Amazon v. CCI: Demystifying CCI’s Order Under Section 26(1)
Authors: Swetha Somu & Sanigdh Budhia
2nd year students at Gujarat National Law University
The Competition Act 2002 (“the Act”) was passed by the parliament in order to give full effect to the functioning of market powers in order to foster healthy competition and to safeguard the freedom of trade carried on by other participants in Indian marketplaces. Section 18 of the Act gives a broad mandate to the Competition Commission of India (“CCI”) to “eliminate practices having an adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade (…) in markets in India.” Such broad mandate might create a tussle between any sector-specific regulatory authority and CCI.
This article analyses the recent decision of the Karnataka High Court in the case of Amazon Seller Services Pvt. Ltd. & Anr. v. CCI and Ors. which deals with such a tussle and the consequent jurisdiction conundrum of the CCI. It further talks about the need to establish a prima-facie case for information filed under Section 26(1) of the Act and why there is no need to maintain complete confidentiality of orders passed under Section 26(1) of the Act.
II. Brief Facts of the Case
Delhi Vyapar Mahasangh (“DVM”), the informant, , filed an information under Section 19(1)(a) of the Act, which provides for the inquiry upon receiving a complaint, alleging contravention of the relevant provisions of Section 3(4) read with Section 3(1) and Section 4(2) read with Section 4(1) of the Act by Flipkart Internet Services Pvt. Ltd. and Amazon Seller Services Pvt. Ltd (“OPs”). These provisions provide for what an anti-competitive agreement is and what constitutes an abuse of dominant position respectively. The informant alleged that OPs offer deep-discounts to preferred smartphone sellers and do preferential listing of such sellers on their website.
However, CCI, in its order, stated that the vertical agreement between the OPs and mobile/smartphone brands were exclusive in nature as they were sold solely on their respective contracted e-platforms. Further, the allegations and arguments put forth by DVM on preferential listing, deep-discounting and exclusive agreements by the OPs deserve to be probed into for being a threat to fair competition leading to an appreciable adverse effect on competition (“AAEC”) which goes against Section 3(1) along with Section 3(4) of the Act.
Finally, CCI, under the provisions of Section 26(1) of the Act, directed the Director General (DG) to investigate the ongoing matter and verify the legitimacy of the allegations made by the informant.
A. CCI’s Jurisdictional Conundrum
The Karnataka High Court(“HC”) has upheld CCI’s order for probing into the alleged breach of Sections 3(1), 3(4) and 4 by the OPs. The OPs further appealed to the SC which refused to interfere with the HC’s judgment. The HC saw merits in the argument that the e-commerce business is not under regulation by any specific authority. Further, the issues of deep-discounting, preferential listing and exclusive agreements are well covered under the Act and, therefore, would comeunder the CCI’s ambit.
Now, the HC rightly responded to the OPs contention that the present matter is pending before the Directorate for Enforcement (“ED”). The matter pending before ED is in regards to conducting an inquiry on the possibility of violation of the FDI Policy by the OPs.The court, by referring to Lafarge Umiam Mining v. UOI & Ors., stated that as per FDI policy issued under Foreign Exchange Management Act, ED is not a regulator but merely a quasi-judicial body and not a sector-specific regulator for e-commerce.
Thus, the observations made by the HC prove that the CCI has the necessary jurisdiction to function along with sector-specific regulators.Since it has now been held that ED is merely a quasi-judicial body, therefore ousting CCI’s jurisdiction is unacceptable and unfair as it is not fulfilling the legislator’s intent. Hence, there exists neither any confusion nor any conflict as to the jurisdictional positions of CCI and ED.
Although, if CCI continues to be labelled as a secondary regulator for no legislative-backed reason, then e-commerce giants like the OPs can easily exploit the market and the vulnerability of less powerful sellers. It is possible that the OPs only favour majority stakeholders such as Cloudtail who sell cheaper products hence putting them in their preferential sellers’ list. This will hurt the domestic sellers and create turmoil in the domestic competition. The defence that the OPs could prove and put forth is that the alleged sellers have only secured a better business due to the natural force of demand and supply and that the popularity rankings and the discount given were not tampered with in anyway.
B. Prima facie case should be established
The Hon’ble SC in the case of CCI vs. Bharti Airtel Ltd. and Orsheld that the CCI is expected to express a prima facie opinion in accordance with Section 26(1) of the Act, without engaging in any adjudicatory or determinative process, and by recording minimal reasons substantiating the formation of such opinion. Similarly, in CCI v. SAIL, the same court held that, when any information is received, CCI is expected to convince itself and express an opinion based on the record before it that a prima facie case exists, and then it must direct the DG to conduct an inquiry into the subject.
In the present case, the OPs alleged that no prima facie case was established by CCI before directing DG to conduct an inquiry. The Karnataka HC disagreed with this point of view. The court held that the threshold for finding prima facie case under Section 26(1) of the Act is very low and the CCI evaluated information under a variety of headings, including exclusive mobile phone launches, preferred vendors on marketplaces, deep discounting, and preferential listing of private labels. CCI’s findings further indicate that both of them have their own set of preferred dealers, and there are only a few online sellers who sell exclusively introduced smartphones.
This establishment of prima facie case ensures that only relevant cases, in which there is actually a violation of the Act, go to DG. This helps in reducing the burden of DG by ensuring that no frivolous case goes to it. Further, the establishment of a prima facie case also gives a sense of satisfaction to both the parties that the case is not going forward on bogus charges. This also brings pressure on the OPs, like Amazon and Flipkart in this case, to prove that their activities are not in contravention of any provision of the Act. In any case, frequent checks and enquiries by authorities should only be welcomed by the OPs if they are at no fault. After all, it is just proved prima facie, an in-depth enquiry would further confirm the allegations and if the OPs are at no fault, then it means that the competition is still fair.
Thus, prima facie finding on AAEC, as required, while passing an order under Section 26(1) with respect to allegations of violations of Section 3(4) of the Act, was established by CCI in the present case.
C. Confidentiality of orders passed under Section 26(1) of the Act
In the present case, the OPs alleged that the online publication of CCI’s order has a negative impact on their company’s reputation. The HC didn’t agree with this point of view and reiterated the SC judgement of CCI v. SAIL, in which the court held that as required by Section 57 of the Act and Regulation 35 of The Competition Commission of India (General) Regulations 2009 ( “Regulations”), CCI and the DG must retain complete “confidentiality”, subject to certain conditions mentioned therein. Where the term “confidentiality” is violated, the aggrieved party has the right to file a complaint with the Commission, which will issue appropriate orders in accordance with the Act’s and Regulations’ requirements. Section 57 of the Act simply safeguards the confidentiality of information collected by or on behalf of the Commission or the Appellate Tribunal from any enterprise, and it cannot be revealed except in accordance with or for the purposes of this Act or any other law now in force.
In the present case, the information was disclosed by CCI under Section 26(1) of the Act and that disclosure comes under the “purposes of the Act" since Section 26(1) cannot be said to be outside of the Act. Thus, there is no need to maintain the confidentiality of the orders passed under Section 26(1) of the Act as per the wordings of Section 57 of the Act and Regulation 35 of the Regulations.
Confidentiality ensures that the public does not get access to information discovered during the investigation by DG. This prevents harm to the reputation of the company, in case, the order is later on delivered in favour of the company or OPs and the information brought against it is proved false. But, in the present case, the information through an official order was released publicly under the provisions of the Act only. The essence is, if an Act itself enables the revealing of the information, then OPs cannot take a stand that it should not be released. Here, CCI merely released an Order in the public domain, not any sensitive information either about the case or about the parties. Hence, the contention of breaching confidentiality does not arise.
Stifling CCI’s jurisdiction only poses a risk in maintaining a fair and competitive market. The premise of a free-market economy is that purchasers may select the best purchase by comparing the competing offers of different suppliers. In a free market economy, each participant’s purpose is to maximise self-interest, yet the end outcome is beneficial to society. As Adam Smith remarked, “There is an invisible hand at work to take care of this.” The work of antitrust regulators like CCI is to ensure that these invisible hands function ethically and without any biases.
This recent judgement of the Karnataka HC, subsequently upheld by SC, ensures the proper working of this invisible hand. This probe into e-commerce giants like Amazon and Flipkart will ensure that small vendors are not discriminated against and the CCI will act towards removing the dominance created by such giants in the market, thus, creating a perfect competition model in the economy.