The Competition Commission of India (CCI) recently found one of India’s largest real estate developers, DLF, guilty of imposing unfair or discriminatory conditions in the course of the sale of its residential units (see page 13). Acting on a complaint by a group of individuals who had been allotted apartments that were being constructed by DLF, the Belaire Owners’ Association, the CCI also imposed a penalty of ₹6.3 billion (US$140 million), which is 7% of its average turnover for the three preceding years.
DLF plans to appeal this order at the Competition Appellate Tribunal.
Crux of complaint
The complaint against DLF was that it had abused its dominant position in the market. In so doing, it delayed handing over apartments to the owners and violated building norms by increasing the number of floors from 19 to 29, which led to an increase in the number of apartments from 384 to 564. In addition it was alleged that DLF had charged exorbitant late fees and interest for delayed payments by the buyers and had introduced discriminatory and abusive clauses in an extremely one-sided apartment buyer’s agreement.
The Belaire Owners’ Association also alleged that the Haryana Urban Development Authority and Haryana government’s Department of Town and Country Planning, which allotted the land and gave clearances to DLF when it was clear that the company had violated the provisions of various statutes, had approved of and permitted DLF’s illegal, unfair and irrational actions.
Arguing it could not be charged with abuse of dominance, DLF pointed out that the agreements with individual allottees had been executed long before May 2009 when the relevant section in the Competition Act, 2002 – section 4 – came into force. It also argued there could not be any “abuse” under section 4(2) (a) of the act (which provides the circumstances that result in abuse of its dominant position by an enterprise or group), as the agreement was related to “sale of an apartment” and not for “purchase of service”. Further, as the agreement did not relate to hiring or availing of any service, no apartment owner could be described as a consumer under the act.
DLF also argued that it did not enjoy a “dominant position” as defined by the act as there were many large real estate companies and builders in the market.
Issues to grapple with
The questions before the CCI were:
• Do the provisions of the act apply to the facts and circumstances of the case?
• What is the relevant market and is DLF dominant in it?
• If DLF is dominant, did it abuse its position?
Holding that the meaning of service under the act is “of very wide magnitude and is not exhaustive” the CCI found that it covered DLF’s activities. It also found that even though the agreement was entered into before section 4 came into force, as the effects of the agreement were invoked in 2009-2010, when DLF cancelled various allotments, its actions could be examined under the act.
As such, the CCI held that it could look into complaints about DLF’s imposition of arbitrary, unreasonable and ex facie unfair and discriminatory conditions on the apartment allottees and abuse of its dominant position.
Levelling the field
The CCI held that a “relevant market” was delineated on the basis of a distinct product or service market and a distinct geographic market. DLF was providing the services of a developer and builder within the meaning of “service” given under section 2(u) of the act.
To determine whether these services were of a distinct nature “by reason of characteristics … their prices and intended use” as stipulated in section 2(t) of the act, the CCI relied on the determinants laid down in section 19(7) of the act and held that the relevant geographic market in the present case was the territory of Gurgaon of the National Capital of Territory of Delhi.
Assessing the dominance of DLF along the lines indicated under section 19(4) of the Competition Act the CCI held that in the relevant market DLF faced negligible threat and displayed its position of strength and satisfying the conditions laid down in explanation (a)(i) and (ii) to section 4 of the act.
Upon scrutinizing the agreement the CCI concluded its clauses indicated the unfair and exploitative practices adopted by DLF, which were imposed by abuse of its dominant position.
In the exercise of its powers under section 27(b) of the act, the CCI directed DLF to duly modify the unfair conditions imposed on its buyers and imposed a fine on the company.
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