India ordered an investigation into online retailers Amazon and Walmart's Flipkart on Monday over alleged violations of competition law in the latest setback for US e-commerce giants operating in the country.
The Competition Commission of India (CCI) said it was ordering a wider probe following a review of allegations that Amazon and Flipkart were promoting some "preferred sellers", in turn hurting business for other, smaller sellers.
Flipkart is "fully compliant" with all laws and is currently reviewing the CCI order, the company's senior vice-president Rajneesh Kumar said.
Amazon did not respond to a request for immediate comment. Amazon boss Jeff Bezos is expected to visit India for potential meetings with government officials this week.
The complaint against the two companies was filed by Delhi Vyapar Mahasangh, a group representing small- and medium-sized businesses. They alleged that several of Amazon and Flipkart's preferred sellers were affiliated with, or controlled by, the companies themselves, either directly or indirectly.
In its 11-page order, the CCI noted four alleged anti-competitive practices: exclusive launch of mobile phones by the e-commerce firms, promoting preferred sellers on their websites, deep discounting practices and prioritising some seller listings over others.
"Exclusive launch (of mobile phones) coupled with preferential treatment to a few sellers and the discounting practices create an ecosystem that may lead to an appreciable adverse effect on competition," the order said.
The CCI said its investigation unit should complete the probe within 60 days, but typically such cases have taken far longer.
Walmart in 2018 invested $16 billion (Dh58.76bn) to buy a majority stake in India's Flipkart, its biggest ever deal.
The CCI probe is the latest setback for Amazon and Walmart, which were last year hit with more stringent foreign investment rules.
Some of the allegations reviewed by the CCI have been levelled against both companies for some time.
Indian bricks-and-mortar traders allege Amazon and Flipkart violate the country's foreign investment rules and burn billions of dollars by offering steep discounts that hurt smaller traders. The two companies say they comply with the rules.
In a recent study, the CCI said India was the fastest growing e-commerce market with revenue this year expected to reach $120 billion, triple its size in 2017.
"The e-commerce sector is plagued with several issues, any adverse action by the CCI could scuttle the growth of the sector," said Ram Kumar Poornachandran, competition law head at law firm TT&A.