LEGAL FRAMEWORK FOR ECOMMERCE BY YOGYA BHATIA @LexCliq

Legal Framework regulating E-Commerce in India

 

The Need for Regulation of E-Commerce in India

The Indian e-commerce industry has been on an upward growth trajectory and is expected to surpass the US to become the second largest e-commerce market in the world by 2034. The industry is all set to record the third highest growth rate in the Asia-Pacific region this year and has more than tripled since 2015, however, it still has a long way to go. With the revolution in e-commerce and the fact that this is only the beginning of the technology sector in India bracing itself for a new era of e-commerce warfare, there is no doubt that India is in need of a regulatory framework that would bridge the various arms of the government. With the ever increasing pace at which e-commerce is growing in the country, a dire need can be felt for a proper framework.

The concept of Common Ownership

The fact that the e-commerce industry in India has grown in size and scale cannot be denied. This has attracted investments from foreign players in the industry. The widespread occurrence of common ownership of firms that compete in the product market, or horizontal shareholding, in this form, is relatively new and has not yet attracted a policy or enforcement action from the agencies. In order to reduce their risk, foreign investors diversify their portfolio by investing in competing firms to maximize returns, thus leading to consolidating tendencies. Their de facto control over the management of the company could weaken the competitiveness of the company against other target companies under their control.

Given how contemporary the issue at hand is, there has been no legislative or executive intervention, or any policy measures taken for the same. However, due to its dynamism, it has been dealt with in recent case laws by the courts in India.

Paradigm Shift in India

This issue has been loosely dealt with, in a recent judgment by the Competition Commission of India, in the case of Meru Travel Solutions Ltd v. ANI Technologies. The petitioners in the case raised concerns over the rise in common investors through foreign investment among the responding firms, which could potentially lead to a decline in their incentives to compete, as opposed to when two competing firms are owned by separate persons. The Court referred to the ‘Theory of Harm’ which puts belief in the fact that common ownership could lead to unilateral price increases which would benefit the investors, rather than the firms, and more importantly, try and orchestrate collusions, to earn collusive profits. The Commission noted that the company “SoftBank” seems to be an active investor, and has the ability to exert material influence on both Ola and Uber. The Commission’s view was that the said theory plainly states that such a control could have potential adverse effects on competition, and the ‘material influence’ exerted by “SoftBank” ranks lowest in the hierarchy of control, as recognized under Competition Law. The Commission conceded that there could be a potential effect on competition because of common investors affecting horizontal incentives to compete, but it could not go ahead with investigations on mere speculation. It was stated that trigger point in the Competition Act, 2002 is strictly, contravention of either Section 3 or 4, both of which had not taken place at that point in time. Moreover, the Indian market has witnessed a paradigm shift from the time when a monopoly was considered per se, bad, under the MRTP Act, 1969 to the current position, wherein ‘abuse of dominant position’ is considered bad under the Competition Act, 2002. Therefore, in order to investigate against a company, existence of alleged abusive conduct is a sine qua non.

 

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