CCI order to probe Amazon, Flipkart fell short of meeting norms: K'taka HC

The CCI had ordered the probe based on a complaint filed by trade body last month, which alleged that the e-commerce players were giving deep discounts on online sales of smartphones

The Karnataka High Court has prima facie not found merit in the Competition Commission of India’s (CCI’s) order of an investigation into some of the business practices of e-commerce majors Amazon India and Flipkart. The High Court last Friday granted an interim stay on a petition filed by Amazon, after hearing the matter for three days. As per the analysis by legal experts of the order, a copy of which came in writing on Wednesday, CCI did not follow the norms set by the courts for such matters and went beyond in this case.

The CCI had ordered the probe based on a complaint filed by trade body Delhi Vyapar Mahasangh (DVM) last month, which alleged that these e-commerce players were giving deep discounts on online sales of smartphones, apart from cherry-picking sellers. In its writ petition in the High Court last week, Amazon had made CCI, the Delhi Vyapar Mahasangh (DVM) and Flipkart as respondents.

“The order means that there are currently not enough reasons on the record. As in the present case, the court feels that CCI was not able to put enough prima facie material on record to reasonably suggest that there was an agreement between the parties (preferred sellers),” said Salman Waris, managing partner at New Delhi-based law firm TechLegis Advocates & Solicitors. “It says in the present case CCI has only drawn an ‘inference’ and not formed a prima facie opinion with regard to the existence of such an agreement.”

The order refers to the  Division Bench of Bombay High Court in Star India Pvt.Ltd. which held that CCI ought to have formed a prima facie opinion that there exists an agreement between the parties. In the case on hand, what is recorded is CCI’s inference that there ‘appears’ to exist an agreement without there being any material on record, says the order.

The order noted that the petitioner which is Amazon had submitted that it is carrying on the business under the ‘marketplace model’. It also says during 2018, a complaint was lodged by the All India Online Vendors Association (AIOVA) to the CCI against respondent no.3 (Flipkart). Though the petitioner (Amazon) was not named in the complaint, it was invited to participate in the proceedings by the CCI to help explain the nuances of the e-commerce business. In the said proceedings, respondent no.3 (Flipkart), as well as the petitioner (Amazon), had been absolved of violation of Section 4 of the Competition Act. The order says the legal counsel of the petitioner pointed out that in this case, the complainant has annexed a portion of the copy of said order to the complaint. However, the CCI has not chosen to issue a notice to the petitioner to put forth its case. “This assumes significance,” says the order.

The order noted that in the writ petition filed by the Telecom Watchdog before the Delhi High Court against Directorate of Enforcement, Flipkart and the petitioner (Amazon), a direction was sought against the Directorate of Enforcement to investigate into the FDI (foreign direct investment) violations by petitioner through companies such as Prione Business Services. The said writ petition has been disposed of by the Delhi High Court.

Cloudtail, one of the largest sellers on Amazon India, is owned by Prione Business Services, which is a JV between Amazon and Infosys co-founder N R Narayana Murthy’s Catamaran Ventures. Also, another seller, Appario Retail is a subsidiary of Frontizo, which is a JV between Amazon and Patni Group.

The order says that Flipkart submitted that jurisdiction of High Court under Article 226 of the Constitution of India has been upheld by the Hon’ble Supreme Court in the case of Bharti Airtel Limited. Unless a prima facie case is made out, investigation under Section 26(1) of the Competition Act cannot be ordered. The impugned order does not disclose jurisdictional facts and satisfaction of CCI with regard to the prima facie case.

The legal counsel of the CCI defending the impugned order submitted that all that the Commission has directed is to conduct an investigation by the Director General. CCI, after a careful examination of records, has opined that there exists a prima facie case against petitioner and recorded that there appears to be an exclusive partnership between smartphone manufacturers and e-commerce platforms. This adversely affects e-commerce business in the entire country. Therefore, the investigation order is just and appropriate, the CCI had submitted.

The order says though elaborate arguments were addressed, it was requested by learned Senior advocates on both sides that since counter affidavits have not been filed on behalf of respondents, the matter may be heard for the preliminary hearing and interim order.

The contention urged on behalf of the petitioner that CCI has imagined the existence of ‘some agreement’ merits consideration, says the order. The court has granted the respondents eight weeks to file a counter.