By Aditya Kalra

NEW DELHI (Reuters) -An Indian antitrust investigation has found U.S. e-commerce giant Amazon and Walmart's Flipkart violated local competition laws by giving preference to select sellers on their shopping websites, according to reports seen by Reuters.

The Competition Commission of India (CCI) in 2020 ordered an investigation into Amazon and Flipkart for allegedly promoting certain sellers with which they had business arrangements and giving priority to certain listings.

In a 1027-page report on Amazon and a separate 1,696-page report on Flipkart, both dated Aug. 9, the CCI investigators said the two companies were found to have created an ecosystem where preferred sellers appeared higher in search results, elbowing out other sellers.

"Each of the anti-competitive practices alleged ... were investigated and found to be true," said both reports, which are not public and are being reported by Reuters for the first time.

"Ordinary sellers remained as mere database entries," the two reports said in identical conclusions on both companies.

Amazon and Flipkart, as well as the CCI, did not immediately respond to Reuters queries. They have previously denied wrongdoing and said their practices are in line with Indian laws.

The two companies will now review the report and file any objections before CCI staff decide on any potential fines.

The investigation's findings are the latest setback for Amazon and Flipkart in a country where they continue to face criticism for their business practices from smaller retailers, who say their businesses have suffered in recent years due to deep discounts offered online.

The investigation was triggered by a complaint from the Delhi Vyapar Mahasangh, which is an affiliate of the country's biggest trade body, Confederation of All India Traders (CAIT), that represents 80 million retailers.

In a statement to Reuters, CAIT welcomed the CCI investigation findings, saying it would study the reports and "escalate the matter" with the federal government.

Amazon and Flipkart are leading players in India's e-retail market which was estimated to be worth $57-60 billion in 2023, and set to top $160 billion in value by 2028, consultancy firm Bain estimates.

In the United States, the Federal Trade Commission has sued Amazon alleging the company uses "anticompetitive and unfair strategies to illegally maintain its monopoly power". Amazon has said that the FTC lawsuit is wrongheaded and would hurt consumers by leading to higher prices and slower deliveries.

PREFERENTIAL LISTING, DEEP DISCOUNTING

Indian investigators raided certain sellers of Amazon and Flipkart during the probe, following a Reuters investigation in 2021 which was based on Amazon internal documents and showed the company gave preferential treatment for years to a small group of sellers on its platform, and used them to bypass Indian laws.

The company has denied any wrongdoing but the CCI previously told an Indian court the Reuters special report corroborated evidence it had against Amazon.

The CCI investigation report on Amazon said preferred sellers on the platform "get the advantage in the (online) listing" and when a customer searches for any product, "his attention is drawn towards" those listings.

The practice of preferential listings and deep discounting of mobile phones - including selling products below cost price - causes a "catastrophic impact on the existing competition in the market."

In the report on Flipkart, the CCI said preferred sellers were provided various services such as marketing and delivery at a "miniscule cost." They were also enabled by Flipkart to sell phones with deep discounts which amounts to "predatory pricing" and forecloses competition, the CCI said.

"The anti-competitive practies are not limited to sales of mobile phones. They are equally prevalent in other categories of goods," both reports said.

Flipkart and Amazon for months tried to block the investigation through legal challenges in courts, but the Supreme Court in 2021 allowed it to go ahead.

Last month, India's commerce minister publicly called out Amazon by saying the company's investments were often used to cover its business losses.

Amazon in June last year said it will increase its Indian investment to $26 billion by 2030, including for its cloud business. It is also targeting merchandise exports worth $20 billion from India by 2025.