Post-DLF: Developers and competition law in India

By Ramya Hariharan and Arka Majumdar, Udwadia Udeshi & Argus Partners
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In an unprecedented order, the Competition Commission of India (CCI) in August 2011, in the case of Belaire Owners’ Association v DLF Limited and Huda, imposed a penalty of ₹6.3 billion (US$115 million) on DLF on the ground that DLF had abused its dominant position by requiring flat owners to comply with onerous and unfair terms in its apartment buyer’s agreement.

Whilst DLF was directed to suitably modify the unfair conditions itself, DLF petitioned the Competition Appellate Tribunal (COMPAT) to direct the CCI to provide specific direction as to the extent and the manner of modification required. On being so directed by COMPAT, the CCI passed a detailed supplemental order on 3 January 2013, laying down a general framework for the agreement to be executed by a real estate developer with the buyers of flats.

First order’s impact

The impact of the 2011 DLF order was immediately felt when the CCI was flooded with accusations against various real estate developers alleging anti-competitive practice based on clauses in the flat buyer’s agreement similar to the ones held to be onerous in the DLF order.

Ramya Hariharan
Ramya Hariharan

Amongst the accusations were: (1) disproportionate penalties for defaults by allottees and the developer, against Universal Buildwell Private Limited (Universal), Emaar MGF Land Limited (Emaar) and Unitech Limited; (2) developer’s discretion to abandon the project, without any penalty, against Universal and Emaar; (3) the developer, and not the allotee, having rights on the community buildings/sites, against Universal; (4) unilateral right of the developer to increase/decrease super built-up area at its sole discretion without consulting allottees, who are nevertheless bound to pay additional amounts or accept a reduction in the area, against Dwarkadhis Projects Private Limited, Delhi (Dwarkadhis) and Raheja Developers Private Limited (Raheja); (5) arbitrary forfeiture of amounts paid by the allottees, against Universal; and (6) appointment of sole arbitrator, against Dwarkadhis, Universal and Raheja.

No action taken

It is pertinent to note that in none of the above cases did the CCI impose any penalty or entertain the allegation as the accused developers were found not to be in a dominant position in the relevant market, irrespective of the illegal manner in which the developers may have conducted their business. This approach was evident from the decision in the case of George Kuruvilla v Hiranandani Palace Gardens Private Limited, on 9 February 2012. After negating the allegation against the developer of having onerous terms in the agreement, the CCI observed that, while an injustice may have been done to the customer at the hands of the developer, the remedy would not lie under the Competition Act, 2002, unless the strategy used by the developer was anti-competitive or an abuse of dominant position.

Whilst the CCI has undertaken a mammoth task in providing a general framework for drafting of the flat buyer’s agreement in its supplemental order, there is a considerable doubt as to whether the framework would bind the accused developers, which were not reprimanded by the CCI as they were not in a dominant position.

Arka Majumdar
Arka Majumdar

Collective dominance

The issue is further complicated by the absence of a principle analogous to “collective dominance” in the EU jurisdiction, which recognizes that two or more independent economic entities may together hold a dominant position vis-à-vis the other operators in the same market. The absence of such a principle was recognized by the CCI in Consumer Online Foundation v Tata Sky, decided on 24 March 2011, where it was observed that section 4 of the Competition Act recognizes that only an “enterprise or a group” can be in a dominant position and as the definition of group only considers related entities, a group of different and completely independent corporate entities or enterprises cannot be considered for the determination of abuse of dominance.

To rein in the situation, an amendment to section 4 has been suggested in the Competition (Amendment) Bill, 2012, which proposes to insert the words “jointly or singly” after the words “or group”. If enacted, the amendment would imply that even unrelated enterprises would be considered to determine if such entities are collectively abusing the relevant market.

Conclusion

The amendment may have far-reaching effects on the real estate sector, as real estate developers which were not punished as they were not in a dominant position on a standalone basis may fall foul of the “collective dominance” principle and be forced to comply with the directions provided by the CCI in the supplemental order. How effectively the CCI monitors the real estate sector will be interesting to observe.

Udwadia Udeshi & Argus Partners is a full-service law firm with offices in Mumbai, Delhi, Bangalore, Kolkata and Chennai. Ramya Hariharan is a partner and Arka Majumdar is a senior associate at the firm.

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