Flipkart Competition Case Reopened: Supreme Court Orders NCLAT To Re-Examine Need For CCI Probe

Flipkart Competition Case Reopened: Supreme Court Orders NCLAT To Re-Examine Need For CCI Probe

Introduction

The Supreme Court has set aside a 2020 order of the National Company Law Appellate Tribunal (NCLAT) directing a probe against Flipkart under the Competition Act and has remanded the matter for fresh adjudication. The Court held that the NCLAT must reconsider whether a competition law investigation is warranted, without being influenced by findings from income tax proceedings that were subsequently overturned.

Factual Background

The dispute traces back to a complaint filed by the All India Online Vendors’ Association (AIOVA) before the Competition Commission of India (CCI), alleging abuse of dominant position and predatory pricing by Flipkart entities operating in India. The allegations targeted both Flipkart Internet Pvt. Ltd., which operates the online marketplace, and Flipkart India Pvt. Ltd., engaged in wholesale trading.

In November 2018, the CCI rejected the complaint, holding that neither Flipkart nor Amazon had violated competition norms or abused market dominance.

Procedural Background

Aggrieved by the CCI’s closure order, AIOVA approached the NCLAT. By an order dated March 4, 2020, the NCLAT set aside the CCI’s decision and directed a probe by the Director General, holding that a prima facie case under Section 4 of the Competition Act (abuse of dominant position) was made out.

This NCLAT order relied, inter alia, on observations made by an Assessing Officer in income tax proceedings relating to Flipkart India Pvt. Ltd. Flipkart challenged the NCLAT’s order before the Supreme Court.

Issues

1. Whether the NCLAT was justified in directing a competition law probe against Flipkart based on observations from income tax proceedings.

2. Whether a prima facie case of abuse of dominant position under the Competition Act was made out against Flipkart.

3. Whether the matter required remand to the CCI for investigation by the Director General.

Contentions of the Parties

Flipkart contended that the NCLAT’s order was fundamentally flawed as it relied on findings of an Assessing Officer in income tax proceedings, which were later set aside by the Income Tax Appellate Tribunal (ITAT). It was argued that there was no determination that Flipkart was dominant in the relevant market or that it had abused such dominance. Flipkart further submitted that the CCI itself had found no contravention of competition law and that the relevant market dynamics did not support a finding of dominance.

On the other hand, AIOVA argued that although the ITAT reversed the assessment order on points of law, the factual observations regarding Flipkart’s business model were not disturbed. It was submitted that these observations were relevant for assessing competitive harm in the online marketplace.

Reasoning and Analysis

The bench comprising Chief Justice of India Surya Kant, Justice Joymalya Bagchi and Justice Vipul Pancholi noted that the NCLAT had placed reliance on observations from income tax proceedings which no longer held the field, having been set aside by the ITAT. The Bench observed that such material could not form the sole or decisive basis for directing a competition law investigation.

The Court emphasised that the determination of a prima facie case under the Competition Act must be undertaken independently, in light of settled principles laid down by the Supreme Court, including those in the Coal India line of cases. It held that all issues relating to dominance, abuse, and the necessity of a Director General investigation must be reconsidered afresh.

Importantly, the Court clarified that it was expressing no opinion on the merits of the allegations and was leaving all contentions of the parties open to be urged before the NCLAT.

Decision

The Supreme Court set aside the NCLAT’s 2020 order directing a probe against Flipkart and remanded the matter to the NCLAT for fresh consideration. The NCLAT has been requested to decide the appeal afresh, uninfluenced by the income tax assessment findings that were overturned, and in accordance with established competition law principles.

In this case, Flipkart Internet Pvt Ltd was represented by Dr Abhishek Manu Singhvi, Advocate.