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Flipkart, Amazon challenge Karnataka HC order on antitrust probe: Report

Walmart-owned Flipkart and Amazon have legally challenged the resumption of the Competition Commission of India’s (CCI) antitrust investigation against them, Reuters reported on Thursday. This comes days after Karnataka High Court (HC) dismissed their earlier pleas to halt the investigation.

Timeline of events

January 13, 2020: The CCI launched an investigation in January last year after multiple allegations against Amazon and Flipkart claimed that the firms were violating FDI regulations and are hurting smaller sellers by promoting certain preferred sellers. However, the Karnataka HC stayed this investigation after Amazon and Flipkart challenged it saying the CCI had no evidence that the two companies were harming competition. Since February last year, the investigation has been on hold.

October 26, 2020: The Supreme Court refused to hear a plea filed by the CCI, which sought to remove the Karnataka HC-directed stay on its probe against Amazon and Flipkart. Instead, the apex court directed the HC to decide on the matter within six weeks.

June 11, 2021: The Karnataka HC dismissed pleas by Amazon and Flipkart to quash the CCI investigation into the business practices of the firms, according to another report by Reuters. Justice PS Dinesh Kumar, while dismissing the petitions by Amazon and Flipkart and refusing them any further relief, was quoted by Reuters as saying, “It would be unwise to prejudge the issues … at this stage and scuttle the investigation.” and refused them any further relief.

June 15, 2021: Reuters reported that CCI will expedite the restarted investigation. People familiar with the matter told the news agency that CCI plans to demand information from both the e-commerce giants “as quickly as possible.”

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June 17, 2021: Both Amazon and Flipkart have challenged the Karnataka HC decision, Reuters reported today. In the latest appeal filed by Flipkart on June 16, the e-commerce company argues that the decision by the court to allow the probe to resume “was erroneous and must be put on hold”, the report stated. “Irreparable injury will be caused to the appellant if the investigation was to continue pending the present appeal,” said the Flipkart filing as quoted by Reuters. Amazon has filed a similar challenge and both the cases will likely be heard by a two-judge panel this week, the report added.

What is CCI investigating?

The CCI’s probe against Amazon and Flipkart was ordered to investigate four alleged violations:

  1. Exclusive launch of mobile phones
  2. Promoting preferred sellers on their websites
  3. Deep discounting practices
  4. Prioritising some seller listings over others

The CCI had initiated the probe following a complaint filed by the Delhi Vyapar Mahasangh (DVM), a group of MSME (Micro, Small and Medium Enterprises) smartphone traders. DVM had accused that Amazon has certain agreements with sellers (that are allegedly controlled by the company) and that it gives these sellers unfair preferential treatment over others.

Other trade bodies have also filed complaints against Amazon and Flipkart with CCI. The All India Online Vendors Association (AIOVA), a trade union representing online sellers, filed an antitrust suit against Amazon India in August 2020, alleging preferential treatment to some sellers, and predatory pricing. According to AIOVA’s legal filing, the body alleged that Amazon India buys goods in bulk from manufacturers and then sells them at a loss to sellers such as Cloudtail, who then offer the same goods on Amazon at heavily discounted prices. The group also alleged that Cloudtail pays Amazon a fee of a little over 6% compared to the 28% that smaller sellers have to pay.

Reuters in February this year reported that thirty-five sellers, Cloudtail one of them, accounted for two-thirds of Amazon’s sales in India. The agency’s reporting revealed how Amazon used legal manoeuvres to sidestep Indian regulations aimed at curbing deep discounting and limiting Foreign Direct Investment

According to India’s rules on FDI in e-commerce, which were enacted in February 2019, marketplaces, such as Amazon and Flipkart, cannot exercise control or ownership over the inventory of vendors on their platforms. If they exercise any kind of control over the inventory, they’ll be considered as an inventory-based e-commerce platform. The rules also say that if a marketplace has an equity stake in a vendor/seller, or if it controls its inventory, the vendor is not permitted to sell its products on the marketplace.

Earlier this week, the brick and mortar union Confederation of All Indian Traders launched an “e-commerce purification week” in a bid to take on Amazon, Flipkart, and other foreign-funded e-commerce companies’ alleged unethical business practices.

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