Breaking: CCI Raids E-commerce Companies Amazon, Cloudtails Sellers

Multiple people familiar with the matter told ET that officials from the Competition Commission of India (CCI) searched the offices of some of the country’s largest online sellers, including Amazon-owned Cloudtail and Appario Retail, a joint venture between the American online giant and the Patni group. According to them, the antitrust regulator also paid a visit to some of Walmart-owned Flipkart’s alpha sellers as well as social commerce giant Meesho.

The raids, which took place on Thursday, were in response to concerns about anti-competitive practices used by these merchants who handle significant numbers of orders for the big ecommerce corporations.

According to persons familiar with the situation, “CCI is investigating charges that all vendors are not treated equally by ecommerce platforms and that (online marketplaces) enter into vertical agreements with chosen sellers.”

Small online retailers and offline traders have long complained to the government and regulator about these concerns.

According to legal experts, Thursday’s raids are the first time CCI has looked into a case involving’ vertical agreements.’

Vertical agreements are ones in which a major entity (in this case, an ecommerce corporation) engages into exclusive arrangements with a small number of vendors, giving them priority over others.

Previously, the competition watchdog looked into charges of market power abuse and cartel formation.

“This is the first search and seizure in respect to a vertical arrangement coming under section 3(4) of the Act,” said GR Bhatia, L&L partners’ head of competition law.

CCI has started looking into charges of antitrust abuses at Amazon India and Flipkart, the country’s two major online marketplaces, earlier in 2020. This was in reaction to outspoken protests from offline retail traders, who accused the two ecommerce behemoths of cultivating strong ties with so-called ‘alpha sellers,’ who account for a major portion of platform deliveries.

According to people briefed on the situation, CCI officials conducted an investigation into ecommerce enterprises on Thursday, although Appario Retail and Cloudtail are the two largest entities in which Amazon owns a direct ownership.

Amazon India, Cloudtail, Appario Retail, and Flipkart did not respond to ET’s email inquiries. CCI has not communicated with Meesho, according to a company spokeswoman. “As required by India’s FDI ecommerce legislation, we operate a pure play marketplace.”

The raids were “highly awaited,” according to the Confederation of All India Traders (CAIT), which has been protesting about foreign etailers like Amazon and Walmart-owned Flipkart. “For the past three years, the CAIT has been raising strong objections against Amazon and Flipkart’s malpractices and filing complaints with the CCI, as well as strongly contesting Amazon and Flipkart’s delaying tactics in various courts,” said Praveen Khandelwal, secretary general of CAIT.

Cloudtail, which is owned by Prione Business Services, a joint venture between Catamaran Ventures, which is backed by Infosys founder NR Narayana Murthy, and Amazon, was instrumental in Amazon’s early success in India. Appario Retail, a subsidiary of Frontizo Business Services, a joint venture between Amazon and the Patni group, has also become one of the platform’s top sellers. Murthy’s position in Cloudtail should also be investigated, according to CAIT.

Amazon, led by Jeff Bezos, is now buying a 100 percent share in Cloudtail, and CCI has approved the agreement.

Amazon cart is discarded by Cloudtail

Even as the raids were taking place on Thursday, ET has learned that Cloudtail’s run on the US etailer’s local marketplace was coming to an end.

There are currently no Cloudtail listings on Amazon India. Cloudtail’s products have been relocated to other seller firms, and some products, such as Amazon’s own labels like Solimo and others, are no longer accessible for purchase on the marketplace.

In recent weeks, ET has reported on Cloudtail’s impending demise, and now Cloudtail’s nearly eight-year odyssey on Amazon India has come to an end.

As previously reported, new seller firms getting Cloudtail goods include Cocoblu Retail, VRP Telematics, and Rocket Kommerce, while sellers told ET that part of their product has also been relocated to Etrade Online.

Cloudtail CEO Ranjit Babu had written to vendors about the company’s decision to stop selling on Amazon, assuring them that all purchase orders placed until April 18, 2022 will be honored.

“It’s all but vanished from the platform now. Following the CCI permission, work on formally closing the Prione transaction began, and you won’t see a page for Cloudtail India on Amazon right now, as is typical for any selling “, a source close to the situation stated.

Amazon had previously owned a 49 percent share in Cloudtail, which was founded in 2014. However, to comply with online foreign direct investment (FDI) requirements, it was compelled to reduce its share to 24 percent in 2019.

Both Amazon and Catamaran announced in August 2021 that the joint venture would not be renewed. Following that, Amazon said in December that it would buy out Catamaran’s investment in the unit.

Cloudtail cannot legally be a vendor on the India marketplace until CCI’s clearance on Amazon buying Catamaran’s 76 percent stake in Cloudtail parent Prione comes through in March, as the existing laws do not allow it.

Cloudtail’s revenue climbed by more than 45 percent to Rs 16,639 crore in financial year 2021, with a profit of more than Rs 182 crore. Before the government tightened laws in 2016, specifying that a single vendor cannot account for more than 25% of total sales on an online marketplace, Cloudtail was credited with shipping over 50% of total sales on Amazon India.

Meanwhile, Appario Retail, which is also a big seller on Amazon India, had a profit of Rs 54 crore in FY21 on a turnover of Rs 14,628 crore.

Source: The Economic Times