NCLAT Dismisses Appeal Challenging CCI’s Approval of Walmart’s acquisition of shares in Flipkart

On March 12, 2020, the National Company Law Appellate Tribunal (‘NCLAT’) dismissed an appeal challenging CCI’s approval of Walmart International Holdings’ (‘Walmart’) acquisition of between 51% and 77% of the shareholding in Flipkart Private Ltd. (‘Flipkart’) (‘Proposed Combination’). The appellant, Confederation of All India Traders (‘CAIT’) had also raised objections when the CCI was reviewing the Proposed Combination[1].

Per CAIT, the Proposed Transaction would be detrimental to Flipkart’s non-preferred sellers. CAIT alleged that subsequent to the Proposed Transaction, Walmart would have effective control over Flipkart’s e-commerce platform and web of preferential sellers. This, according to CAIT, would result in Walmart’s inventory getting preference and being sold through preferred sellers.

Additionally, CAIT alleged that: (i) some of the preferred sellers of Flipkart have common directors, investors, employees, etc. with Flipkart; (ii) Flipkart has a history of entering into exclusive tie-ups in markets where it has high market shares, which are only available to its web of preferential sellers; (iii) Flipkart gives preferential listing to its preferred sellers, with the non-preferred sellers being pushed down in the listings to subsequent pages, despite having products of the same quality as those of the preferred sellers; and (iv) non-preferred sellers are forced to partner with Flipkart at highly discriminatory terms and conditions since they are blocked at times and their listings are made inactive. CAIT alleged that these practices of Flipkart, which resulted in denial of market access, would be magnified post the Proposed Combination.

The NCLAT reviewed the CCI’s order approving the Proposed Combination (‘CCI Order’) in order to assess whether the appeal had any merits. The CCI had opined that competition assessment of a combination arises out of an endeavour to address potential concerns as a result of the combination, and not any pre-existing conditions that are not attributable to the combination. Consequently, the CCI had held that any issue relating to Flipkart’s discounting practices, preferential sellers, etc. were not related to the Proposed Combination and existed in the market even without the Proposed Combination. The review process, per the CCI, is not to resolve concerns that are not incidental to or arise from the Proposed Combination, and such concerns could be examined under the relevant sections at another point of time.

Accordingly, the NCLAT observed that the CCI was right in approving the Proposed Combination, and CAIT had failed to provide evidence that the Proposed Combination would lead to any major player in the relevant market being eliminated. Moreover, Flipkart’s platform would remain under Walmart, thereby preserving a successful e-commerce platform and enhancing its financial strengths, a fact which was also discussed in detail while dealing with the third party representations and objections to the Proposed Combination. Accordingly, the NCLAT opined that CAIT had failed to demonstrate any prima facie AAEC arising as a result of the Proposed Combination and dismissed CAIT’s appeal.

[1] Confederation of All India Traders v. CCI & Ors., Competition Appeal (AT) No. 62 of 2018, order delivered on 12 March 2020.

Published In:Inter Alia Special Edition - Competition Law - June 2020 [ English
Date: June 10, 2020