The investigation into the two e-commerce giants began in 2020 when a smartphone retailer group accused Amazon of giving preferential treatment to some sellers on its platform.

A chamber of the Karnataka Supreme Court dismissed an appeal by Amazon and Flipkart against an earlier ruling that allowed the Indian Competition Commission (CCI) to reopen the investigation. CNBC TV18 reported on Friday.

Why is that important? CCI opened an investigation into the multiple allegations against Amazon and Flipkart in January 2020, but the investigation was immediately suspended due to legal challenges. On June 11, after nearly a year and a half, the investigation was slated to resume after the Karnataka HC dismissed Amazon and Flipkart’s pleas, but the two companies appealed again. Today’s ruling paves the way for CCI to continue its investigation.

What did the court say?

“The appeals from Amazon and Flipkart are without legitimacy and substance and deserve to be dismissed,” said the bank of the two-man division. “Applicants shouldn’t be afraid to face an investigation by CCI if they don’t violate competition law,” the bank added, according to the CNBC report.

According to sources obtained from the Business hours, Flipkart and Amazon could appeal to the Supreme Court to challenge the latest ruling.

“We respect the judgment of the Hon’ble High Court and will review the judgment in detail to determine the next steps,” an Amazon spokesman told MediaNama.

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“We are waiting to receive a copy of the Karnataka High Court’s Bench Division decision and will review it as soon as we receive it,” a Flipkart spokesman told MediaNama.

Praveen Khandelwal, General Secretary, Confederation of All India Traders (CAIT), tweeted that CAIT welcomed the court order and said that CCI should open the investigation without further delay.

Changes to the e-commerce rules are imminent

The CCI investigation is slated to resume at a time when the government is considering changes to e-commerce regulations in response to repeated complaints against Amazon and Flipkart.

The government proposed changes on June 21st that will give the existing consumer protection (e-commerce) rules more teeth in 2020. The proposed changes include new rules against the abuse of FDI regulations, the establishment of a complaint procedure, new display and labeling criteria for foreign goods, the ban on flash sales, the introduction of fallback liability. Indeed, many of the proposed changes are aimed at preventing e-commerce platforms from engaging in the alleged practices that the Chamber of Commerce is currently investigating.

The final date for submitting comments and feedback on the proposed changes was July 21st.

What is the CCI investigating?

The CCI’s investigation into Amazon and Flipkart has been directed to investigate four alleged violations:

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  1. Exclusive introduction of mobile phones
  2. Promote preferred sellers on their websites
  3. In-depth discount practices
  4. Prioritize some seller offers over others

The CCI opened the investigation following a complaint from Delhi Vyapar Mahasangh (DVM), a group of MSME (micro, small and medium-sized enterprise) smartphone dealers. DVM had alleged that Amazon had certain agreements with sellers (allegedly controlled by the company) and that they gave those sellers unfair preferential treatment over others.

Other trade organizations have also filed complaints against Amazon and Flipkart with CCI. The All India Online Vendors Association (AIOVA), a union that represents online sellers, filed an antitrust lawsuit against Amazon India in August 2020 alleging preferential treatment for some sellers and predatory pricing. According to AIOVA’s complaint, the agency alleged that Amazon India buys goods in bulk from manufacturers and then sells them at a loss to sellers like Cloudtail, who then sell the same goods at greatly reduced prices on Amazon. The group also claimed that Cloudtail pays Amazon a fee of just over 6% compared to the 28% that smaller sellers have to pay.

Reuters reported in February this year that thirty-five sellers, including Cloudtail, accounted for two-thirds of Amazon’s sales in India. The agency’s coverage revealed how Amazon used legal maneuvers to circumvent Indian regulations aimed at curbing deep discounts and limiting FDI

According to India’s E-Commerce Foreign Direct Investment Rules enacted in February 2019, marketplaces like Amazon and Flipkart cannot exercise control or ownership over the inventory of vendors on their platforms. If they have any kind of control over the inventory, they are considered an inventory based ecommerce platform. The rules also state that if a marketplace has an equity stake in a seller / seller or controls their inventory, the seller is not allowed to sell their products on the marketplace.

Timeline of events

January 13, 2020: The CCI opened an investigation last January after several allegations against Amazon and Flipkart alleged that the companies violated FDI regulations and hurt smaller sellers by promoting certain preferred sellers. However, the Karnataka HC closed that investigation after Amazon and Flipkart challenged it, saying that CCI had no evidence that the two companies were harming competition. The investigation has been on hold since February last year.

October 26, 2020: The Supreme Court refused to hear a lawsuit filed by the CCI that sought to remove Karnataka HC’s stay of its investigation against Amazon and Flipkart. Instead, the top court instructed the HC to rule on the matter within six weeks.

June 11, 2021: A single judge bench of the Karnataka HC fire Request from Amazon and Flipkart to end the CCI investigation into the companies’ business practices. Judge PS Dinesh Kumar dismissed the petitions from Amazon and Flipkart and denied them any further relief, but was quoted by Reuters as saying, “It would be unwise to anticipate the problems at this stage and thwart the investigation” and refused give them any further relief.

June 15, 2021: Reuters reported that CCI expedites the newly opened investigation. People familiar with the matter told the news agency that CCI intends to request information “as soon as possible” from the two e-commerce giants.

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June 17, 2021: Both Amazon and Flipkart have challenged the Karnataka HC’s decision. In Flipkart’s appeal, the e-commerce firm argues that the court’s decision to reopen the investigation was “wrong and should be suspended,” the Reuters report said. “Irreparable damage will be done to the complainant if the investigation continues up to the present complaint,” said Flipkart. Amazon has filed a similar complaint, the report said.

Update (July 23, 5:34 p.m.): Added comment from Flipkart spokesman