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EXPLAINED: Priority Sellers? What Is The Antitrust Probe That Amazon, Flipkart Are Facing In India

Amazon Inc's India operations has spent a staggering over $1.2 billion in legal expenses in the last two years in India

Amazon Inc's India operations has spent a staggering over $1.2 billion in legal expenses in the last two years in India

The Supreme Court has rejected an appeal by the e-commerce biggies to quash a probe into them by India's competition watchdog. Here's what that means

Retail giants Amazon and Flipkart have been unable to legally bring to a close a probe into alleged unfair practices on their e-commerce platforms after the Supreme Court said that the Competition Commission of India (CCI) was free to go into claims by small traders that the two dominant market players were extending preferential treatment to certain sellers. The order comes even as India has been looking to more tightly regulate the e-commerce space, making it a nervous time for the big players. Here’s all you need to know.

What Is The Investigation The Companies Are Facing?

The CCI, which is the Indian watchdog for preventing anti-competitive agreements and abuse of dominant position by companies, had last year said it will probe trade practices by Amazon and Flipkart, which is owned by US retail giant Walmart, in light of allegations that they were favouring some “preferred sellers” to the disadvantage of others selling goods on their platforms.

The specific case was brought by the Delhi Vyapar Mahasangh (DVM), a traders’ body that flagged practices such as exclusive mobile phone launches and deep discounts by these two platforms as affecting fair competition. They also alleged that the e-commerce giants were promoting selected sellers on their websites.

It was further claimed that among such preferred sellers were entities that were had direct or indirect links with these companies themselves and were either either affiliated to or controlled by them.

While announcing the probe, CCI had said that “exclusive launch (of mobile phones) coupled with preferential treatment to a few sellers and the discounting practices create an ecosystem that may lead to an appreciable adverse effect on competition”.

What Have Amazon, Flipkart Said?

Both companies strongly denied the allegations and said they were compliant with all the relevant laws in India. They also moved the Karnataka High Court seeking the quashing of the CCI probe, but it was ruled that their petition was not tenable and the probe could not be halted. That led the two firms to move an appeal against the verdict in the Supreme Court.

But the three-judge Supreme Court bench, led by Chief Justice of India NV Ramana, upheld the Karnataka HC order, saying that they “expect organisations like Amazon and Flipkart… to volunteer for inquiry and transparency”.

The two companies had also asked Supreme Court to put on hold a CCI request for information in the form of 32 questions that sought details of their top sellers and products, but have now been directed to provide answers in four weeks. Following the apex court order, Amazon and Flipkart have been reported as saying that they will cooperate with the CCI investigation.

Interestingly, coinciding with the Supreme Court order was an announcement that Cloudtail, one of the top sellers on Amazon, was going to cease operations from May 2022 after a run of seven years. Cloudtail is owned by Prione Business Services, which in turn is jointly operated by Amazon and Catamaran Ventures, owned by Infosys founder NR Narayana Murthy. The move comes at a time when India is finalising rules for e-commerce that would prohibit, among other things, platforms from selling products of firms or entities which they themselves control.

What Do The Proposed e-Commerce Rules Say?

In June this year, the Union Consumer Affairs Ministry had come up with draft amendments to the Consumer Protection (E-Commerce) Rules that had come into force in 2020.

Among other things, the amendments propose a ban on ‘flash sale’ by e-commerce players involving “significantly reduced prices, high discounts or any other such promotions or attractive offers” if they are “organised by fraudulently intercepting the ordinary course of business using technological means with an intent to enable only a specified seller or group of sellers managed by such entity to sell goods or services on its platform”.

The draft rules also propose that an e-commerce player shall ensure that “none of its related parties and associated enterprises are enlisted as sellers for sale to consumers directly”. Two entities are to be deemed as being “associated enterprises” if, among other things, they are related to each other through a common chain of management or shareholders, or where they have 10 per cent or more common ultimate beneficial ownership.

Why Are E-Commerce Giants Under Regulatory Scanner?

News agency Reuters had in February this year published a report on alleged preferential treatment to some Indian vendors, saying that “some 35 of Amazon’s more than 400,000 sellers in India… accounted for around two-thirds of its online sales” in 2019. It later reported that the “the CCI has said the Reuters story corroborated evidence it had received against the company”.

In November last year, European Union (EU) officials had filed antitrust charges against Amazon, which was accused of using its access to data from companies that sell products on its platform to gain an unfair advantage over them. It is also reportedly being investigated whether Amazon extends preferential treatment to merchants that use its own logistics and delivery system.

Not just Amazon, EU regulators have also imposed antitrust fines on Google and launched investigations against Apple.

The tech giants, all of them based in the US, are also facing regulatory heat in that country. The US Justice Department has sued Google for abusing its dominance in online search and advertising while the likes of Apple, Amazon and Facebook, too, are being probed, including by the US competition watchdog.

Now, the Indian government, too, is looking to turn regulatory screws on big tech. Referring to the Supreme Court’s order on the CCI probe, Union Commerce Minister Piyush Goyal said, “These companies used legal tactics to stall the investigation … I am happy to tell you that… all the efforts of these companies failed.”

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first published:August 11, 2021, 18:42 IST