The Hon'ble Supreme Court on 9 August 2021 passed an order refusing to interfere with the judgment of the High Court of Karnataka (High Court) allowing the Competition Commission of India (CCI) to initiate a probe against e-commerce giants Flipkart and Amazon. The present article briefly evaluates the timeline of proceedings and the judgment of the High Court which was approved by the Apex Court.
The Delhi Vyapar Mahasangh (DVP) is a society of traders comprising of Micro, Small, and Medium Enterprises who dealt with smartphones and other accessories. DVP filed an information on 24 October 2019 before the CCI under Section 19(1)(a) of the Competition Act, 2002 (Competition Act) against Flipkart and Amazon (together referred to as Companies). DVP alleged through its information that the Companies were involved in alleged anti-competitive practices and conduct, such as deep discounting, preferential listing, sale of private label brands through preferential sellers and exclusive tie-ups. DVP contended that such conduct of the Companies amounted to a violation of Section 3(1) read with Section 3(4) of the Act.
The CCI, based upon the information received by it passed on order dated 13 January 2020 (CCI Order) directing an investigation into the matter under Section 26(1) of the Competition Act by the Director General. The CCI Order was brought to challenge before the Single Judge of the Karnataka High Court which dismissed the writ petitions by an order dated 11 June 2021 (High Court Order). The Companies challenged High Court Order before the Division Bench through their respective writ appeals.
Arguments presented before the Division Bench of the High Court
Flipkart challenged the legality and validity of the High Court Order stating that the Single Judge had acted contrary to the judgment of the Hon'ble Supreme Court in Competition Commission of India v. Steel Authority of India Ltd. and Anr.1 (CCI v. SAIL). Flipkart contended that the CCI while passing an order under Section 26(1) of the Competition Act must express its mind in no uncertain terms that it is of the view that a prima facie case exists requiring general issuance of direction for investigation to the Director General. However, Flipkart stated that the CCI Order was merely speculative in nature and it had not given any finding on the contravention of the provisions under Competition Act. Therefore, it was argued that the High Court Order upholding the CCI Order was contrary to the law laid in CCI v. SAIL.
It was also argued that Flipkart was online marketplace on which independent third parties and sellers sold their wares. Thus, Flipkart was neither the seller nor a buyer of goods and could not be considered to be a part of the production chain. Flipkart submitted that CCI was a creature of the statute and could not deviate from the mandate of the statute. The Competition Act only allowed investigation concerning agreements if they caused an AAEC under Section 3, or for abuse of dominance under Section 4. The CCI could not be permitted to investigate anything beyond the express provisions of the Competition Act. Accordingly, Flipkart prayed that the appeal be allowed and the CCI Order set aside.
CCI on the other hand, contended that the CCI Order did not merit any interference at all. It was contended by CCI that the scope of a writ petition against an order under Section 26(1) was extremely narrow. It was explained that an order under Section 26(1) was neither adjudicative nor determinative in nature. Rather, it was merely an inquisitorial departmental proceeding in nature of a direction to the DG to make an investigation.
Amazon in the connected matter argued that the Single Judge failed to exercise the power of judicial review vested in the Court under Article 226 of the Constitution of India to interfere with a manifestly unwarranted, arbitrary, unreasonable order passed by CCI which resulted in civil consequences. According to Amazon, the Single Judge failed to appreciate that CCI did not furnish any clear or cogent evidence in support of the CCI Order. Amazon argued that the High Court Order did not disclose any application of mind in relation to multiple factors such as (i) ensuring consumer wellbeing, (ii) ensuring adequate and affordable choices for consumers, and (iii) the existence of a level playing field and competition in market. Amazon relied upon CCI's study on e-commerce market in India where CCI had acknowledged the efficiencies generated by online marketplaces such as increased online presence of businesses, increased price transparency and ease in price comparison for consumers. Further, Amazon argued that Cloudtail Private Limited (Cloudtail) and Appario Retail Private Limited two of the largest sellers on Amazon alleged to have received preferential treatment were not related to Amazon through common share holding or Directors.
CCI submitted that an order passed at the pre-enquiry stage could not be subjected to a very high degree of satisfaction. Reliance was placed upon the decision in CCI v. SAIL to contend that there was no need to issue notice or have a hearing at a preliminary stage while passing an order under Section 26(1) of the Competition Act. It was also contended that the CCI while passing an order under Section 26(1) was not required to present elaborate reasons to express only a "tentative view". It was argued that Flipkart had committed a fundamental mistake by treating the CCI Order as an adjudicatory order which set into motion an unstoppable process. On the contrary, CCI submitted that if Section was read as a whole, it disclosed a comprehensively and thoughtfully construed stepwise scheme.
DVP argued that the appellants were attempting to crush the proceedings at the threshold and were not permitting CCI to proceed ahead in the matter on some pretext or the other. It was argued that the proceedings envisaged under Competition Act follow principles of natural justice and fair play. Therefore, the appellants should not feel shy in producing material during the course of the enquiry.
Decision of the Division Bench of the High Court
The Division Bench of the High Court at the outset culled out the following moot propositions which needed to be answered:
- What is the nature of the impugned order passed under Section 26(1) of the Competition Act?
- Whether a prior notice and opportunity of hearing is mandatory at the stage of issuing direction to the DG to hold inquiry under Section 26(1) of the Competition Act?
- Whether impugned order calls for interference?
The Division Bench dealt with the first two questions together since they were inter-connected. Reliance was placed on CCI v. SAIL by the Division Bench of the High Court to conclude that an order under Section 26(1) of the Competition Act was an administrative direction to one of its departmental wings. Section 26(1) did not mention about the issuance of any notice to any party before or at the time of formation of an opinion by the CCI based on the information received by it.
On the third moot point, the Division Bench held that the Competition Act was brought in to curb anti-competitive practices. Reliance was placed on Rajasthan Cylinders and Contained Ltd. v. Union of India2 where it was held that there must be a balance between economic growth and curbing of anti-competitive practices. The Division Bench held that it failed to understand why the Companies did not want to participate in the enquiry, in which they would be given ample opportunity to produce material and defend themselves before the DG. It was observed that if the investigation process was to be restricted in the manner projected by the appellants, it would defeat the very object of the Competition Act. Therefore, it was held that by no stretch of imagination, the process of enquiry could be crushed at this stage. Accordingly, the appeals were dismissed.
The decision of the Division Bench was challenged before the Hon'ble Supreme Court by the Companies.
Order of the Hon'ble Supreme Court
As the matter reached the Hon'ble Supreme Court, after carefully perusing the material on record, the Apex Court refused to interfere with the impugned orders passed by the Division Bench of the High Court dismissing the writ appeals of the petitioners. Therefore, the special leave petitions were dismissed accordingly.
The series of litigation in the present matter has reiterated the position that an order passed by the CCI under Section 26(1) is not an adjudicatory order. Rather, an order under Section 26(1) is a preliminary administrative direction made to the DG to investigate the matter and come up with the findings post enquiry. The Apex Court in CCI v. SAIL held that for passing an order under Section 26(1) of the Competition Act, there is no need for conducting a hearing. The opportunity to defend oneself arises before the DG where a party can produce any material which dispels the prima facie findings of the CCI.
The Supreme Court has also held that the hierarchy of Indian legal framework mandates that a legislative enactment cannot curtail a constitutional right. However, when a statutory forum is created by law providing an alternative efficacious remedy, then a writ petition should not be entertained ignoring the statutory dispensation.3 Therefore, the Apex Court has rightly refused to interfere with the CCI Order made at a preliminary stage when the party would be provided an opportunity to produce material and defend itself in an enquiry.
According to reports, Amazon has decided to break its joint venture with Catamaran Ventures (Catamaran) which operated Cloudtail. The termination of the joint venture between Amazon and Catamaran could be the immediate fallout of the decision of the Supreme Court to not interfere with the investigation initiated by the Competition Commission of India. While the order of the Apex Court might come as a setback, Amazon may pursue its remedies under the competition law framework to defend itself. It would be interesting to see how the case unfolds.
1 Competition Commission of India v. Steel Authority of India Ltd. and Anr., 2010 10 SCC 744.
2 Rajasthan Cylinders and Contained Ltd. v. Union of India, 2020 16 SCC 615.
3 Nivedita Sharma v. Cellular Operators Association of India, 2011 14 SCC 337.
"The author would like to acknowledge the research and assistance rendered by Harshvardhan Korada."
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