Thursday, 12 November 2015
MR. MOHIT MANGLANI vs M/s FLIPKART INDIA PRIVATE LIMITED & Ors. - COMPETITION COMMISSION OF INDIA DECIDED ON 23.04.2015
In a move that might have far reaching consequences towards creating transparency and accountability in the legal system, fair trade regulator, Competition Commission of India (CCI) is probing whether certain resale price arrangements between manufacturer and e-retailers violate competition norms. Such is done to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets.
1. Mr. Mohit Manglani (the Informant) had filed a complaint under Section 19(1) (a) of the Competition Act, 2002(“the Act”) against various e-commerce/portal companies (Opposite Parties) for their alleged contravention of the provisions of Section 4 of the Competition Act, 2002.
2. It was alleged by the Informant that these e-commerce websites have been indulging in anti-competitive practices in the nature of “exclusive agreements” with seller of goods/services. The Informant stated that owing to such practices, the consumer was left with no option in regards to terms of purchase and price of the goods and services and was bound to either purchase the product as per the terms of the website or opt not to purchase the product in totality.
3. The Informant further alleged that the e-portal/e-commerce websites and product sellers enter into ‘exclusive agreements’ to sell the selected products exclusively on selected portal to the exclusion of other e-portals or physical channels. The conditions which the portals decides are non-negotiable for a consumer who intends to buy the products. Further, the supply is controlled by the e-portal with whom the exclusive arrangement has been made thereby creating an impression of scarcity.
4. The Informant stated that Section 3(1) read with Section 3(4) of the Act are fairly applied on ‘exclusive agreement’ and ‘restrictive/unfair business practice’ of these e-portals. By slowly destroying players in physical market and creating product specific monopoly leading to manipulation of price, control of production and supply, imposing terms and conditions detrimental to interests of consumer, such agreements distort fair completion in the marketplace.
5. It was also stated that each e-portal i.e. the Opposite Party has 100% market share for the product in which it is exclusively dealing and which in turn leads to dominance. It was further contented that the relevant market has to be defined in context of a particular product in question and the dominance be seen accordingly.
6. It was contended that an e-commerce portal’s business is that of a market place model where the supplier is the owner of the products which are sold through online retail portals and the customer making such purchase is the end purchaser of the product. Therefore the e-commerce websites merely act as a platform that brings the two sides together for simplifying the transaction.
7. It was contented that exclusive agreement is not in violation of Section 3(4) of the Act as there is no appreciable effect on competition (AAEC) in the relevant market. It was also contended that given the wide range of products, availability of substitutes, and consumer preferences, no single manufacture is able to exercise market power to cause any competition concern.
8. All Delhi Computers Traders Association (ADCTA) submitted that the e-commerce websites have engaged in unfair trade practices and introduced illegal black money as FDI in such business. It was contented that OPs have adopted the practice of purchasing the goods from the distributors on 21 to 30 days credit and then subsequently selling products at prices lower than the purchase price. ADCTA further submitted that OPs impose conditions like quantity restrictions, purchase of goods by the end of consumers only for personal use and re-sale etc. It was alleged that the OPs have also indulged in practices like predatory pricing in abuse of their dominant position under provisions of section 4(1) and 4(2) of the Act.
Issue for Consideration
The main issue for consideration was:-
Whether the practice of entering into exclusive agreement for sale and purchase of goods by way of e-commerce is violating the provisions of Section 3(1), 3(4) (b) & (c) and Section 4(a) (i), 4(b) (i) and 4(b) (ii) of the Competition Act, 2002 and have an appreciable adverse effect on competition (AAEC) in India.
Decision of the Court
1. The Commission analyzed the material available on record and heard the parties. As observed by the Commission, the Informant was primarily aggrieved by the exclusive distribution arrangements between the manufacturers and OPs which, as per the Informant, leave the consumer with no option but to accept the onerous terms/price as imposed by the exclusive online seller i.e. OPs
2. The Commission further considered various factors laid down under Section 19(3) of the Act such as:
a. Creation of barriers to new entrants in the market;
b. Driving existing competitors out of the market;
c. Foreclosure of competition by hindering entry into the market;
d. Accrual of benefits to consumers;
e. Improvements in production or distribution of goods or provisions of services;
f. Promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services to assess the effect of such exclusive arrangement between manufacturers and e-portals.
3. Further the Commission observed that online distribution channel by the OPs provide an opportunity to the consumer to compare the price as well as the pros and cons of the product. Also it provides the option of delivery right at their convenience .Therefore it does not appear that the exclusive arrangement between manufactures and e-portals lead to AAEC in the market.
4. The Commission further observed that every product of OPs cannot be considered as a relevant market in itself, therefore, it was stated in the order that e-portal acts as a separate relevant product market or as a sub-segment of the market for distribution. Therefore the Commission while adjudicating upon the present dispute, did not dwell into the question of abuse of dominance by the OPs as raised by the Informant and ADCTA. Further, it does not appear that because of these exclusive agreements any of the existing players in the retail market are getting adversely affected, rather with new e-portals entering into the market, competition seems to be growing