Karnataka HC halts CCI probe against Flipkart, Amazon over procedural error

The Karnataka High Court has temporarily halted the competition regulator's actions against Flipkart and Amazon due to a procedural error by the director general (DG), who was investigating potential violations of foreign direct investment (FDI) regulations by the two e-commerce companies, according to a report by The Economic Times.

According to the DG’s report, submitted on August 9, Flipkart and Amazon allegedly collaborated with certain sellers and mobile phone brands to engage in anti-competitive behaviour, including exclusive product launches, significant discounts, and preferential listings, which breached the Competition Act.

However, the court determined that the DG of the Competition Commission of India (CCI) had disregarded its procedural rules and imposed an interim stay on the proceedings. The DG reclassified sellers initially listed as "third parties" to "opposite parties" without seeking prior approval from the CCI, which contravened standard procedures.

“The petitioners argue that the DG's actions violate established regulations, as it is mandatory to obtain CCI’s approval before changing a party’s classification from third to opposite in an investigation,” stated Justice Hemant Chandangoudar, setting the next hearing for October 21, ET said.

Procedural validation needed 

“This procedural oversight necessitates correction, rendering the DG's report invalid to the extent it breaches statutory provisions and the commission's regulatory guidelines," the court said.

In its preliminary findings, the CCI suggested that Flipkart and Amazon's business models aim to gain market dominance by selling products at heavily discounted prices through preferred sellers, often incurring losses, in violation of India’s FDI policies, the business-daily said.

The CCI's separate but related reports indicated that both Amazon and Flipkart were fully aware of the changing FDI rules that prevented them from directly selling inventory to customers. Despite this, they circumvented these rules by setting up preferred sellers, either newly established or using existing businesses without substantial operations.

The CCI also examined FDI data released by the government and found that between FY16 and FY22, Flipkart and its 11 group companies received a total of Rs 36,711 crore. This figure rose to Rs 46,876 crore if data until the end of 2022 was included, with 96.6 per cent of the FDI directed towards three key companies under Flipkart — Flipkart Internet Pvt Ltd (which operates the platform), Flipkart India Pvt Ltd (the wholesale division), and Instakart Services Pvt Ltd (the warehousing and logistics unit), the report added.

Amazon and its 13 affiliated companies in India reportedly received Rs 54,138 crore in FDI between FY16 and FY22. Including data up to the end of 2022, this total increased to Rs 63,555 crore, with 63 per cent of the FDI flowing into two major subsidiaries — Amazon Seller Services Pvt Ltd (which operates the platform) and Amazon Wholesale India Pvt Ltd (the wholesale arm).