallel importers and resellers of Intel Boxed Micro Processors in India.
[For a detailed analysis of CCI’s above prima facie order directing investigation as aforesaid, please refer to my blog CCI directs investigation into India specific warranty policy of Intel finding it potentially abusive of dominance]
Intel’s main averments
Intel relied on the decision of Delhi High Court in Kapil Wadwa vs. Samsung Electronics Co. Ltd[3]. And CCI’s own decision in Ashish Ahuja vs. Snapdeal[4] and contended that the impugned order [5]is in derogation of earlier decisions of the commission and hon’ble High Court, is not sustainable as it violates the principle of Precedent and legal certainty. Intel further contended that the impugned order apart of being violative of principles of natural justice is arbitrary and discriminatory and the investigation of such kind has serious consequence and implication on the business reputation of the company and therefore cannot be casually directed by invoking draconian provisions of the Act. Intel also claimed that the CCI previous decision in Ashish Ahuja case and Delhi High Court decision in Kapil Wadhwa case will operate as res judicata against any subsequent contrary order by the CCI.
High Court’s Decision
The High Court differentiated the Ashish Ahuja’s case on facts to dismissed the Intel’s arguments that CCI had recognized an e-commerce marketplace’s right to ban unauthorized dealers from its platform, holding that the facts of Intel’s case were entirely different, as it concerned a manufacturer’s refusal to honour warranty from parallel imports, and not the internal decision of an e-commerce marketplace to remove unauthorised dealers.
The High Court further observed that in the matter like this, that too at the preliminary stage, the doctrine of res judicata or of precedence, cannot be invoked, as no case having been decided by the Commission by virtue of impugned order.
The Court also dismissed Intel’s argument that the CCI investigation would cause severe reputational damage, holding that though investigation now ordered may have ‘detrimental effect’ on the business reputation but the adverse consequences of proceedings taken in accordance with law ordinarily fall under the maxim ‘damnum sine injuria’ and if the Intel’s contention of grave consequences is accepted, then almost invariably, no preliminary enquiry at the end of the commission or the investigation at the hand of Director General can be undertaken and that would render the very scheme of the section 26 virtually otiose.
The High Court further held that it is not the case that the impugned order is arbitrary or unreasonable that justify invoking the writ jurisdiction. The High Court observed that “petitioner hastily rushed to this Court and unjustifiably secured an interim order that interdicted an inquiry of preliminary nature, for all these years, to the enormous prejudice of public interest”. And that the “Writ Petition, besides being premature and absolutely devoid of merits, is an abortive attempt by the petitioners to scuttle the innocuous statutory proceedings of the Commission. Therefore, this is a fit case for dismissal with exemplary costs”. The Court, accordingly, imposed exemplary costs of Rupees Ten Lakh (One Million) on Intel.
Comment:
The present judgment by the Karnataka High Court reflects growth of jurisprudence on competition issues in India. The judgment is clearly a sequel to the final verdict of the Supreme Court of August 2021 against the Amazon and Flipkart wherein the Apex Court had dismissed the SLPs filed against the judgment of the same Karnataka High Court, refusing to entertain a writ petition against initial probe directed by CCI against alleged unilateral anti-competitive conduct by dominant online players in India, as mentioned above. The case filed by Intel was on the same lines and is another example of misuse of the writ jurisdiction under Article 226/227 of the Constitution of India and the High Court has rightly imposed exemplary cost for misusing it. This is not the only case in which CCI’s prima facie order under 26(1) of the Act has been challenged in a writ court and has been dismissed, it has become a normal practice especially by the big tech companies who are under the radar of Competition Commission of India, to file a writ petition and get a stay on the investigation. This defeats the very purpose of the Act and is against the due process of law. The present order directing payment of costs (though peanuts for a large Big Tech company like Intel) for rushing to High Courts against prima facie orders directing investigation by CCI should serve as eye opener for similarly placed large Big Tech Digital giants operating in India. In my personal view, such unnecessary litigations are often resorted to by foreign based MNCs, and even some large Indian Enterprises , based on wrong legal advice given deliberately with profit motives, which tendency needs to be denounced.
Though Intel may still challenge the above judgment of the Karnataka High Court in the Supreme Court by way of filing an SLP , but in my view the chances of the Apex Court interfering with this well reasoned verdict are far too less.
In my view, the Commission should consider such delaying tactics by large companies with deep pockets an aggravating factor while imposing penalty on these big tech companies, so that process of law as well as the fair competition in the market are maintained and an appropriate message goes home.
[1] SLP (c ) No. 12643 /2020
[2] W.A. no. 562-563/2021 between Flipkart and Another vs. Competition Commission of India
[3] (2012) SCC Online Del 5172
[4] Case No. 17/2017, Order dated 19.05.2012
[5] CCI order dated 09 August 2019 directing investigation by the DG under Section 26(1) of the Competition Act,2002 (the Act)
Related posts
