Amazon and Flipkart have found themselves in a spot of bother after the Supreme Court ruled that there would be no stay on an ongoing inquiry against them by the Competition Commission of India (CCI).
History of the Probe
Delhi Vyapar Mahasangh (DVM), a group that represents small and medium business houses in India, filed a complaint at the CCI against Flipkart and Amazon for engaging in anti-competitive conduct. The CCI decided to undertake a probe and the companies then decided to challenge the probe.
The Karnataka High Court decided on the matter and upheld the CCI’s decision. The companies decided to further take it up to the Supreme Court and the apex court ruled that the probe should continue saying that, “Big Corporates like Amazon and Flipkart should be subject to transparency and inquiry.”
What was the probe all about?
DVM, the complainant, alleged that Flipkart and Amazon were entering into anti-competitive agreements and also abusing their dominant position in the market. The aforementioned two situations are prohibited under Section 3 and 4 of the Competition Act, 2002.
What was the first allegation?
With regard to the first allegation of anti-competitive agreements, DVM claimed that the two companies were entering into vertical arrangements with sellers leading to ‘foreclosure of other sellers from the marketplace’ which in this case is online. Deep discounting, preferential listing and exclusive tie-ups were supposedly done with these few sellers. DVM also named these sellers and provided proof as to how agreements were entered into. These were obtained through communication made during the companies’ famous Big Billion Day Sale (Flipkart) and the Great Indian Festival (Amazon). Further, it was claimed that Flipkart brands certain sellers’ products as ‘Assured Seller’ and Amazon brands them as ‘Fulfilled’ without there being a solid explanation or basis on what exactly they are.
What did DVM allege about abuse of dominant position?
The allegations with respect to abuse of dominant position stated that the two companies were limiting the influence and provision of services of MSMEs and other such retailers. So even if products of these companies were listed, they would appear in the final few pages even if they had the same ‘user rating’ as that of the top sellers. The dominance in the market was proved by pointing out the huge market share of the companies as well as their ability to unilaterally terminate agreements. DVM concluded that the entire model of Flipkart and Amazon as e-commerce entities was anti-competitive.
What was the CCI’s verdict?
The CCI then looked at the matter and decided that the arguments made had substance and that there was a prima facie case that needed investigation by the Director General.
What happened after the investigation was ordered?
Flipkart and Amazon refused to cooperate with the investigation that was ordered and decided to file an appeal. A Single-Judge Bench and subsequently a Division Bench at the Karnataka High Court ruled that the companies had to join the investigation process soon. Taking it up finally with the Supreme Court, a bench led by CJI NV Ramana and two more Justices refused to stay the inquiry and gave the companies four weeks’ time to cooperate. The SC criticized the two companies for refusing to join the investigation and stated that the appeals seemed merely like attempts made to ensure that the CCI’s action does not attain ‘finality’.
What next for Flipkart and Amazon?
Flipkart and Amazon now have no choice but to comply with the Supreme Court’s order and cooperate with the investigation. If found guilty of entering into anti-competitive agreements and abusing their dominant position, they will be sanctioned with huge fines and directed to do away with the anti-competitive conduct.
In today’s fast-paced digital world, e-commerce companies like Flipkart and Amazon have become part and parcel of day-to-day life. Even as these companies are growing by the day, they do have an obligation to ensure there is fair competition in the market. Anti-competitive conduct is by no means welcome and DVM was right in bringing the issue up. The CCI, HC and SC orders have all come as a blow to the companies and it remains to be seen how the investigation now unfolds.