Has Amazon violated Indian competition law? The tension is rising

India wants to hold global e-commerce giant Amazon accountable for alleged violations of competition law. The tightened regulations allow penalties to be imposed based on the company’s global sales.

The investigation wing of the Competition Commission of India (CCI) has confirmed allegations of anti-competitive behavior by Amazon Seller Services Pvt. Ltd. The commission will issue a notice to the marketplace shortly, two people familiar with the development said. This will pave the way for the final arbitration award.

The Commission’s Director-General for Investigations (DG) recently presented his report confirming the allegations, the people said on condition of anonymity.

Note to Amazon

The CCI, which consists of the chairman and three members who decide the cases, is in the process of communicating the findings to Amazon and will grant the company a hearing before issuing the final order with penalty, one of the people cited above said.

“The penalty would be imposed on the basis of the amended competition law, which provides for a maximum penalty of 10% of the company’s worldwide turnover,” said the first person quoted above.

Amazon declined to comment. Emails to CCI seeking comment remained unanswered on Wednesday morning.

Following the amendment to the Competition Act last April, the CCI has the power to impose a fine of up to 10% of the average turnover or income of the three previous financial years on companies that enter into anti-competitive transactions or abuse their dominant position. Turnover is defined as the total sales of all the company’s products and services.

Case from 2020

A similar case currently going through the CCI process involves Flipkart Internet Pvt. Ltd.

The cases against Amazon and Flipkart were initiated by a complaint filed by a Delhi-based trade association, which prompted the CCI to order an investigation in January 2020. The companies challenged the investigation in the Karnataka High Court and subsequently in the Supreme Court; in August 2021, the Supreme Court allowed the investigation to continue.

The issues examined include whether the e-commerce companies have preferred sellers; whether those sellers have a direct or indirect connection with the platforms; and whether exclusive mobile phone launches, alleged preferential treatment of some sellers and discounting practices affected competition in the market. The law prohibits agreements between parties at different stages of a value chain, including exclusive supply agreements, that hinder competition.

Experts pointed out that the possibility of high penalties should be used prudently and only when the seriousness of the violation justifies it.

“Significant change”

“The imposition of a fine of up to 10% of a company’s global turnover marks a significant shift in the enforcement of Indian competition law and serves as a strong deterrent against anti-competitive practices. While such a high penalty can be effective in curbing market abuse, it should be applied prudently and reserved for clear, serious violations,” said Sonam Chandwani, managing partner of law firm KS Legal & Associates.

“Excessive use could stifle market dynamism and innovation and discourage companies from pursuing fair competition strategies. The key is to balance the need for strict enforcement with a differentiated approach that takes into account the broader economic impact and promotes healthy competition,” Chandwani said.

The law requires the CCI to send a non-confidential report of the director general’s findings to the parties and give them at least four weeks to respond, said K. Narasimhan, advocate at the Madras High Court. The CCI considers these submissions and contacts the parties before passing the notice imposing the fine, Narasimhan said.

“It must be noted that the Directorate General has no power to impose a fine. Given the dynamic nature of the Indian retail market and the lesser presence of online retail as compared to offline retail and the gradual shift towards omnichannel retail, it would be difficult to establish a dominant position, let alone abuse it,” Narasimhan said.

“How can Flipkart and Amazon, which belong to online retail, which is only 5-7% of the total retail market in India, dominate the larger organised retail market of 90-92%?” said Narasimhan.

Chandwani of KS Legal & Associates also said that when the Competition Commission first applies the revised penalty provision, it must ensure that it sends a clear message without appearing arbitrary and promotes a fair market rather than hampering legitimate business practices.