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NCLAT tells AIOVA to prove abuse before dominance in case against Flipkart

On August 14, at the second hearing of the All India Online Vendors Association’s (AIOVA) appeal against the Competition Commission of India’s (CCI) clean chit to Flipkart over the issue of abuse of dominant position to favour “preferred sellers” through unfair and discriminatory pricing, the National Company Law Appellate Tribunal (NCLAT) instructed AIOVA, Flipkart and Competition Commission of India to submit their written arguments by August 19.

The hearing took place in the Chairperson’s Court and was heard by NCLAT Chairperson Justice S. J. Mukopadhaya, Justice A. I. S. Cheema (Judicial Member), and Kanthi Narahari (Technical Member). Chanakya Basa represented AIOVA, while Amit Sibal and Yaman Verma represented Flipkart. A.C. Ojha, the joint director of the economics division at the CCI, represented CCI.

Tribunal: Focus on abuse first, then talk about dominance

Justice Mukopadhaya asked Basa one of the questions he had asked at the last hearing on July 30 as well — how do members of AIOVA use the platform? Basa explained that the vendors used Flipkart to sell their products.

Justice Mukopadhaya told Basa to talk about abuse by Flipkart, not its dominance, first. “What is the abuse on their part? What is the area? What is their market?” To that end, Basa cited Flipkart’s case against the Assistant Commissioner of Income Tax in the Income Tax Appellate Tribunal, Bangalore. Justice Mukopadhaya asked him what the abuse was in this case. “Income tax has nothing to do with you. What have they [Flipkart] done to abuse their dominant position?”

Is selling at reduced price always predatory?

Basa argued that the Income Tax Tribunal had observed that Flipkart sold goods at a loss after purchasing them from a wholesaler, thereby abusing its position. The chairperson contested this characterisation and said, “The Income Tax Tribunal said that Flipkart abused the rate, the market rate [not its position].” Basa argued that the Tribunal had observed predatory pricing under Section 4(2)(a)(ii) of Competition Act.

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Justice Mukopadhaya observed that there are deep discounts available online, but “sellers in shops give no discounts”. He further said that Flipkart had vendors who were willing to sell products at a reduced price. “Vendor is reducing the price o the goods, Flipkart is not. If I [as a vendor] am reducing the selling price of the good, they [Flipkart] are not abusing their position,” he said. However, he continued, if they have a share in the sale, which may be 10%-15%, that may be reduced. The 2%-2.5% loss mentioned in the Income Tax Tribunal’s judgement refers to this loss, the chairperson said.

Tribunal: Not all combinations are combinations under Section 5

Basa cited the CCI’s order on combinations to argue that combination laws were also applicable in this situation to which Justice Mukopadhaya said that Section 5 of the Competition Act is about combination in relation to Section 6, but Section 4 is an independent section. He further said that the observations made in the combination order were “irrelevant”. He also explained that “all combinations are not [considered] combinations under Section 5 [of the Competition act”. He said that only if the company has “a turnover greater than ₹10,000 crore, and the other’s is also more than ₹10,000 crore, then the merger is a combination. If it is less than this amount, then Section 5 is applicable.”

When Basa mentioned the Flipkart–Walmart deal, Justice Mukopadhaya told him that the US would look at it.

Preferred sellers decided by consumers, not Flipkart

NCLAT took cognizance of the “agony of the vendors” because people are increasingly shopping online. However, Justice Mukopadhaya observed that online shopping is predominantly the domain of young people, while old people like him still visited physical shops. “I won’t buy without touching the goods,” the chairperson said.

The chairperson also observed that Flipkart earns by selling data, customer likes and dislikes to earn money. “This is their business,” he said.

When Basa said that there has to be equality, Justice Mukopadhaya contested it and said, “No! There should be competition in business but no dominance or cartel according to the Competition Act.”

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When Basa raised the issue of Flipkart giving preference to ‘preferred sellers’ such as WS Retail, Justice Mukopadhaya said that there were no ‘preferred sellers’. “They are the ‘preferred sellers’ of the customers, not of Flipkart” as Sibal nodded his head in vehement assent. “We are not accepting preferred sellers. Those who sell at low cost are the preferred sellers of customers,” Justice Mukopadhaya said.

The chairperson told Basa, “You compete with them and give discounts. You come down to their prices and compete.” He also said that money speaks because of which when people shop at a “multiplex” in South Extn., they want to spend more because of the belief that costlier things are better quality, while those who shop in Sarojini Nagar want discounts.

Price discrimination or not? Flipkart says not

Basa contended that vendors needed terms and conditions from Flipkart that promoted fair competition. Justice Mukopadhaya asked Sibal for those. He questioned Flipkart, “If you sell at prices lower than the purchase price, are you not abusing your dominance? By losing on your cost of purchase, are you not abusing [your dominant position]?”

In response, Sibal cited paragraph 50 from the Income Tax Tribunal’s judgement that observed the parties from which Flipkart purchased goods, and to whom it sold them were unrelated to Flipkart. He also cited paragraph 56 from the same judgement that read, “In view of our conclusions that the action of the AO in disregarding the books results cannot be sustained and the further conclusion that the action of the AO in presuming that the Assessee had incurred expenditure for creating intangible assets/brand or goodwill is without any basis, we do not think it necessary to deal with the arguments that even assuming that expenditure was incurred by the Assessee the expenditure for building brand or creating intangible or goodwill is revenue expenditure and allowable as deduction.”

On being asked if Flipkart sold the goods, Sibal said, “No. They are sold on my platform” and continued that there was no discrimination.

AIOVA’s year-old tiff with Flipkart

In November 2018, AIOVA had alleged that Flipkart used its dominant market position to favour certain sellers through “unfair or discriminatory” pricing. The association argued that by selling goods to companies such as WS Retail, which then sells the products on Flipkart, Flipkart was creating a class of preferred sellers. Also, Flipkart’s own private labels such as SmartBuy and Billion created a conflict of interest.

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The CCI had dismissed [pdf] the allegation in November 2018 that Flipkart was preventing the entry of other players, and reasoned that Flipkart cannot be giving preferential treatment to WS Retail, as it stopped being a seller on Flipkart from April 2017.

AIOVA subsequently filed an appeal in NCLAT over the issue, and this petition was admitted in May 2019. On June 19, Flipkart filed its reply to the petition, and on July 29, a day before the first hearing, AIOVA filed its rejoinder. CCI has not filed its counter thus far.

Read more: ‘Flipkart abuses its dominant postion,’ online vendors tell NCLAT

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