Zomato, Swiggy's use of partner data may draw CCI scrutiny, say experts

The entry of food aggregators Swiggy and Zomato into the quick commerce domain with private-label apps like Snacc and Bistro has ignited a dispute spearheaded by the National Restaurant Association of India (NRAI), raising critical legal questions under Indian competition law and the terms of existing business agreements.

 

According to the Competition Act, 2002, practices that adversely affect competition or entail abuse of a dominant market position are prohibited. “If Swiggy and Zomato use proprietary data from partner restaurants to unfairly dominate the market, this could constitute an abuse of dominance, warranting scrutiny by the Competition Commission of India (CCI),” said Sonal Alagh, Partner, Alagh & Kapoor Law Offices.

   

In an April 2022 order by the CCI, the NRAI stated that Swiggy and Zomato collect data from customers based on their past purchases and use that data to customise the offerings made to each consumer.

 

“The data they [Zomato, Swiggy] possess also strengthens their market positioning, dissuading new players from entering the relevant market,” the NRAI stated in their plea, accusing Zomato and Swiggy of taking unfair advantage of their significant market power and compounding network effects to enforce vertical agreements and impose vertical restraints on restaurant partners.

 

The CCI had ordered an investigation by the Director General (DG) into the conduct of the food delivery aggregators, the details of which are yet to be made public.

 

Indian laws, particularly the Competition Act, 2002, under Section 3, prohibit anti-competitive agreements, including practices that lead to market foreclosure, reduce competition, or create a dominant position. Further, Section 4 prohibits abuse of a dominant position, which includes: 

(i) Limiting or restricting market access; and

(ii) Using dominant market power in one market to enter or protect another.

 

Though there is no specific law with respect to aggregators, Indian laws prohibit abuse by such aggregators.

 

The Competition Act also prohibits cartels, which are agreements between competitors to limit competition, said Kunal Sharma, Partner, Singhania & Co. “There is an earlier order by the CCI in which they said that aggregators are abusing their dominant position. If the aggregators use the data they have, that puts them at an advantage compared to small restaurants,” he said.

 

As far as the legal recourse for the NRAI is concerned, Prachi Dubey, Advocate, Delhi High Court, said the NRAI can file a complaint with the Competition Commission of India (CCI), which will evaluate whether Swiggy or Zomato are dominant players and whether their actions amount to abuse of dominance or lead to anti-competitive effects.

 

“Further, the Competition Commission of India can direct the aggregators to cease unfair practices, impose fines for anti-competitive behaviour, and require structural changes if abuse of dominance is proven. The CCI might also suggest or mandate a code of conduct for food aggregators to ensure fair practices,” she said.

 

In the current scenario, prima facie, it seems more than a case of breach of contract (between restaurant partners and aggregators), it appears to be a situation of breach of trust, she added.

 

As far as e-commerce companies such as Flipkart and Amazon are concerned, the E-Commerce Rules, 2020, prevent unfair trade practices and protect the interests and rights of consumers in e-commerce.

 

“However, days after the government barred FDI-backed e-commerce firms from selling private brands, the Department of Industrial Policy and Promotion (DIPP) clarified the e-commerce policy, saying that e-commerce firms like Flipkart and Amazon can sell private-label products,” Dubey said.