India is set to pull up global e-commerce giant Amazon for alleged violations of competition law, under tighter rules that allow levying penalties based on a conglomerate’s global turnover.
The investigation wing of the Competition Commission of India (CCI) has confirmed charges of anti-competitive behaviour by Amazon Seller Services Pvt. Ltd, and the Commission will shortly issue a notice to the marketplace, two people aware of the development said, setting the stage for the final adjudicating order.
The Director General of Investigation (DG) attached to the Commission recently submitted its report confirming the charges, the persons said on the condition of anonymity.
Notice to Amazon
CCI, which comprises the chairperson and three members who adjudicate on cases, is in the process of sending the findings to Amazon, and will grant the company a hearing before issuing the final order with penalty, said one of the persons quoted above.
“Penalty would be decided under the amended competition law providing for a maximum penalty of 10% of global turnover of the enterprise,” said the first person quoted above.
Amazon declined to offer a comment. Queries emailed to CCI on Wednesday morning seeking comments remained unanswered.
Under the Competition Act amendment last April, CCI is empowered to levy a penalty of up to 10% of the average of the turnover or income for the three preceding financial years on companies entering into anti-competitive deals or abuse their market dominance. Turnover is defined as the global turnover from all products and services of the enterprise.
Case from 2020
A similar case currently making its way through the CCI proceedings is of Flipkart Internet Pvt. Ltd.
The cases against Amazon and Flipkart were triggered based on a complaint filed by a Delhi-based trade association, which prompted CCI to order an investigation in January 2020. The companies challenged the probe in the Karnataka High Court and subsequently in the Supreme Court; in August 2021, the apex court allowed the probe to continue.
The issues investigated include whether the e-commerce firms have preferred sellers; whether these sellers have a direct or indirect nexus with the platforms; and whether exclusive product launches of mobile phones, alleged preferential treatment to a few sellers and discounting practices affected competition in the market. The law prohibits agreements between parties at different stages in a value chain, including exclusive supply arrangements that stifle competition.
Experts pointed out that the provision to levy high penalty should be exercised judiciously, and only where the gravity of the violation justifies it.
‘Significant shift’
“Imposing a penalty of up to 10% of a company’s global turnover marks a significant shift in India’s competition law enforcement, serving as a strong deterrent against anti-competitive practices. However, while such a high penalty can effectively curb market abuse, it should be applied judiciously and reserved for clear, egregious violations,” said Sonam Chandwani, managing partner at law firm KS Legal & Associates.
“Overuse could stifle market dynamism and innovation, deterring companies from engaging in fair competitive strategies. The key lies in balancing the need for stringent enforcement with a nuanced approach that considers the broader economic impact and encourages healthy competition,” said Chandwani.
The law stipulates that the CCI must share a non-confidential report of the DG’s findings to the parties and give them at least four weeks to respond, said K. Narasimhan, advocate at Madras High Court. The CCI takes these submissions into account and engages with the parties before sharing the notice with the fine, Narasimhan said.
“It must be noted that the DG does not have the power to levy a fine. Considering the dynamism in the Indian retail market and the smaller presence of online compared to offline retail and the gradual shift towards an omni-channel retail, it would be tough to establish dominance, leave alone abusing it,” said Narasimhan.
“How can Flipkart and Amazon, which are part of online retail, which is only 5-7% of total retail market in India, dominate the larger 90-92% organized retail?” said Narasimhan.
Chandwani of KS Legal & Associates also said that for the first application of the revamped penalty provision, the Competition Commission must ensure it sends a clear message without appearing arbitrary, fostering a fair marketplace rather than deterring legitimate business practices.