Amazon, Flipkart to face CCI probe after Karnataka HC dismisses plea
On January 13, the CCI had ordered a probe against the two e-commerce giants to investigate whether the exclusive arrangements, deep discounting, and preferential listing by Amazon and Flipkart for mobile phones are causing an adverse effect on competition. Both the companies had filed a plea for dismissal of the probe with the Karnataka High Court that the court dismissed on Friday.
Karnataka High Court on Friday dismissed the plea filed by e-commerce majors Amazon and Flipkart to quash a probe by the Competition Commission of India (CCI) against them over alleged anti-competitive practices.
On January 13, 2020, the CCI had ordered a probe against Amazon, Flipkart on alleged anti-competitive practices in a case filed by the Delhi Vyaar Mahasangh under Section 3 of the Competition Act.
Section 3 of the Act deals with anti-competitive agreements, and the Delhi-based association had alleged that both Amazon and Flipkart were indulging in exclusive arrangements with smartphone makers, preferential treatment to some sellers, and deep discounting.
The CCI had said there was a prima facie case and had asked the director-general to investigate both the companies. The Karnataka High Court had last year granted an interim stay on the CCI order after both companies approached it.
The Competition Commission of India (CCI) had defended its move to order a probe against Amazon and Flipkart over anti-trust behaviour, which includes allegations of exclusive agreements with smartphone makers, stating that such agreements are often ‘tacit’.
“If there are agreements where parties are trying to push out the competition, we don’t need to look at only formal agreements, there could also be a tacit understanding,” CCI had told the Karnataka High Court as it sought to lift the stay and go ahead with the probe.
CCI had also hit out at arguments by Amazon that CCI was overstepping jurisdiction since the Enforcement Directorate was already investigating them under the FDI policy.
“Pendency of ED investigation is being used as a license to emasculate powers and duties of CCI,” Divan said.
CCI has argued that the probe is only to collect “collect solid, credible data”, adding that it has become important for the agency to “preserve the sanctity of the marketplace” as e-commerce has grown during the pandemic.
Amazon counsel Gopal Subramanian had argued that exclusive launches of mobile phones on the platform of brands such as Apple and Samsung take place for only a short while and that the products are available on the online stores of the smartphone brands as well during the time.
The Competition Commission of India had also argued in the Karnataka High Court that the material brought to them by the informant shows that there could be an affiliate of Amazon selling on its marketplace.
Additional Solicitor General Madhavi Divan, appearing for CCI, cited from the material that was shared by the informant in the case, the Delhi Vyapar Mahasangh, on the basis of which the anti-trust watchdog had called for the Director-General to initiate a probe.
“It appears that an affiliate of Amazon is selling on the platform,” Divan said.
She cited the material to say that Appario (a seller on Amazon India’s marketplace) appears to have a common connection (director, address, signatory) with Frontizo (holding company of Appario) and added that Frontizo has a common director with an Amazon company - Amazon Retail India.
“There appears to be a link. We do not know what the link is but there appears to be a link,” Divan said.
“The question is whether Appario is a preferred seller. It may be that there is no common equity, but there is a connection,” she said.
The CCI counsel also added that the informant had shown material indicating Appario appeared higher on search results for certain phones.
Among the allegations against the e-commerce companies include preferential treatment to sellers.
“A question to be probed is on whether there is any manipulation of algorithms by Amazon to favour Appario,” Divan said.
The new draft of the upcoming e-commerce policy stresses e-commerce companies ensuring no algorithm bias against any sellers.
Interestingly, Amazon had told the Karnataka High Court on January 21, that there is a common director at Amazon Retail India, a food retail entity of the global eCommerce giant, and Frontizo.
Amazon’s advocate Gopal Subramaium had said that Sameer Khetarpal is a common director between the two entities.
But Amazon’s counsel Gopal Subramanium had argued that it is Amazon Seller Services that runs the Indian e-commerce platform and it does not have any common directors working at Cloudtail and Appario. He even went on to call the connection a ‘non-application of mind’ by the CCI.
“There is one director common to Frontizo and Amazon Retail India Pvt Ltd. But Amazon Retail India is not the entity in question, it is not the marketplace entity,” Subramanium said. “The entity which is the subject matter of investigation under Sec 26 (1) of Competition Act is Amazon Seller Services India Pvt Ltd. This shows non-application of mind by the CCI,” he said.
Amazon’s arguments were made against allegations by a traders’ body, Delhi Vyapar Mahasangh, that the company has preferred sellers in Cloudtail and Appario and also controls the two entities through common directors.
A March 2019 filing from Tofler show that Amazon Retail India is a 100 percent owned subsidiary of Amazon, with a 99 percent stake held by Amazon Corporate Holdings, and the rest 1 percent held by Amazon.
An Amazon group company holds a 24 percent stake in Frontizo, and the rest is held by the Patni Group, Subramanium said. Amazon holds a similar stake in Prione Business, the holding company of Cloudtail, while the rest is held by Narayana Murthy’s Catamaran Ventures, he added.
(Edited by : Yashi Gupta)
First Published: Jun 11, 2021 3:17 PM IST
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