Hearing a complaint against Flipkart by a lobby group representing online sellers, the Competition Commission of India (CCI) has ruled that Flipkart has not broken any rules in its selection of merchants and sellers, and dismissed allegations that the ecommerce company was giving preferential treatment to their inhouse brands ‘Smartbuy’ and ‘Billion’.
The ruling, which came on November 6, put an end to a case brought by All India Online Vendors Association (AIOVA), a group of more than 2000 sellers selling on ecommerce marketplaces such as Flipkart, Amazon India, Snapdeal among others.
Chanakya Basa who appeared as counsel for AIOVA, accused Flipkart of “abuse of its dominance” by indulging in “unfair and discriminatory” practices such as giving sellers goods that are controlled by it at a discounted price through Flipkart India Pvt Ltd, its wholesale arm.
The AIOVA further claimed that sellers like WS Retail are therefore able to sell the same goods at deep discounts on Flipkart’s marketplace. It had also asked the CCI to direct Flipkart to stop selling products at discounts on its platform and giving preferential treatment to a few sellers.
It is worth noting that Flipkart India is a wholesaler which sells products primarily to resellers, who in turn sell such products to consumers. Therefore, even though its products might be available at Flipkart Internet (Flipkart.com) via resellers, Flipkart India does not directly operate in the B2C market, given the restriction on B2C sales under the foreign direct investment norms.
AIOVA Vs Flipkart: Alleges Latter Of Abusing Its Dominance
In its complaint, AIOVA made the following requests:
- To provide an interim relief under Section 33 of the Competition Act by ordering Flipkart to abstain from indulging in any discriminatory practice until the final order. Any further delay will put multiple sellers out of business and cause irreparable damage to the market.
- Not to approve any combination with respect to Flipkart under Section 5 of the Act, until the investigation is completed and the final order is passed.
- Invite objections under Section 29(3) of the Act, if there has been a notice filed for combination under Section 6 of the Act with Flipkart as parties because the above mentioned facts prove beyond reasonable doubt that Flipkart actions are causing an appreciable adverse effect on competition. As sellers are key stakeholders in such transactions and as their livelihood is at stake, not giving them an opportunity to be heard will be against the principles of natural justice.
- To thoroughly investigate the ecommerce sector at large, as multiple players are indulging in sophisticated discriminatory practices.
- If any combination in the relevant market is allowed without a detailed sector study being carried out, it would have an appreciable adverse effect on competition and cause irreparable damage to the market.
As part of its complaint against Flipkart, AIOVA had asked to impose a severe penalty on Flipkart so that no other platform indulges in such blatant abuse of dominance in the near future.
However, Flipkart, in its submission made to CCI, denied any abusive conduct by its entities. In regards to Flipkart India, Flipkart asserted that the arrangements of Flipkart India with its B2B customers are neither exclusive nor do they impose any restraints on any reseller who chooses to sell their products on the Flipkart Internet platform (Flipkart.com).
The option of dealing with Flipkart India is available to any vendor. There is no restriction on any entity desirous of dealing with Flipkart India as a B2B customer. Further, the B2B customers are independent third party vendors with whom Flipkart India has an arm’s length arrangement.
Flipkart also pointed out that there are several new players which have entered or propose to enter the ecommerce segment, such as Paytm Mall, thus indicative of low entry barriers.
CCI Observation, Findings
Marking that there is a clear difference between online retail store and online marketplace platform, as FDI norms differ for both, CCI didn’t agree with the AIOVA’s assertion that Flipkart is a dominant player which holds over 40% market share.
Instead, it suggested that while Flipkart and Amazon India are the bigger competitors, there are other players like Paytm Mall, SnapDeal, Shopclues etc.
On allegations over Flipkart dominance, the Commission further averred that Flipkart India is not a dominant player in the relevant market of “Services provided by online marketplace platforms for selling goods in India”; therefore, the issue of abuse of dominant position does not arise.
In support of their claim, counsel Basa later tweeted the statement of Flipkart CEO Kalyan Krishnamurthy where he had stated, “We don’t see any relevant competition in this festive season. There is no clear number two in the market after us.”
In regards to the WS Retail Services example cited by AIOVA, the Commission averred that no such concern is present today, as WS Retail Services Pvt Ltd is no longer a seller on the Flipkart Marketplace post 11 April 2017.
With reference to abusive conduct by Flipkart Internet, CCI agreed with Flipkart’s submission that the terms and conditions on which sellers access the Flipkart marketplace are standard and the incentive is based on objective criteria such as quality of product and volume and value of sales. Any person/ entity desirous of selling its products through the Flipkart marketplace can register on it, subject to satisfaction of standard terms and conditions.
“The Flipkart marketplace is required to comply with conditions applicable to entities involved in the business of ecommerce, as set out in the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017. As such, Flipkart Internet is bound by these laws, the compliance of which is ensured by the relevant authorities,” the commission said.
Lastly, the Commission opined that any intervention in ecommerce market which technology-driven and still in its nascent age (in India) needs to be carefully crafted lest it stifles innovation.
Earlier, in August, while hearing the complaint filed by Confederation of All India Traders (CAIT) against Flipkart acquisition, CCI while approved Walmart’s $16 Bn acquisition of Flipkart the Commission had expressed its concerns over discount policies.