Amazon, top Indian seller Cloudtail end relationship amid regulatory heat

© Reuters. FILE PHOTO: The logo of Amazon is pictured inside the company's office in Bengaluru, India, April 20, 2018. REUTERS/Abhishek N. Chinnappa/File Photo

By Aditya Kalra

NEW DELHI (Reuters) -Amazon.com Inc and one of its biggest sellers in India, Cloudtail, have decided to end their relationship, they said on Monday, following years of allegations from brick-and-mortar retailers that the seller received preferential treatment.

A joint venture between Amazon (NASDAQ:AMZN) and India's Catamaran that controlled Cloudtail was coming up for renewal on May 19, 2022, and the two sides said in a joint statement they had mutually decided not to extend it beyond that date.

The decision comes after a Reuters investigation https://reut.rs/3xyz8er in February based on Amazon documents showed the U.S. company had given preferential treatment for years to a small group of sellers, including Cloudtail, and used them to bypass Indian laws.

Amazon has said it does not give preferential treatment to any seller and that it complies with the law.

In their joint statement, Amazon and Catamaran did not say why they had decided to end their joint venture, but said the partnership ran successfully for seven years and made "tremendous strides."

Cloudtail had been controversial, with Indian brick-and-mortar retailers for years accusing Amazon of giving it preferential treatment which hurt smaller retailers.

It was formed when Amazon entered a joint venture with an entity formed by one of India’s most famous tech moguls, N.R. Narayana Murthy, which was then used to create Cloudtail, which began offering goods on Amazon.in after it was set up in August 2014.

The Reuters investigation in February found Amazon publicly called Cloudtail an independent seller offering goods on its marketplace website, but internal company documents revealed the U.S. company was deeply involved in expanding it and used it, among other sellers, to circumvent the country's foreign investment laws.

The story had triggered calls for a ban and an investigation of Amazon, and the financial crime fighting agency was looking into its findings. The antitrust watchdog had said the story corroborated evidence it https://reut.rs/2Xd8wTF had against Amazon.

Arvind Singhal, chairman of retail consultancy Technopak Advisors, told Reuters that Amazon and Catamaran's decision appeared aimed at defending against any possible future scrutiny of their business models.

"Before it comes under more scrutiny, they are basically disengaging themselves. But given the relationship has been there for years, this will still hang as a sword on their heads," said Singhal.

India is a key growth market for Amazon, where it has committed investment of $6.5 billion. But it's one where it has faced several regulatory challenges, including stricter laws that apply to foreign e-commerce giants.

The Reuters investigation in February found Amazon gave Cloudtail, and another seller named Appario, discounted fees.

Amazon is also in talks with the parent of Appario to determine whether it wants to renew its joint venture next year, a source with direct knowledge told Reuters on Monday. Appario did not respond to a request for comment.

The source added that multiple sellers in India were likely to take over Cloudtail's share on Amazon.in over time.

"There will be challenges, but the company is fairly confident it will manage," the source added.

Separately, India's Supreme Court on Monday ruled that Amazon and Walmart (NYSE:WMT)'s Flipkart will have to face antitrust investigations https://reut.rs/3iuNFDA ordered against them in India, dealing a blow to the companies in their key growth market.