Mint Explainer: Why did the Karnataka High Court stay CCI proceedings against Amazon, Flipkart and what lies ahead?

In August, CCI’s Director General (DG) confirmed suspicions of antitrust violations by both platforms, citing practices such as preferential treatment for certain sellers, exclusive product launches and deep discounts – actions that have impacted small retailers both market and outside it. platforms.

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This temporary suspension, resulting from a procedural error by the regulator, could have far-reaching consequences for the future of competition and India’s booming e-commerce space.

Mint takes a closer look.

What is the CCI investigation about?

The case against Amazon and Flipkart was initiated based on a 2019 complaint filed by the Delhi Vyapar Mahasangh, affiliated with the All India Confederation, which accused the online marketplaces of favoring certain sellers.

On January 13, 2020, the Competition Commission of India (CCI) initiated a formal investigation into the companies for alleged anti-competitive practices, focusing on exclusive arrangements, deep discounts and preferential product listings. The CCI directed its DG to assess whether these activities included exclusionary tactics that distorted competition.

In February 2020, the Karnataka High Court had temporarily stayed the investigation after Amazon and Flipkart challenged the CCI’s authority. However, in June 2021, the court allowed the investigation to be resumed, and the companies asked the Supreme Court for dismissal. Their charges were dismissed in August 2021, allowing the investigation to continue.

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In April 2022, reports emerged that India’s antitrust authority had conducted raids on two major domestic sellers linked to Amazon and Flipkart following allegations of antitrust violations.

What are the CCI’s findings?

In August, the CCI CEO had presented a detailed report which showed that major smartphone manufacturers such as Xiaomi, Samsung, OnePlus, Realme and Motorola are launching products exclusively on Amazon and Flipkart. The investigation found that these platforms prioritized certain sellers in search results, disadvantaging others and creating a marketplace where only preferred sellers thrived.

The 1,027-page report for Amazon and 1,696 pages for Flipkart highlighted the significant impact on the market as almost 50% of smartphone sales in India took place online in 2023, with Flipkart having 55% of the market share and Amazon 35 %.

Additionally, the CCI found that both companies used foreign investments to provide services at discounted prices, such as warehousing and marketing, only to selected sellers. This raised concerns about compliance with FDI rules and suggested efforts to ease accusations of exclusive launches and deep discounts.

On September 22 Mint said the CCI has directed Amazon and Flipkart to submit financial statements for the last three fiscal years to help determine potential penalties. These documents will be crucial in calculating penalties based on the outcome of the regulator’s review of the companies’ defense in this four-year-old case.

Under the 2023 amendment to competition law, the CCI can impose fines of up to 10% of global turnover or income from the previous three financial years for anti-competitive conduct.

What is the government’s position on this matter?

On August 21, Trade and Industry Minister Piyush Goyal publicly criticized Amazon for alleged anti-competitive practices, suggesting that the company’s proposed $1 billion investment in India was merely a tactic to offset significant losses, which he described as “reeking of predatory pricing.” ”

Goyal raised concerns about the impact of e-commerce on millions of small retailers, questioning whether the sector’s rapid growth could lead to “huge social disruption.”

Admitting, “I don’t want to give up on e-commerce; is here to stay,” Goyal stressed on the need to analyze business models that are hurting small retailers. He stressed that investments like Amazon are often praised but come at a cost to local economies, noting that “these billions of dollars do not come in for great service or support for the Indian economy.”

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Goyal also accused e-commerce companies of circumventing regulations by arranging operations through various entities to present themselves as business-to-business (B2B) transactions. Finally, he emphasized the importance of clearly defining the role of the e-commerce sector and asked the question: “Is the policy of predatory pricing good for the country?”

How did the case reach the Karnataka High Court?

In September, Appario Retail, previously the largest seller on Amazon India, filed a writ petition in the Karnataka High Court seeking to quash the CCI’s investigation based on the antitrust watchdog’s report.

The Bengaluru-based company, sold to Clicktech in April, argued that its inclusion in the report was unjustified and should be rejected.

Appario is the second major seller Amazon has divested, following Cloudtail’s delisting in 2022 under local e-commerce regulations.

On September 27, a single bench of the Karnataka High Court, headed by Justice Hemant Chandangoudar, stayed the proceedings after considering the arguments of the petitioner. The court highlighted procedural lapses in the CCI investigation, including the DG’s reclassification of certain entities from “third parties” to “opposite parties” without proper consent.

This reclassification exceeded the powers of the DG, violating procedural safeguards under the Competition Act and CCI Rules, which resulted in the interim suspension.

What’s next?

The Supreme Court convened the CCI, setting the next hearing for October 21, 2024. During the break in the investigation, the court will carefully consider the case, allowing all parties to present their arguments before issuing a final ruling.

The CCI also has the option to challenge the interim suspension before a division bench of the Supreme Court.

Why is this matter important?

The case has significant implications for both Flipkart and Amazon, as well as the broader Indian e-commerce market. According to consulting firm Bain, the Indian e-commerce sector is expected to cross $160 billion by 2028.

A report by AllianceBernstein shows that Walmart-owned Flipkart controls almost 50% of the online shopping market, with Amazon following closely behind.

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Any legal sanctions or compliance issues could have far-reaching consequences for these companies in India. The outcome of this case could set a precedent for competitive practices in the e-commerce space, shaping the regulatory framework for years to come.