Brief
Recently, the Supreme Court of India has dismissed the appeal filed by Amazon and Flipkart against the Karnataka High Court decision confirming the investigation ordered by the Competition Commission of India (CCI) into the alleged anti-competitive practices of these companies. In this article, while delving into the reasoning of the Karnataka High Court, the authors attempt to discuss the essential requirement of establishing a ‘prima facie’ case as required under Section 26(1) of the Competition Act, 2002 for the initiation of investigation, examine the power of CCI to undertake simultaneous investigation, and underline the steps taken by foreign jurisdictions to curb anti-competitive activities by the e-commerce platforms.
Keywords
Competition Commission of India, Prima facie view, Investigation, Big tech giants.
In a recent turn of events, the Supreme Court of India (“SC”) has dismissed the appeal preferred by Amazon and Flipkart in their ongoing brawl with the Competition Commission of India (“CCI”). The appeal was made against the judgment delivered by the Karnataka High Court (“the HC”) in a writ petition filed by Amazon and Flipkart (“Petitioners”) against the order of the CCI in Case No. 40/2019 which directed an investigation on the alleged anti-competitive practices of Amazon and Flipkart by the Director-General under the provisions of Section 26(1) of the Competition Act, 2002 (“Act”).
The present dispute surfaced when the Delhi Vyapar Mahasangh, a consumer society registered under the Societies Registration Act, 1860, filed a complaint against Amazon and Flipkart under Section 19(1) for their alleged violation of Section 3(1) read with Sections 3(4), 4(1) and 4(2) of the Act. The CCI, after perusing the information, passed a prima facie impugned order under Section 26(1), directing the Director General (“DG”) to conduct an investigation.
Aggrieved by the impugned order, Amazon and Flipkart both separately filed the writ petition before the hon’ble HC of Karnataka to set aside the CCI order. The Karnataka HC then decided the validity of the impugned order in light of the principles and objectives of the Competition Act.
In this article, the authors attempt to discuss the essential requirement of establishing a ‘prima facie’ case as required under Section 26(1) for initiation of investigation, gaze upon the simultaneous investigation powers of CCI under the Act, and underline the steps taken by foreign jurisdictions to curb anti-competitive activities by the e-commerce platforms.
Construing Section 26(1) and the ‘Prima Facie’ Opinion
The mandate under Section 26(1) of the Act imposes formulation of a ‘prima facie’ view by the CCI as a precondition for directing an investigation to the DG. As per the dictum laid down by the Apex Court in SAIL v. CCI , it is undisputed that an order under Section 26 of the Act is an ‘administrative order’ by CCI to one of its administrative wings. Thus, the order, not being a judicial one, does not determine the rights and liabilities of the parties involved; thereby, the decision does not act as res judicata on either of the parties. After the investigation, the parties are given sufficient opportunity to present their case before CCI under Section 26(5) of the Act. To this effect, as stated in the case of CCI v. SAIL , compliance with the principles of natural justice while ordering an investigation is not necessary as there is no adjudication upon the rights of either of the parties. In the present case, the Karnataka HC satisfactorily holds that at the stage of section 26(1), the parties do not have a right to be heard.
The Karnataka HC refused to quash the impugned order, dictating that the “Commission has looked into the information in detail and applied its mind,” thereby complying with the requirement of establishing a ‘prima Facie’ case as envisaged under the Act. This necessarily implies – as also contended by the respondent – that the requirement of ‘prima facie’ view is satisfied when the evidence submitted in support of the allegations made is believed to be true.
To this extent, the judgment seems to have broadened the power of CCI to order an investigation. It thereby stands in divergence from the Bombay HC judgment in Star India Pvt. Ltd. v. CCI wherein the court had opined that the fulfillment of the two-fold condition, i.e., (i) prima facie finding of (ii) Appreciable Adverse Effect on Competition (“AAEC”), is essential and mandatory for ordering investigation under Section 26(1). The Bombay HC further held that analysis of AAEC for Section 3 must be done based on factors set out in Section 19(3) of the Act.
In the present case, the Karnataka HC did not assess the question pertaining to AAEC, instead, its decision was based on ‘prima facie finding’ , alone, by the CCI. Nevertheless, the judgment in Star India is of another HC which is non-binding upon the Karnataka HC and holds only persuasive value.
At the stage of ordering the investigation, the case need not be proved to the hilt but has to be established only prima facie since the correctness of the allegations can only be ascertained after the investigation is done. However, as observed by the Calcutta and Delhi High Courts in New Central Jute Mills Co. Ltd. v. Deputy Secretary, Ministry of Defence and Google Inc. v. CCI respectively, investigation shakes the company’s credibility and competitive position. In order to balance the impact and requirement of investigation, the extent of ‘prima facie’ satisfaction has to be delimited. On this note, the authors endorse the judgment in Star India which depicts the correct approach and should be adopted by other HCs as well. This is primarily due to the fact that given the ill consequences of an investigation, the power of CCI to order an investigation should be narrowed down rather than being widened.
Overarching Investigative Power of CCI
One of the arguments advanced by the petitioner was that there already exists an investigation on the petitioner by the Enforcement Directorate (“ED”) under the FEMA Act which barred the subsequent investigation conducted by CCI.
The issue of overlapping jurisdiction between sectoral regulators was examined by the Apex court in the case of CCI v. Bharti Airtel & Ors . In the said case, the CCI held that the two forums, TRAI and CCI, are independent and can simultaneously conduct investigation in the light of the objects of their parent legislation. Upon appeal, this view of the CCI was upheld by the Bombay HC, which opined that the purpose of investigating the two regulators is different and thus, CCI can continue investigating with regards to allegations of abuse of dominance. Subsequently, the SC settled the interplay between the TRAI and the CCI once and for all. The division bench of the SC held that CCI could examine the question of abuse of dominance or unfair trade practice only once a finding had been returned by TRAI on the conduct brought to its attention.
Section 60 of the Act gives an overriding effect over all other laws, and Section 62 states that competition law provisions are “ in addition to the existing law and not in derogation of it.”. Therefore, it is well within the powers of the CCI to investigate competition activities, even when another investigation is going on.
Regard must also be held to the reasoning given by the Delhi HC in the judgment of Monsanto Holding Pvt. Ltd. v. CCI , wherein, while differentiating itself from the Bharti Airtel judgment, and placing reliance on the Ericsson Case , the Court held that CCI jurisdiction could not be ousted even if a sectoral regulation proceeding is there or has already taken place. The investigation undertaken by the CCI is done on different aspects, thereby cannot be deferred merely because a sectoral regulation investigation is being conducted.
In the present case, no sectoral regulator is governing the activities of entities engaged in e-commerce, and the ED is largely a quasi-judicial body conducting its investigation concerning foreign investments. Therefore, the Karnataka HC in the present case of Amazon & Flipkart v. CCI held that CCI jurisdiction could not be barred or deferred as it is responsible for investigating the issues arising out of or incidental to competition law. Although both the judgments of Monsanto Holding and Ericsson are pending before the hon’ble SC, the law pronounced in these judgments holds true until the same is overruled by the SC.
Developments from the West
The tech and e-commerce giants are now facing scrutiny by antitrust agencies across the world. The District of Columbia Attorney General has, in May of 2021, filed a suit against Amazon on the allegations of its engaging in anti-competitive practices. The European Commission and the Competition and Markets Authority have, on the other hand, initiated a formal probe into the anti-competitive practices of Amazon.
Recently, the United States House has formulated a series of bills which aims to deconstruct the structure of big companies and impose strict scrutiny in order to deal with the behaviour that is harmful for the competition. Based on the Report of Judiciary’s Subcommittee on Antitrust, Commercial and Administrative Law, a series of antitrust bills, namely, the American Innovation and Choice Online Act, the Ending Platform Monopolies Act, the Platform Competition and Opportunity Act , and the Augmenting Compatibility and Competition by Enabling Service Switching (ACCESS) Act have been formulated. The comprehensive legislative measure requires big tech firms to refrain from discriminating between its own product and the product of other developers; prohibits them from operating in multiple line of businesses where it has conflicts of interest since the platform provider tends to favour their product than those of others on their platform; shifts the burden of proof, of showing that the acquisition does not affect competition, on the big firms; and mandates “interoperability”.i.e, making their product compatible with those of competitors and “data portability” so that user can easily switch to alternatives in the market. The bills are primarily aimed at Google, Apple, Facebook, Amazon (popularly known as ‘GAFA’) and seek to eliminate anti-competitive practices of big tech giants by providing legislation specifically focused at the structure of such companies, rather than a general statute.
On a similar line, the European Union has also proposed a Digital Services and Digital Markets Act which would substantially curb the market power exercised by the e-commerce entities and ensure that competition remains unaffected.
These measures are aimed at big tech giants, and since these firms are present almost across every country, these measures become relevant not only for the US and European Union but provide guidelines to India as well.
Concluding Remarks
An investigation directed by the CCI to the DG against alleged anti-competitive practices by big tech giants such as Amazon and Flipkart is a welcome move. These companies are also on the radar of antitrust agencies and legislatures of the United States, United Kingdom, and the European Union. With the dismissal of the appeal from the SC, Amazon and Flipkart have exhausted their last resort and are left with no option but to face investigation. However, considering the divergent views taken by the Karnataka HC in the present case and by the Bombay HC in the Star India case, the SC has missed the opportunity to settle the position. Moreover, taking into account the absence of a specific sectoral regulator for the e-marketplace, the legislature in India needs to step in to provide for efficient regulation governing the market practices of big tech giants. GAFA has a large marketplace, vast network, and a complicated structure posing a significant threat to competition , and their structure needs to be broken up to regulate them effectively.
