Six years after the National Company Law Appellate Tribunal (NCLAT) ordered a probe into allegations of abuse of dominance against Flipkart, the Supreme Court has set aside that decision and remanded the matter back to the appellate tribunal for fresh consideration. [Flipkart v. Competition Commission of India]
A Bench of Chief Justice of India Surya Kant and Justices Joymalya Bagchi and Vipul Pancholi held that the NCLAT must reconsider the appeal independently, without being influenced by material that may not be legally relevant under the Competition Act, 2002.
The Court noted that the earlier NCLAT ruling appeared to have relied, at least in part, on observations from income tax proceedings which were subsequently set aside.
It observed that principles of fairness required the matter to be re-examined. All issues were left open for the parties to urge afresh before the NCLAT.
In its March 4, 2020 judgment, the NCLAT had set aside a 2018 order of the Competition Commission of India (CCI), which had closed a complaint filed by the All India Online Vendors Association. The appellate tribunal held that the CCI had applied an unduly high threshold at the preliminary stage and emphasised that under Sections 19(1)(a) and 26(1) of the Competition Act, an informant is required to establish only a prima facie case of contravention, not conclusively prove dominance or abuse.
Relying on factual observations emerging from income tax proceedings relating to alleged below-cost sales and predatory pricing by Flipkart India, the NCLAT held that the linkage between Flipkart’s wholesale and marketplace entities warranted closer scrutiny. It concluded that these facts were sufficient to justify directing the CCI to order a detailed investigation by its Director General into alleged violations of Section 4 of the Act.
The income tax material referred to by the NCLAT was an Income Tax Appellate Tribunal (ITAT), Bengaluru order dated April 25, 2018 in Flipkart India Private Limited v. Assistant Commissioner of Income Tax. That case arose from an assessment order which had recorded findings that Flipkart India sold goods below cost and followed a loss-making strategy allegedly aimed at capturing market share and building brand value.
Although the ITAT ultimately set aside the tax additions—holding that such losses could not be treated as capital expenditure under the Income Tax Act—the NCLAT treated the factual observations on pricing behaviour and the relationship between Flipkart’s wholesale and marketplace entities as relevant for forming a prima facie view under the Competition Act.
The Supreme Court has now held that the NCLAT must reconsider the matter without being influenced by such income tax proceedings, whose conclusions were overturned on appeal.
The dispute traces back to a 2018 order by the CCI, on a plea All India Online Vendors Association, which claimed to represent more than 2,000 sellers on e-commerce platforms. The association alleged that Flipkart India Private Limited, engaged in wholesale trading, supplied goods at discounted prices to select sellers such as WS Retail Services Pvt Ltd, which then sold those products at deep discounts on the Flipkart marketplace operated by Flipkart Internet Private Limited.
The the CCI held that Flipkart was not dominant in the relevant market of “services provided by online marketplace platforms for selling goods in India,” citing competition from Amazon and other players, and closed the proceedings under Section 26(2).
Following the Supreme Court’s remand, the NCLAT will now re-examine the appeal afresh, including whether, excluding the disputed income tax material, there is sufficient basis to direct a CCI investigation.
Flipkart was represented by Senior Advocates Abhishek Manu Singhvi and Rajshekhar Rao with a team from Shardul Amarchand Mangaldas.