Today, on 3rd February, Six years after NCLAT ordered a probe against Flipkart, the Supreme Court set aside that ruling and remanded the matter to the appellate tribunal for fresh consideration. The Bench directed an independent review, excluding annulled income tax observations records.
NEW DELHI: Six years after the National Company Law Appellate Tribunal (NCLAT) ordered an investigation into allegations of abuse of dominance against Flipkart, the Supreme Court has set aside that decision and sent the matter back to the appellate tribunal for reconsideration.
A Bench consisting of Chief Justice of India Surya Kant and Justices Joymalya Bagchi and Vipul Pancholi stated that the NCLAT must review the appeal independently, ensuring that it is not swayed by materials that may not be legally pertinent under the Competition Act, 2002. The Court pointed out that the previous NCLAT decision seemed to have partially relied on comments from income tax proceedings that were subsequently annulled.
It emphasized that principles of fairness necessitate a re-examination of the issue. All matters have been left open for the parties to present anew before the NCLAT.
Factual Background:
In its judgment on March 4, 2020, the NCLAT had nullified a 2018 ruling from the Competition Commission of India (CCI), which had dismissed a complaint filed by the All India Online Vendors Association. The NCLAT found that the CCI had set an excessively high standard at the initial stage, stressing that, under Sections 19(1)(a) and 26(1) of the Competition Act, an informant needs to demonstrate only a prima facie case of contravention, rather than definitively proving dominance or abuse.
The NCLAT, drawing on factual insights from income tax proceedings regarding Flipkart India’s supposed below-cost sales and predatory pricing, determined that the connection between Flipkart’s wholesale and marketplace divisions warranted further scrutiny. It concluded that these facts justified instructing the CCI to mandate a comprehensive investigation by its Director General into potential breaches of Section 4 of the Act.
The income tax details referenced by the NCLAT originated from an Income Tax Appellate Tribunal (ITAT) order dated April 25, 2018, in the case of Flipkart India Private Limited v. Assistant Commissioner of Income Tax. This case stemmed from an assessment order that recorded findings indicating Flipkart India sold products at below-cost prices and employed a loss-making strategy allegedly intended to seize market share and enhance brand value.
Although the ITAT eventually overturned the tax additions asserting that such losses could not be regarded as capital expenditure under the Income Tax Act, the NCLAT considered the factual observations on pricing behavior and the link between Flipkart’s wholesale and marketplace entities as relevant for forming a prima facie opinion under the Competition Act.
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This dispute traces back to a 2018 ruling by the CCI, triggered by a complaint from the All India Online Vendors Association, claiming to represent over 2,000 sellers on e-commerce platforms. The association alleged that Flipkart India Private Limited, engaged in wholesale trading, was supplying goods at discounted prices to select sellers like WS Retail Services Pvt Ltd, which sold those products at significant discounts on the Flipkart marketplace operated by Flipkart Internet Private Limited.
The CCI had determined that Flipkart was not dominant in the relevant market of “services provided by online marketplace platforms for selling goods in India,” citing competition from Amazon and others, and subsequently closed the proceedings under Section 26(2).
According to the submissions before the Supreme Court, the complaint relied heavily on certain observations made by the ITAT regarding Flipkart’s business strategies, including its commission structures and interactions with sellers and competitors.
One of the core issues was whether Flipkart enjoyed a dominant position in the relevant market and whether such dominance was abused in violation of competition law. Flipkart contested the CCI’s reliance on ITAT findings and argued that the conclusions drawn were misconceived, particularly given the competitive presence of Amazon and other market players.
Submissions of Parties:
- Flipkart’s Submissions:
Counsel appearing for Flipkart argued that the very foundation of the CCI’s investigation was flawed, as it was substantially based on ITAT findings that did not establish any anti-competitive conduct.
He stated,
“In this matter, the parties involved were deciding on commission structures, and it appears that even Amazon, the largest competitor of Flipkart was included in the discussion.
Referring to paragraph 20, he stated,
The information or complaint is primarily based on findings of the ITAT.”
Highlighting specific portions of the ITAT order, the counsel stressed that the presence of multiple competitors, including Amazon, negated any presumption of dominance.
He pointed,
“Specifically, at paragraph 9 on page 270, the ITAT notes that the parties, including the largest competitor (which negates any claim of dominance), were heard. While this is referred to as a ‘conference,’ it was, in essence, just a meeting.”
The counsel further referred to paragraph 11 of the ITAT’s order:
“Further, in paragraph 11 of the ITAT’s order in the Flipkart case, it is alleged that OP1’s strategy involved acquiring goods from various persons and selling them im”
On the issue of market dominance, Flipkart submitted that while it is a significant player, it cannot be considered dominant given Amazon’s overwhelming global and domestic presence.
Counsel stated,
“As per data available, it appears that presently Flipkart and Amazon are the bigger competitors. But there are other players like Paytm, malls, Snap, Deal, Strokloose, etc. No doubt the resources of Flipkart are large.”
Emphasising Amazon’s valuation, counsel questioned the very idea of Flipkart’s dominance,
“Yet it cannot be disputed that the closest competitor is Amazon which has a valuation of 700 billion Dollars. How can I be dominant with this? With regards to entry barriers, it has to be noted that it is possible for new entrants to create online marketplace with the advantage.”
Clarifying the nature of the entity under scrutiny, Flipkart also pointed out that the assessment pertained specifically to Flipkart India’s wholesale operations.
Counsel for Flipkart said,
“To clarify, the assessment concerns Flipkart India, which operates as a B2B wholesale entity and has, by its own admission, a very small market share.”
Observations of the Court:
The Chief Justice, speaking for the Bench, clarified that the Supreme Court was not inclined to conclusively adjudicate on the merits of the allegations at this stage, especially since the earlier quasi-judicial order relied upon no longer existed.
CJI remarked,
“I will report on the observations made in the quasi-judicial order which was no longer in existence.”
The Court emphasised that all issues both factual and legal must be comprehensively examined by the appropriate appellate forum, namely the National Company Law Appellate Tribunal (NCLAT).
He said,
“The parties may present all their contentions before the NCLAT, including supporting arguments regarding whether a prima facie case for investigation exists.”
The Chief Justice further explained that the NCLAT would have to independently determine whether the matter warranted further investigation by the CCI.
He further said,
“The NCLAT may then determine whether such a prima facie case warrants further remand to the CCI for investigation.”
In doing so, the appellate tribunal was directed to consider settled principles laid down by the Supreme Court in previous cases.
He added,
“In doing so, the NCLAT may consider relevant principles reiterated by this Court in prior decisions, including Imperial India Limited versus Competition Commission, 2023, and others.”
Significantly, the Bench also acknowledged broader concerns surrounding the structure of online marketplaces and the grievances voiced by small vendors.
CJI said,
“A concern arises from the nature of the online platform itself: it consists largely of small-level business entities across India. These small vendors have collectively alleged that a market monopoly exists.”
At the same time, the Court observed that Flipkart could still demonstrate that it was not the dominant player in the market.
It noted,
“In reality, Flipkart may demonstrate that any alleged dominance is instead attributable to Amazon.”
The Supreme Court refrained from expressing any final opinion on the merits of the allegations against Flipkart or Amazon. Instead, it permitted all parties to raise their contentions before the NCLAT, which has been tasked with determining whether a prima facie case exists for directing a fresh investigation by the Competition Commission of India.
Following the Supreme Court’s remand, the NCLAT will now reassess the appeal, including whether there is adequate basis to direct a CCI investigation without considering the contested income tax material.
The appeal was accordingly disposed of, leaving all issues open for adjudication before the appellate tribunal.
Flipkart was represented by Senior Advocates Abhishek Manu Singhvi and Rajshekhar Rao, along with a team from Shardul Amarchand Mangaldas.
Case Title: FLIPKART INDIA PRIVATE LIMITED Vs COMPETITION COMMISSION OF INDIA (C.A. No. 2770/2020)
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