Amazon, Flipkart Challenge Karnataka HC Order Which Upheld CCI Probe

Ecommerce majors including Flipkart and Amazon have challenged Karnataka High Court’s June 11 order which dismissed an earlier plea by both companies to quash a competition commission of India’s (CCI) probe into their businesses for allegations of anti competitive practices. 

On June 11, the Karnataka High Court quashed both Amazon and Flipkart’s plea contesting CCI’s investigation. While doing so, the court also upheld the CCI’s  decision to conduct an investigation on whether both companies entered into anti-competitive agreements in violation of the Competition Act 2002.

Justice P.S. Dinesh Kumar passed the order while dismissing the pleas filed by Amazon Seller Services Pvt. Ltd., and Flipkart Internet Pvt. Ltd. 

Both ecommerce firms had earlier expressed their oppositions over a January 13 order from the CCI, which had ordered a probe through its Director General. The country’s top trade regulator ordered a fresh probe on a complaint by Delhi Vyapar Mahasangh (DVM), which alleged that both Amazon and Flipkart gave preferential treatment to select proxy sellers and offered deep discounts by indulging in anti-competitive agreements.

Interestingly, in an earlier market study conducted by CCI in January 2020, the regulator upheld ‘self-regulation’ as a way forward for the industry, but the regulator seems to have changed its direction with the new probe. 

According to DVM’s complaint, there are four important allegations put forth against both Amazon and Flipkart:

• Exclusive launch of mobile phones hurting small sellers’ ability to procure them
• Using proxy sellers such as Cloudtail and WS Retail to gain unfair control over the marketplace
• Deep discounting which makes it difficult for small and medium sellers to compete with
• Preferential listing and promotion of private labels belong to Flipkart and Amazon

Sonam Chandwani, the Managing Partner at KS Legal & Associates said that the dismissal of pleas by Amazon and Flipkart against CCI probe was a welcome ruling by Karnataka’s HC, even as both Flipkart and Amazon have challenged the order.

“It is common knowledge that foreign ecommerce giants have been taking India as a banana republic where the laws bear no prominence and indulge in blatant manipulation. While both companies have categorically denied any wrongdoing, their breach of laws has caused damage to the small traders community in India and therefore the giants’ challenge to ward off CCI’s probe into alleged violations of Competition Law seems to be an attempt to mislead ED’s investigation without robust substantiation,” added Chandwani.

Amazon had earlier termed CCI’s move as “perverse, arbitrary and untenable in law” and equated the CCI probe as abuse of power. CCI had also told the Karnataka HC last year that Amazon’s arguments were “mischievous”.

One of the biggest allegations against Amazon has been around preferential treatment given to certain large sellers, including Cloudtail and Appario, in which the ecommerce giant has indirect stakes. A Reuters report published in February had highlighted that Cloudtail and Appario made up around 35% of the platform’s revenue through sales in 2019. Overall only 35 sellers on Amazon accounted for roughly two-thirds of all the sales, the report added.

Since the publishing of that report, sellers associations such as the Confederation of All India Traders (CAIT) have stepped up their offensive against Amazon, calling for a ban on the US-based company’s India operations. CAIT has also demanded that the Indian government constitute an ecommerce regulator to look into foreign ecommerce entities such as Amazon and Walmart-owned Flipkart.