Why SC sent back Flipkart’s alleged market dominance case to the NCLAT

Earlier this week, the Supreme Court revived a long-standing legal battle involving the e-commerce giant Flipkart. A bench led by Chief Justice of India Surya Kant, and comprising Justices Joymalya Bagchi and Vipul Pancholi, set aside a 2020 ruling by the National Company Law Appellate Tribunal (NCLAT) that had ordered a probe into the company. The apex court has now asked the NCLAT to take a “fresh decision” on whether Flipkart should be investigated for alleged violations of India’s competition law. This is the latest twist in a seven-year legal saga involving disgruntled vendors, a decade-old tax assessment, and the definition of “market dominance”. Small vendors vs big market players The case began in 2018, when the All India Online Vendors Association, a group representing over 2,000 product sellers, approached the Competition Commission of India (CCI) — India’s antitrust regulator, tasked with ensuring fair play. The vendors alleged that Flipkart was abusing its “dominant position”. In legal terms, “abuse of dominant position” occurs when a company uses its market strength to manipulate the market, often to the detriment of consumers or competitors. Specifically, the vendors claimed that Flipkart was indulging in “predatory pricing”, or selling goods below their production cost to kill competition. They alleged that preferential treatment was given to entities like WS Retail Services Private Limited, a company linked to Flipkart’s founders, while small vendors were being sidelined. At the centre of the claims were two companies: Flipkart India, a wholesale entity, and Flipkart Internet, the online marketplace. The accusation was that Flipkart India sold goods at discounted rates to preferred sellers such as WS Retail, who then sold them at prices that ordinary sellers couldn’t match. The CCI examined the market structure within which Flipkart operates. For a company to abuse dominance, it must first be “dominant”. The CCI looked at the relevant market, defined by it as “Services provided by online marketplace platforms for selling goods in India”. However, it stated that while Flipkart was a major player, it was not the only one. In its order dated November 6, 2018, the commission pointed to the likes of Amazon, Paytm Mall and Snapdeal, suggesting that the market was still evolving. “[I]t does not appear that any one player in the market is commanding any dominant position at this stage of evolution of market,” the CCI ruled. Concluding that “Flipkart India is not dominant in the relevant market”, the CCI held that the question of abusing that position did not arise. It closed the case, noting that “any intervention in such markets needs to be carefully crafted lest it stifles innovation.” NCLAT reversal The vendors appealed this dismissal before the NCLAT. In March 2020, the tribunal reversed the CCI’s decision, holding that the vendors had made out a prima facie case and directed the director general of the CCI to launch a probe. However, the NCLAT’s reasoning relied heavily on a separate legal proceeding involving Flipkart’s tax returns. The tribunal cited observations made by an Income Tax Assessing Officer (AO), who had noted in a December 2017 order that Flipkart was selling goods at a loss for the Assessment Year 2015-16. The AO had argued that this strategy was a deliberate move to create a monopoly and build brand value. Based on the AO’s rationale logic regarding predatory pricing, the tribunal concluded that “the facts noticed do make out a prima facie case to have a look under the Competition Act.” However, the AO’s findings had already been challenged before and subsequently overruled by the Income Tax Appellate Tribunal (ITAT). In an order in April 2018, the ITAT had ruled that a trader has the right to sell goods at any price they choose, even at a loss, to capture market share. The order stated: “One cannot proceed on the basis of presumption that the profit foregone is expenditure incurred” for creating brand value. The ITAT also held that “where a trader transfers his goods to another trader at a price less than the market price… the taxing authority cannot take into account the market price… ignoring the real price fetched.” This way, the ITAT set aside the observations regarding “predatory pricing,” which the NCLAT had relied upon. Supreme Court’s intervention When the matter reached the Supreme Court, Flipkart argued that the NCLAT’s order was flawed because it was based on tax proceedings that were overturned. Senior Advocate Dr Abhishek Manu Singhvi, appearing for Flipkart Internet, argued that there was no finding that Flipkart was a dominant player — a prerequisite for ordering a probe under the Competition Act. The SC ultimately decided that the NCLAT needed to re-examine the case on the grounds that the ITAT had set aside the assessment order on points of law. Remanding the case, the Supreme Court instructed the NCLAT to decide the appeal afresh, keeping in mind the principles in the apex court’s Coal India Ltd judgement of 2023. In Coal India, the court had emphasised that the Competition Act lists specific factors for determining dominance, such as market share, size, resources and economic power. The determination of dominance “must stand answered with reference to carefully thought-out objective norms” provided in the statute, not “based on any subjective criteria.” What happens next? The NCLAT will now hear arguments from both sides again. It will have to determine, without relying on the AO’s observations, whether there is enough material to show that Flipkart holds a dominant position and whether it abused that position.