This Article is written by Pushti Dublish, student of Galgotias University.
Every nation in the world is in a race of becoming a developing nation which gears up by the recent online techniques. One of the trendiest techniques is E-commerce. It is nothing but a type of industry or a company helping in selling and buying the products through the internet also known as Electronic-Commerce. This system works on the simple agenda i.e., the supply of the products to the customers. E-Commerce is used by many of the online databases e.g., Amazon, Flipkart, Myntra, etc.
E-commerce has four different categories i.e.,
- Business to Business
- Consumer to Consumer
- Business to Consumer
- Consumer to Business
E-Commerce nowadays is an indispensable element of both the consumer and the business as it is a two-way process. It helps in accessing the global market at the present times, involves low entry cost, reduces transactional cost, secures the sharemarket, being accessible at any time, etc.
According to the Indian E-commerce Industry Report, it has been appreciated that business is transformed a way ahead in India. As there is a growing demand in markets, it is predicted that e-commerce markets will be growing at approximately 12,000 per-cents by 2026 and expected to reach 84 Billion US Dollars by 2021. Also, by giving attractive opportunities, policy support, and increasing investment, it supports favorable FDI policies. By supporting FDI policies, it allows B2B E-Commerce.
The route to a way ahead in Indian Business can only be achieved by E-commerce Industry, it has a direct impact on Micro, Small & Medium Enterprises (MSME) as it provides means of financing, technology, and training. It is also having a beneficial cascading effect on other industries. The Indian e-commerce industry has been on a path of upward growth and is expected to surpass the US to become the world’s second-largest e-commerce market by 2034. Moreover, Digital payments, hyper-local logistics, customer engagement, and digital ads are likely to fuel growth in the sector. Growth in the e-commerce sector will also boost employment, increase export revenues, increase tax collection by ex-chequers, and provide customers with better long-term products and services. In E-commerce Industry, Flipkart Internet Pvt Ltd is India’s largest e-commerce firm with 100 million registered users. It is also predicted that smartphone usage rise by 84 percent to reach 859 million by 2022. Also, there are 1-1.2 million transactions covered daily in E-commerce retailing. Its major impact can be seen in the current pandemic where people have shifted from offline shopping to online marketplace for purchasing groceries, electronic items, household items, clothing, and other accessories. They have become dependent on online stores resulting in the growing demand for an effective E-commerce Mechanism.
BACKGROUND OF THE CASE
An Order, passed on 13th January 2020, was based on the agenda where the allegations were made against Amazon and Flipkart, the two gigantic E-commerce platforms in the Internet Shopping Era. Initially, It was raised in the case of Delhi Vyaapar Mahasangh v. Amazon Seller Services Pvt. Ltd. (Amazon) and Flipkart Internet Services Pvt. Ltd. (Flipkart), where the informant (a micro small and medium enterprise) alleged that the defendants have entered into an exclusive arrangement with mobile phone brands, preferential treatment to sellers affiliated or controlled by it, either directly or indirectly, predatory pricing. The informant also alleged that the defendants have violated Section 3 and 4 of the Competition Act, 2002 by entering into the vertical agreements with smartphone brands and manufacturers based in China. In addition to this, the defendants are enjoying their dominant position in the online marketplace and practising deep discounting, which enables the company to set low market prices and attract the consumers. Subsequently, making an anti-competitive market by causing other competitors to mug the threat of throwing out of the business. These types of malpractices are detrimental to the sellers and other competitors who are affected by unfair competition in the market.
CCI’S ORDER DATED 13th JANUARY 2020
The Competition Commission of India (CCI), in its order, directed an investigation by the Director-General (DG) to examine whether the exclusive arrangements with smartphone brands, deep discounting and preferential listing of Amazon and Flipkart have resulted into the foreclosure of competition leading to Appreciable Adverse Effect on competition in India.
The allegations put before CCI includes:
- Exclusive launch of mobile phones
- Preferred Sellers
- Deep Discounting
- Preferential Listing
Contravention of Section 3(4) R/w Section 3(1) and joint dominance under Section 4(2) R/w Section 4(1) of the Competition Act, 2002-
The former provisions i.e. Section 3 deals with the vertical agreements. The authority i.e. CCI noted that Amazon and Flipkart are e-commerce entities, following the e-commerce model. They provide online intermediation services to the sellers and consumers. Here, the platforms and the traders selling on these platforms function at different stages of the supply chain. Therefore, the agreement between the sellers and the platform can be examined under S. 3(4) of the Act.
Whereas, Section 4 of this act regulates the abuse of a dominant position where CCI noted that the joint dominance of Amazon and Flipkart cannot be considered under the said act. Thus, CCI cannot assess under Section 4 of the Act.
Based on the above provisions, CCI studied that allegations are inter-related and an investigation can be directed to examine how these vertical agreements operate and its effect on competition.
CCI’s Assessment on Other Allegations included in the Complaint
- As per the data and records available about the exclusive launches of smartphones, CCI noticed that Amazon has launched 45 mobile phones and whereas Flipkart has exclusively launched 67 mobile phones through its online platform.
- Based on the allegation of Preferred Sellers that both platforms have their own set of preferred sellers along with the exclusive launch of smartphones by the defendants, the CCI noticed that the exclusive launch of smartphones together with a preferred set of sellers and predatory pricing may prima facie have an appreciable adverse effect on the competition.
- After reading the emails sent by the defendants to their sellers stating that they are required to incur the discounts offered during their big sales. Also, the CCI collected the data of prices of various smartphone brands sold through Amazon and Flipkart i.e. the original price and the discounted price. Further, It observed certain smartphone brands were sold at significantly discounted prices and that only through the preferred sellers. Therefore, CCI ordered an investigation to look at whether the funding of discounts is a feature of the exclusive tie-ups between the sellers and the platforms.
- On the above findings, CCI believes that competition may get influenced only in the favor of exclusive brands and sellers because of higher discounts and preferential listing.
After the above assessment of the allegations, the CCI found the practices carried on by the Amazon and Flipkart to be in contravention of Section 3(1) R/w Section 3(4) of the Act. Consequently, directing an investigation and instructed the DG to examine the matter immediately and determine whether the platforms have compromised with the provisions of the Act in the course of their business.
ORDER CHALLENGED IN THE HIGH COURT
Amazon filed the writ petition in Karnataka High Court to seek the redressal. By which the company submitted that the CCI cannot issue the order for investigation in the said course of action because they are not authorized to do so. The company also pleaded that the decision was an ex-parte decision and so they did not get the chance for counter submission. The High Court noted that the dominance of a company cannot be established in isolation of the existence of a relevant market. To substantiate it, Amazon also cited the case before CCI which quashed All India Online Vendors Association (AIOVA)’s principle against Flipkart, stating that no company dominant is in the position in the online market. It was also submitted that CCI acts on a mere probability that “E-commerce companies are in an agreement with smartphone brands”. Hence the CCI’s investigation got the interim four-week stay order.
Later on, the High Court reiterated its decision on the petition which was filed by the Flipkart. Henceforth the High court’s stand in two cases gave the counter approach towards CCI in issues of the E-Commerce market in India.
HIGH COURT’s DECISION
The High Court of Karnataka recognized that the investigation conducted under the Foreign Exchange Management Act, 1999 (FEMA Act, 1999) is against the Amazon and Flipkart, because of the undertaking given by Union of India, the ratio decidendi given by the Supreme court in the case of Bharti Airtel v. Competition Commission of India was applied in the present case.
Further, the court also took note of the submission made by the Amazon concerning that CCI has assumed that Amazon has some agreement between smartphone brands and e-commerce platforms had some merits as the CCI has written in its order that it “appears” to be an exclusive partnership between the mobile phone brands and e-commerce platforms. The High Court held that the CCI should have made a prima facie observation that there exists an agreement rather than putting up an inference of the same, without recording any material on record. As a result, the court admitted the writ petitions and put a stay order on the order passed by the CCI dated 13th January 2020.
- Ibef.org. (2019). E-commerce in India: Industry Overview, Market Size & Growth| IBEF. Available at: https://www.ibef.org/industry/ecommerce.aspx
- Sharma, M.M. (2020). Amazon wins the first battle -Karnataka High Court stays CCI order directing investigation against Amazon a…com. Available at: https://www.lexology.com/library/detail.aspx?g=3257564e-17a5-43d6-92e6-391265912c4e
- Economic Laws Practice (2020). CCI Orders Investigation Against Amazon And Flipkart For Its Exclusive Agreements, Deep Discounting. Mondaq.com. Available at: https://www.mondaq.com/india/antitrust-eu-competition-/889370/cci-orders-investigation-against-amazon-and-flipkart-for-its-exclusive-agreements-deep-discounting-and-preferential-listing-of-labels
- Bharti Airtel v. Competition Commission of India, AIR 2019 SC 113