The Karnataka High Court has temporarily suspended the actions of the competition regulator against Flipkart and Amazon due to a procedural error by the director general (DG), who was investigating violations of foreign direct investment (FDI) rules by the two e-commerce companies, according to the report. in the report of The Economic Times.
According to the DG’s report, presented on August 9, Flipkart and Amazon are alleged to have collaborated with certain retailers and mobile phone brands to engage in anti-competitive behavior, including the launch of special products, significant discounts, and special listings, in violation of the Competition Act.
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However, the court ruled that the DG of the Competition Commission of India (CCI) had ignored its rules of procedure and placed a temporary stay on the proceedings. The DG also classified vendors who were initially listed as “third parties” in the “disputing parties” without seeking prior approval from the CCI, in violation of standard procedures.
“The petitioners claim that the actions of the DG violate the established regulations, as it is mandatory to obtain the permission of the CCI before changing the classification of the party from the third to the opposite in the investigation,” said Justice Hemant Chandangoudar, setting the next hearing for October 21. ET said.
Process validation is required
“This procedural oversight needs to be rectified, which invalidates the DG’s report in a manner that violates the statutory provisions and regulatory guidelines of the commission,” the court said.
In its first finding, the CCI suggested that Flipkart and Amazon’s business models aimed to gain market power by selling products at heavily discounted prices through favored retailers, who often make losses, in violation of India’s FDI policies, said a business-daily.
Separate but related CCI reports showed that both Amazon and Flipkart were fully aware of the changing FDI rules that prevented them from selling inventory directly to customers. Despite this, they bypass these rules by setting up popular sellers, or those who are newly established or use existing businesses without significant performance.
The CCI also examined the FDI data released by the government and found that between FY16 and FY22, Flipkart and its 11 subsidiaries received a total of Rs 36,711 crore. This figure rises to Rs 46,876 crore if data up to the end of 2022 is included, with 96.6 percent of the FDI directed to Flipkart’s three key subsidiaries – Flipkart Internet Pvt Ltd (which runs the platform), Flipkart India Pvt Ltd (wholesale.) and Instakart Services Pvt Ltd (warehousing and logistics division), the report added.
Amazon and its 13 subsidiaries in India reportedly received Rs 54,138 crore in FDI between FY16 and FY22. Including data till the end of 2022, this amount rose to Rs 63,555 crore, with 63 per cent of FDI flowing into two major services – Amazon Seller Services Pvt Ltd (which operates the platform) and Amazon Wholesale India Pvt Ltd (wholesale. arm).
First published: October 05 2024 | 10:38 AM IST