The Karnataka High Court has temporarily halted the Competition Commission of India's (CCI) proceedings against e-commerce giants Flipkart and Amazon due to a procedural error by the director general (DG) overseeing the investigation. The DG was investigating allegations of potential violations of foreign direct investment (FDI) regulations by both companies.
According to the DG’s report, submitted on August 9, Flipkart and Amazon were accused of collaborating with select sellers and mobile phone brands to engage in anti-competitive practices. These practices reportedly included exclusive product launches, significant discounts, and preferential listings, all in breach of the Competition Act. However, the court found that the DG failed to adhere to procedural rules, specifically by reclassifying sellers from "third parties" to "opposite parties" without the necessary approval from the CCI.
Justice Hemant Chandangoudar noted, “The petitioners argue that the DG's actions violate established regulations, as it is mandatory to obtain CCI’s approval before changing a party’s classification in an investigation.” The court has scheduled the next hearing for October 21.
The court stated that this procedural oversight requires correction, rendering the DG's report invalid regarding breaches of statutory provisions and regulatory guidelines.
The CCI's preliminary findings indicated that Flipkart and Amazon's business strategies aimed at market dominance by selling products at significantly discounted prices through preferred sellers, often incurring losses, which is a violation of India's FDI policies. The CCI's investigations revealed that both companies were aware of changing FDI rules that restricted direct sales to customers. Nonetheless, they allegedly circumvented these rules by establishing preferred sellers, either newly formed or existing businesses with limited operations.
Further investigation revealed substantial FDI inflows to both companies. From FY16 to FY22, Flipkart and its group companies received Rs 36,711 crore, which increased to Rs 46,876 crore by the end of 2022. Notably, 96.6% of this FDI was directed toward three major subsidiaries: Flipkart Internet Pvt Ltd, Flipkart India Pvt Ltd, and Instakart Services Pvt Ltd.
Similarly, Amazon and its affiliates in India reported receiving Rs 54,138 crore in FDI during the same period, which rose to Rs 63,555 crore by the end of 2022. Approximately 63% of this amount was funneled into Amazon Seller Services Pvt Ltd and Amazon Wholesale India Pvt Ltd.
The ongoing legal battle reflects the increasing scrutiny faced by e-commerce platforms in India amid regulatory changes and market competition.