The Karnataka high court on Friday stayed the Competition Commission of India’s (CCI)’s investigation into Amazon India and Walmart-owned Flipkart for alleged anti-competitive practices, including predatory pricing and preferential treatment of sellers.
The high court granted eight weeks to the e-commerce companies to file their responses, and is expected to resume hearing thereafter, three people aware of the development said.
The stay came in response to a 10 February writ petition by Amazon against CCI’s January decision to launch a probe following complaints that the e-commerce platforms had misused their dominant positions.
The Delhi Vyapar Mahasangh (DVM), a group representing small- and medium-sized businesses, had approached CCI alleging business malpractices by Amazon and Flipkart, which included preferential treatment to sellers affiliated with, or controlled by, the companies, predatory pricing and exclusive arrangements with mobile phone brands.
CCI, in its order, observed that a probe was warranted into allegations of exclusive arrangements between brands and e-commerce companies, as well the charges of preferential treatment to certain sellers.
In its petition before the Karnataka high court, Amazon likened CCI’s actions to an “open-ended fishing expedition" and accused it of jurisdictional overreach. An advocate representing Amazon said the company was compliant with foreign direct investment (FDI) laws and argued that it was being wrongly probed under the competition act by CCI.
The court observed that the CCI order does not meet the test of prima facie opinion being formed about the need for an investigation.
The court order comes as a breather to Amazon and Flipkart amid intensifying scrutiny of e-commerce companies by authorities. It is highly unusual for a CCI investigation to be stayed even before it has been completed, experts said.
“A stay of an investigation initiated by CCI is not normally granted unless there is an inherent question of jurisdiction, or there is a significant infirmity apparent on the face of the record," said Abdullah Hussain, partner, L&L Partners. “(But) the high court has stayed the investigation only temporarily and the order of CCI may yet be upheld in the final decision," he added.
DVM, and its parent body, the Confederation of All India Traders (CAIT), said they will file an appeal against the order. It also said its representatives will meet commerce minister Piyush Goyal and finance minister Nirmala Sitharaman and request them to initiate an Enforcement Directorate probe against the two e-commerce firms.
On Thursday, Goyal said at a Times Now summit that e-commerce firms should strictly adhere to foreign investment laws and that it “certainly does not look and feel and smell right" when a company makes a loss of ₹6,000 crore on a revenue of ₹5,000 crore.
This was in reference to the huge losses reported by Flipkart and Amazon over the years. Goyal said CCI or his ministry would not have to probe e-commerce companies if they adhered to “the letter and spirit of the law".
Flipkart and Amazon have the biggest share of India’s fast-growing e-commerce market, which stood at $30.8 billion in 2019, according to RedSeer Consulting.
Over the past three years, CCI has also increased scrutiny of internet firms.