Karnataka court clears way for CCI e-commerce probe

By Hrishav Kumar and Harshil Vijayvargiya

On 11 June 2021, the Karnataka High Court dismissed Amazon and Flipkart’s writ petition challenging the Competition Commission of India’s (CCI) probe against the pair’s alleged anti-competitive business practices. On the basis of information received from trading group Delhi Vyapar Mahasangh (DVM), the CCI on 13 January 2020 launched an investigation against Amazon and Flipkart under section 26(1) of Competition Act.

Hrishav Kumar
Hrishav Kumar

The DVM alleged that Flipkart and Amazon engaged in anti-competitive practices such as preferential treatment of affiliated sellers, deep discounting, listing of private labels through few sellers, and exclusive arrangements with mobile phone brands. The CCI formed a preliminary opinion that there existed a prima facie case that required investigation. Aggrieved by the decision, Amazon and Flipkart through separate writ petitions challenged the order.

Relying on the Supreme Court’s judgments in CCI v SAIL and CCI v Bharti Airtel Limited, the high court held that the CCI order was an “administrative direction” for which no prior notice or hearing under section 26(1) was required. On the issue of whether or not the CCI ought to have waited for the outcome of the investigation pending before the Enforcement Directorate (ED), the court observed that there was no bar on parallel investigations by different regulators. Accordingly, the court dismissed both the writ petitions.

The judgment was expected, considering that after the Sail judgment no high court has quashed any investigation order of the CCI under section 26(1). While there is no statutory requirement on the CCI to hold a preliminary conference before initiating an investigation under section 26(1), its practice in this regard has been rather inconsistent.

Harshil Vijayvargiya
Harshil Vijayvargiya

It has been observed that the CCI as a matter of practice has provided the parties with a preliminary conference allowing them to present their submissions at the preliminary stage in most cases. Thus, the CCI’s approach has been confusing for stakeholders, and has time and again been appealed. Perhaps the court could have directed the CCI to adopt a consistent approach, or issue an indicative guideline on circumstances where parties could be allowed a preliminary conference. Leaving the matter at the discretion of the CCI leaves the door open to future litigation.

Further, it appears that the court has limited the application of the Bharti Airtel case, where the Supreme Court had deferred the jurisdiction of the CCI until the Telecom Regulatory Authority of India had returned its findings on the matter. The subject matter of the dispute is already being investigated by the ED, which begs the question of whether the high court could have asked the CCI to wait until the conclusion of the ED’s investigation? Interestingly, in its interim order, the court acknowledged the investigation pending before the ED under the Foreign Exchange Management Act, 1999, and observed that Bharti Airtel would be applicable in the present case, thereby staying the CCI’s investigation.

Be that as it may, the judgment is pending litigation before the division bench of the Karnataka High Court, and it remains to be seen if the division bench uses the opportunity to settle the existing issues.

Hrishav Kumar is a student at the National University of Study and Research in Law, Ranchi, and Harshil Vijayvargiya is a student at Gujarat National Law University, Gandhinagar.