CCI orders probe into Zomato and Swiggy: All you should know

This article on ‘Why CCI has ordered a probe into Zomato and Swiggy: all you need to know‘ is written by Divya Banerjee, a LLM student from Chandigarh University, Punjab and edited by an intern at Legal Upanishad.

Introduction

India’s most well know and leading online food delivery services- Zomato and Swiggy; have been the talk of the town since they have been introduced in the Indian market. These on demand food delivery amenities soon became pretty popular after their launch because if their ‘easy-to-use’ approach. However, in recent times various allegations started arising against these restaurant aggregators claiming that they are breaching the competition laws of India. According to Anurag Katriar, a trustee of National Restaurant Association of India; this issue came forward in August of 2019 and was brought to the attention of the aggregators, however not much headway was made.

Finally, the National Restaurant Association of India (“NRAI”) representing almost 5,00,000 restaurants present in the country, filed a complaint to the Competition Commission of India (“CCI”) against Zomato (“Zomato limited”) and Swiggy (Bundle Technologies Private Limited). The complaint was filed under section 19(a) of the Competition Act, 2002. Apparently it is alleged by NRAI that these prominent online food delivery platforms are abusing their dominant position and carrying out anti-competitive practices.

What is CCI?

The Competition Act, 2002 introduced the Competition Commission of India under chapter III of the Act. It came into effect on 14^th October 2003. The commission consists of a chairperson and maximum 6 members as appointed by the Central Government. The main functions of the Commission can be laid down in the following points~

Eliminating practices that are causing adverse effect on the competition in India.
Sustaining and promoting competition in the country.
Safeguard freedom of trade.
Provide protection to the interests of consumers.

Allegations made by NRAI against Zomato and Swiggy

Zomato and Swiggy are accused of carrying out ‘bundles of services’ which is according to CCI’s Market Study Report – unfair and anti-competitive. These aggregators provide both food ordering and food delivery services. The listed restaurants are not allowed to self- deliver their items to customers and have to depend on these aggregators; except Vertically Integrated Food Chains such as Pizza hut and Dominos. This bundling of services creates barriers and hinders the growth of innovations and improvement of food distribution strategies. Sometimes many restaurants suffer non-availability of delivery services on the part of Zomato and Swiggy thus causing delays in pickup and delivery, even non-acceptance of orders which causes loss to the restaurants.
It is also pointed out by NRAI that these food delivery platforms are also practicing ‘data masking’. Data masking is hiding relevant information of customers from the restaurant partners and keeping them in dark. Even though the privacy policies of Zomato and Swiggy state that customer consented data is to be shared with the restaurants, however no such steps are taken. It should also be noted that the restaurants are held accountable for all the services still they are kept in a state of unawareness by cloaking information of end-customers; which is completely unfair.
These online delivery platforms are also accused of violating section 19(3) of the Competition Act, 2002. They are listing their own cloud kitchens and private labels; thus foreclosing entry of other competitors into the market; which is against section 19(3)(c) of the Competition Act.
Zomato and Swiggy are also being accused of imposing price party terms which prevents the listed restaurants from lowering their food prices in their own tariff or websites. They are also forced to comply with their online offers such as providing discounts.

Scrutiny of allegations by CCI

Regarding bundling of services:

In response to this allegation, Zomato and Swiggy accepted the fact that they do not allow self-delivery of orders placed through their online platforms, however they claimed that it is not anti-competitive behaviour. They affirmed that the end-to-end service they provide is to help amplify customer welfare.

They also answered that if the restaurants are not happy or contended with the terms and conditions, they are free to join other aggregators in the market. The CCI on receiving this response stated that since the end-to-end model works in favour of the interests of the consumers it is not anti-competitive. Moreover the NRAI could not provide proper argument in favour of their accusation that bundling of services is creating adverse effect on competition in the relevant market.

On data masking:

Averting back on the allegation of data masking Zomato and Swiggy claimed that such is done to protect their customer’s privacy. Zomato responded that they received negative feedback on sharing customer information with the restaurants and it was negatively impacting customer’s interests.

On Private labels and cloud kitchens:

Swiggy claimed that their cloud kitchens and private labels do not receive any preferential treatment and are treated in a non-discriminatory manner. However CCI noted that there is an issue of conflict of interest while dealing with private labels and cloud kitchens and hence ordered a detailed scrutiny of the same.

On price party agreements:

CCI on inspection of the terms and conditions of agreement agreed there are existences of restrictions on the restaurant partners that are having adverse effect on competition; thus ordering investigation to be done on this issue.

What are anti-competitive practices?

Anti-competitive practices are basically actions that prevent healthy trade-related competition in the relevant market. Anti-competitive practices support monopolistic business which is bad for the economic growth of a country. Different countries have different set of anti-trust laws to prevent such practices.

In India, the framework of laws that protect competition in the relevant market is the Competition Act, 2002. With respect to this case ~ National Association of India v. Zomato Limited and Bundl Technologies Private Limited; the anti-competitive practices in question are- abuse of dominant position, predatory pricing and entering into anti-competitive agreements. These are explained briefly hereunder:

Abuse of dominant position~ when a business or enterprise who is in a position of strength in the relevant market having demeanor of ensuring elimination of a competitor or discourage future entry of new competitors; thus preventing competition substantially, is known to be abusing their dominant position.

Predatory pricing~ predatory pricing refers to a strategy, where an enterprise sets low costs of its goods or services which other enterprise cannot compete with; resulting in elimination of competitors from the market.

Entering into anti-competitive agreements ~ Anti-competitive agreements refers to agreements that ‘prevent, restrict or distort’ competitions. The Competition Act, 2002 prohibits entering into anti-competitive agreements under chapter ii of the Act. Some examples of anti-competitive agreements are- price fixing, bid rigging, production control.

Conclusion

The Competition Commission of India being satisfied with some of the accusations of NRAI; filed under section 3(1) [read with section 3(4)] of the Competition Act, 2002 have directed the Director General to duly investigate as per section 26(1) of the Act. The Director General must submit such report within 60 days of receiving such order. One of the aggregator- Zomato showing its positive intentions have said that they will “promptly comply” with the decisions of the Competition Commission of India.