Mint Explainer: Why did Karnataka HC halt CCI's action against Amazon, Flipkart

In August, the CCI’s Director General (DG) confirmed suspected violations of competition law by the two platforms, citing practices such as preferential treatment of certain sellers, exclusive product launches, and deep discounting—actions that have impacted small retailers both on and off the platforms.

Read this | When India closed the door on its e-commerce tax, it left a window open

This interim stay, based on a procedural misstep by the regulator, could have far-reaching implications 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 triggered based on a 2019 complaint by Delhi Vyapar Mahasangh, affiliated with the Confederation of All India, which accused the online marketplaces of favouring specific sellers. 

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

In February 2020, the Karnataka High Court temporarily paused the investigation after Amazon and Flipkart challenged the CCI's authority. However, by June 2021, the court allowed the investigation to resume, and the companies sought relief from the Supreme Court. Their pleas were dismissed in August 2021, clearing the way for the probe to continue.

Read this | After Sebi, CCI comes under parliament committee scrutiny

In April 2022, reports surfaced that India’s antitrust body had conducted raids on two major domestic sellers associated with Amazon and Flipkart, following allegations of competition law violations.

What are the CCI’s findings?

In August, the CCI director general submitted a detailed report revealing that major smartphone manufacturers like Xiaomi, Samsung, OnePlus, Realme, and Motorola were 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 report—spanning 1,027 pages for Amazon and 1,696 pages for Flipkart—emphasized the significant market impact, as nearly 50% of smartphone sales in India occurred online in 2023, with Flipkart holding a 55% market share and Amazon 35%.

Additionally, the CCI uncovered that both companies used foreign investments to provide discounted services, such as warehousing and marketing, exclusively to select sellers. This raised concerns about compliance with FDI rules and suggested efforts to mitigate accusations of exclusive launches and deep discounts.

On 22 September, Mint reported that the CCI had ordered Amazon and Flipkart to submit financial statements from the past three fiscal years to assist in determining potential penalties. These documents will be key in calculating penalties, based on the outcome of the regulator’s review of the companies’ defences in this four-year-old case.

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

What is the government’s stand on this?

On 21 August, commerce and industry minister Piyush Goyal publicly criticized Amazon for its 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 “smelling of predatory pricing." 

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

While acknowledging, “I am not wishing away e-commerce; it is here to stay," Goyal emphasized the need to scrutinize business models that harm small retailers. He pointed out that investments like Amazon’s are often celebrated, but come at a cost to local economies, remarking that “these billion dollars are not coming in for great service or to support the Indian economy."

More here | Our foreign trade policy bets on e-commerce for an export jump

Goyal also accused e-commerce companies of circumventing regulations by structuring operations through different entities to present themselves as business-to-business (B2B) transactions. He concluded by stressing the importance of clearly defining the role of the e-commerce sector, asking, “Is predatory pricing policy good for the country?"

How did the case reach the Karnataka High Court?

In September, Appario Retail, formerly 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 regulator’s report.

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

Appario is the second major seller from which Amazon has divested, following the delisting of Cloudtail in 2022, in compliance with local e-commerce regulations.

On 27 September, the Karnataka High Court’s single bench, led by justice Hemant Chandangoudar, halted the proceedings after considering the petitioner’s arguments. The court highlighted procedural lapses in the CCI’s investigation, including the DG's reclassification of certain entities from “third parties" to “opposite parties" without proper approval.

This reclassification exceeded the DG’s authority, violating procedural safeguards under the Competition Act and CCI regulations, prompting the interim stay.

What next?

The high court has summoned the CCI, scheduling the next hearing for 21 October 2024. During this pause in the investigation, the court will thoroughly review the case, allowing all parties to present their arguments before issuing a final ruling.

The CCI also has the option to challenge the interim stay before a division bench of the high court.

Why is this case important?

This case holds significant implications for both Flipkart and Amazon, as well as for the broader Indian e-commerce market. According to consultancy firm Bain, India’s e-commerce sector is projected to surpass $160 billion by 2028.

A report by AllianceBernstein notes that Flipkart, owned by Walmart, commands nearly 50% of the online shopping market, with Amazon following closely behind.

Also read | Did Amazon break India's competition law? We will know soon

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