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Breaking: Karnataka HC stays CCI order calling for probe into alleged anti-competitive conduct by Amazon

Rintu Mariam Biju

The Karnataka High Court today granted interim relief to Amazon by staying the investigation into alleged anti-competitive practices on the part of the e-commerce giant ordered by the Competition Commission of India (CCI) last month.

The stay will continue to operate until the matter is heard finally. The plea filed by Amazon was admitted by a Single Judge Bench of Justice PS Dinesh Kumar.

The Court has further granted eight weeks to the respondent to file a counter.

On the point of preferred sellers by Amazon, the CCI order takes note of the allegation that e-commerce platforms have a direct nexus with the preferred sellers “by way of direct or indirect ownership or some understanding”.The order goes on to state that,

there was a prima facie exclusive partnership between smartphone manufacturers and ecommerce platforms”.

When asked by the High Court on this point, the agreement between Amazon and a seller was produced by the counsel appearing for DVM. On this aspect, the High Court stated that CCI had wrongly placed reliance on an agreement between Amazon and the seller while passing the order for investigation dated January 13.

Thus, the Court held that prima facie, the assumption of the CCI is wrong.

“In this view, the matter requires consideration and therefore, the order dated 13.01.2019 remains stayed.”

Before passing the order, the Court considered the arguments put forth by Senior Advocate Dhyan Chinnappa, appearing on behalf of Flipkart. He contended that there must be a prima facie case before ordering an investigation. The CCI ought to have found out if there actually exists an agreement between the smartphone manufacturers and e-commerce platforms, and further whether such agreement is adverse to competition, Chinnappa argued.

Senior Counsel Harish Narasappa, appearing on behalf of CCI, submitted that the e-commerce company was trying to "misguide" the Court by claiming that the antitrust body was exceeding its jurisdiction by ordering the investigation.

On the point raised that the e-commerce companies were not given an opportunity to be heard, Narasappa argued that the rules bestowed the Commission with complete discretion on whether to invite all, any or none of the parties prior to calling for an investigation.

Moreover, the CCI order that was passed under Section 26 (1) of the Competition Act does not affect the rights of others. It is only a departmental order and not quasi-judicial order, he contended. Section 26 (1) of the Competition Act states that investigation can be ordered if a prima facie case exists, Narsappa submitted. Therefore, he submitted that Amazon cannot claim a right to be heard in the matter.

Countering the contention of Amazon that the e-commerce market study report was not considered, he argued that ultimately, the report was only a study and therefore, does not require to be considered. In this regard, he further stated that. “…. to link the order to the study report is irrelevant”.

Senior Advocate KG Raghavan, appearing on behalf of Delhi Vyapar Mahasangh (DVM), stated that CCI has sufficient jurisdiction to probe an investigation in the present matter.

Senior Counsel Aditya Sondhi argued that the present petition filed by Amazon is not maintainable under Article 226 or 227. He stated,

"Article 226 is out, because the order is administrative".

Amazon had approached the Karnataka High Court against the CCI order which had directed the Director General to conduct an investigation into allegations of anti-competitive conduct in the online sale of smartphones on its platform.

The informant before the CCI, Delhi Vyapar Mahasangh (DVM), had levelled allegations of predatory pricing, deep discounting, preferential seller listing, and exclusive partnerships, among others, against Amazon and Flipkart.

DVM is an organisation whose members comprise traders from many micro, small and medium enterprises, and rely on trade of smartphones and related accessories.

In its order passed on January 13 this year, the CCI prima facie observed that there appears to be an exclusive partnership between smartphone manufacturers and the two e-commerce platforms for exclusive launch of smartphone brands. In this light, it was held,

“Thus, exclusive launch coupled with preferential treatment to a few sellers and the discounting practices create an ecosystem that may lead to an appreciable adverse effect on competition.”

Before the High Court, Senior Advocates Sajan Poovayya and Gopal Subramanium had appeared for Amazon. P&A Law Offices, the briefing counsels for Amazon, briefed the senior advocates in the matter.

 Gopal Subramanium and Sajan Poovayya
Gopal Subramanium and Sajan Poovayya

Subramanium argued that the CCI order was passed “without application of mind" and that it would cause irreparable loss to the reputation of the company if an investigation is allowed in the matter.

Stating that the CCI’s findings are perverse, arbitrary and untenable in law, the petition prayed for the quashing or setting aside of the CCI order.