CCI probe exceeds mandate: e-retailers on Amazon, Flipkart argue before Karnataka HC

CCI initiated a probe against Amazon and Flipkart in 2020

A group of e-retailers on leading e-commerce platforms such as Amazon and Walmart-backed Flipkart argued before the Karnataka High Court (HC) on Wednesday that the ongoing Competition Commission of India (CCI) investigation against them exceeds the statutory body's original mandate.

The e-retailers, including Rocket Kommerce LLP and Sane Retail, have sought exclusion from the ongoing probe, which the court temporarily stayed earlier this month.

A single bench of the Karnataka HC, which is headed by Justice Hemant Chandangoudar, is hearing the case.

Under the CCI's scanner

In 2020, the CCI had launched its investigation to examine alleged anti-competitive practices by Amazon and Flipkart such as favouring select e-retailers. During the probe, the CCI’s Director- General (DG) had purportedly discovered links between the platforms and these e-retailers, prompting their inclusion as “opposite parties”. The e-retailers had argued that this expansion violated procedural norms because the DG had failed to obtain the CCI’s approval before altering their status from third parties to opposite parties in the investigation.

The CCI has powers either to take suo-moto cognisance of a violation or it can also receive references from other regulators. Rules stipulate that the DG cannot go beyond what the CCI has put out in its probe reference.

E-mails seeking comments from the CCI, Amazon, and Flipkart remained unanswered at the time of the publication of this article.

Why is this case significant?

The case has gained prominence following recent raids conducted by the Enforcement Directorate (ED) on some of these e-retailers, who are facing the probe. The ED has opened a separate investigation under the Foreign Exchange Management Act (FEMA). Amazon and Flipkart, as foreign-owned entities find themselves in the dock for indirectly controlling these e-retailers and as a result violating restrictions on foreign ownership in the retail sector. The ED claims that the e-commerce platforms circumvented rules by exerting indirect control over their preferred e-retailers.

No major relief for e-retailers?  

Legal experts maintained that the e-retailers may not receive substantial relief, as other Indian courts, including the Bombay and Delhi HCs, have  upheld the CCI’s authority in similar cases in the past. “Even if procedural violations are established, courts are likely to direct the DG to seek proper approval rather than dismiss the investigation altogether,” said a competition law expert.

Online marketplaces such as Amazon and Flipkart are required to treat all e-retailers equally under competition laws, which prohibit any form of favouritism. Alleged links between the platforms and preferred e-retailers are considered vertical agreements under these laws, further bolstering the CCI’s case. As scrutiny of e-commerce giants intensifies, the outcome of this case could have far-reaching implications for their business practices in India.

The CCI has issued orders against some other technology platforms, including food and hotel aggregators and also Google play services for allegedly providing preferential access to certain e-retailers.