The Indian competition commission is to relaunch an investigation into Amazon’s selling practices, which will examine the company’s £1bn-a-year joint venture with UK chancellor Rishi Sunak’s billionaire father-in-law. The investigation, originally announced in January 2020, will proceed after an Indian court on Friday dismissed pleas by Amazon and its rival – the Walmart-owned Flipkart – to quash its investigation into the business practices of the huge US retailers. One of the largest sellers on Amazon.in is a company called Cloudtail, a £1bn revenue business that is 76% controlled by Sunak’s wealthy in-laws, the Murthy family. The remaining quarter of Cloudtail is owned by Amazon. The Competition Commission of India (CCI) will examine complaints by a traders’ group that small sellers are being driven out of business because the big US platforms are giving preferential treatment to “preferred sellers”. Under India’s foreign direct investment law, overseas companies are banned from running an online retailer that holds inventory and then sells the goods directly to Indian consumers online. So instead, US websites such as Amazon.in are run as a “marketplace”, with Indian retailers selling their products via the site in return for paying the US company a fee. Small traders allege they are being disadvantaged because the US platforms may be favouring a few big sellers, including Cloudtail. The issue is politically sensitive, as it has the potential of enraging millions of small internet retailers who form a chunk of Indian prime minister Narendra Modi’s political base. A source with knowledge of the CCI investigation confirmed that Cloudtail was included in the wide-ranging antitrust complaint. Sumit Agarwal, the national secretary of the Confederation of All India Traders (CAIT), whose affiliate made the complaint to competition authorities, said: “Foreign companies particularly in the e-commerce sector have been taking India as a banana republic where the laws, policies and the rules have no sanctity … Unfortunately they have been successfully violating the law and the policies bringing much disadvantage to the small traders of the country.” The trade body added that the decision “fully vindicates the stand of CAIT that Amazon and Flipkart business model is entirely based on violating the FDI policy, rules and other laws and therefore without wasting any more time, the CCI should immediately begin its probe”. After the regulator announced its inquiry last year, the US companies denied wrongdoing and a court put the investigation on hold. However, on Friday, Justice PS Dinesh Kumar of the high court in the southern state of Karnataka said he was dismissing the petitions by Amazon and Flipkart, and refused them any further relief, effectively paving the way to restart the investigation. The US companies are thought likely to appeal against the verdict. A spokesperson for Amazon said: “We will review the judgment carefully and decide on the next steps.” Flipkart did not respond to an invitation to comment. When the competition panel originally ordered its investigation, it listed four alleged anti-competitive practices. These were: exclusive launches of mobile phones by the e-commerce firms; promoting preferred sellers on their websites; deep discounting practices; and prioritising some seller listings over others. Meanwhile, Amazon is also facing a second complaint to the CCI. In August, the All India Online Vendors Association alleged its members were being disadvantaged by Amazon India’s wholesale arm buying goods in bulk from manufacturers and selling them at a loss to sellers such as Cloudtail. Such sellers then offer goods on Amazon.in at big discounts, it is claimed. The second complaint is understood to still being considered by the CCI in order to decide if it will progress to a full investigation. Amazon has said that it complies with all laws and its India website is a pure third-party marketplace where sellers have discretion to decide product prices. Amazon has also said its wholesale unit allows businesses to buy products and anyone can register on it. Cloudtail did not respond to the Guardian’s request for comment, but responding to news of the complaint in August, a Cloudtail spokesperson said it was in “compliance with all applicable laws in its operations”.