The Competition Act, 2002 was enacted in India to provide with modern competition laws in keeping with internationally established antitrust principles and also ensures effective regulation of competition in all economic sectors within India. It is enforced by the Competition Commission of India (CCI) which succeeded the old Monopolies Restrictive Trade Practices (MRTP) Act Commission in October 2009.
The DLF Case began when the owner’s Association of Belaire (a DLF building complex in Gurgaon) filed a complaint against the builder for breach of Sec.4 of the Competition Act which dealt with Abuse of Dominance by a seller in the market. On hearing the evidence, the CCI pronounced DLF guilty for grossly abusing dominant market position in Real Estate sector as it imposed unfair sale condition not only imposed on Belaire apartments but also DLF Park Place and Magnolia.
FACTS OF BELAIRE OWNER’S ASSOVIATION V. DLF LTD.
DLF builders launched a housing complex, ‘Belaire’ which, as per initial plan consisted of 368 flats in total in 5 multi-storied residential building consisting 19 floors each to be constructed in DLF City, Gurgaon. Payments schedule was linked to projected stage wise competition of the project with some amount to be paid at the time of booking of the flat, 2 months after the booking date and remaining as per scheduled stage wise competition of the project. The advertisements of the builder also guaranteed additional facilities such as clubhouse gymnasium etc., and ensured completion of the buildings within 36 months from the launch of the project.
When the construction began, 5 buildings itself were constructed, however each building’s floor number increased from 19 to 29 leading to an increase in total number of flats from 368 to 564. Additionally, the facilities ensured by the builders were compressed due to shortage of area and the delivery of the apartments were delayed to the owners by 2 years, even though the apartment owners made their payments well on time.
The Belaire Owner’s Association (BOA) filed a complaint against the DLF Ltd. with Competition Commission of India (CCI) accusing them of abuse of dominant position by their use of contracts with the apartment owners. The BOA alleged various clauses of the Apartment Buyer’s Agreement (ABA) entered into with the developer on buying flats as arbitrary, unfair and unreasonable.
CCI analyzed this information and held that prima facie case of abuse of dominance existed and requested the Director General (DG) to conduct further investigation. DLF immediately challenged the CCI’s jurisdiction but dropped the matter subsequently. The DG conducted an in-depth investigation and discovered that the conditions imposed by DLF did violate certain provisions of the Competition Act.
The CCI on the basis of DG’s in- depth investigation held that the Act is applicable in the instant case. It delineated the real estate market on the basis of services provided by developers for construction of high-end buildings in Gurgaon.
ISSUES IN BELAIRE OWNER’S ASSOVIATION V. DLF LTD.
Using the DG’s report, the CCI framed the following issues before the COMPAT (Competition Appellate Tribunal):
Whether the provisions of Competition Act, 2002 shall be applied to the facts and circumstances of the case-
CCI ordered that the Competition Act is applicable to this dispute. However, DLF appealed against this with the counter arguments that:
a) ‘Sale of Apartment’ can neither be termed as sale of goods nor sale of services thus Sec. 4(2)(a) of the competition Act is not relevant. And applicable to this case.
b) Furthermore, the terms and conditions of the agreement were executed in December 2006 prior to introducing the provision relating to the Abuse of Dominance under this Act.
c) It was also urged that prior to effective enforcement of this provision, there no legally recognized concept of an enterprise having a Dominant Position. Therefore, dominance of an enterprise after May 20th 2009 (the day anti-competitive agreement and the abuse of dominance were notified as provisions for amendment in Competition Act [Amendment] Bill,2009) shall be deemed to have contravention of Sec.4(2) if any discriminatory or unfair condition was imposed.
Relying on the jurisprudence laid down by in MRTP Commission and several Supreme Court judgements, the COMPAT concluded that housing activities undertaken by DLF Ltd. are considered as ‘Services’ as it may have a wide interpretation. COMPAT also stated that though the agreements entered into between the DLF and Owners were prior to the Competition [Amendment] Act,2009 the provisions of the same shall extend to even agreements entered prior the enforcement of such provisions.
What was the relevant market in the context of Sec.4 read with Sec 19 of the Act?
CCI ordered that the relevant product market (RPM) is of services of builder in respect of high-end or luxury residential accommodations and the relevant geographic market (RGM) is Gurgaon. The DLF appealed against this order on the ground that:
a) There is no difference between luxurious or high-end residential accommodation on one hand and economic or low-end residential units on the other. Therefore, both belong to the same product market.
b) The RGM for the purposes of the case should be National Capital Region. Gurgaon in itself does not constitute RGM.
COMPAT completely agreed with CC’s finding on RPM as well as RGM. COMPAT also accepted CCI’s application of SSNIP test that small increase in price does not affect the customers as they will not move to non-luxurious apartments or outside Gurgaon. Since the decision to buy this kind of accommodation at this location is not easily substitutable with a decision to purchase a similar apartment in any other geographical location, it was thus decided that high end residential apartments in Gurgaon constitute relevant market.
Whether DLF is occupying a dominant position in the above relevant market?
Sine DLF had the highest market share in the real estate sector of 45%, there were minimal competitive constraints on DLF. Moreover, DLF had an early mover’s advantage in the real estate sector which naturally had entry barriers due to high cost of land and brand value incumbent market leaders. As per the DG’s report, CCI concluded that DLF was way ahead of its competitors and faced almost no threat in the market due to low market concentration by virtue of brand value and financial strength. Based on the above contentions, CCI ordered that DLF was in fact a dominant player in the real estate market in India. DLF appealed against this order on the counter that:
a) There being an intense competition, none of the market players are in ‘dominant’ position.
b) DLF doesn’t enjoy the position of strength in the relevant market, there are no entry barriers into the market and also there is no question of countervailing buying power.
c) The DG’s conclusion on market share was derived through a faulty ‘All India Sales Figure’ as large number of real estate companies were not considered and no reliable analysis of market share can be made bases on sales figure alone.
COMPAT did not find any errors in the considerations given by CCI about the dominant position of DLF Ltd. in the real estate market. In fact, COMPAT affirmed that DLF had a market share of 45% which was twice as compared to the market share of the nearest competitor which was 19%, leading to hardly having any competition constraints. It also held that DLF had an early mover’s advantage and occupied a leadership position in the market with natural entry barriers such as high cost of land and brand value of incumbent market leaders. The market having low-level of concentration, DLF faced negligible level of threat from the competitors and enjoyed ‘position of strength’ in the market. Therefore, it was established that DLF had a dominant position in the real estate market.
If yes, Whether DLF has abused its dominant position in the relevant market-
CCI ordered that DLF has abused the dominant position in the real estate market through their unilateral powers to alter the provisions in the buyer’s agreement without giving any rights to the buyers, DLF’s discretion to change inter se areas for different uses such as residential commercial etc., without informing the buyers and DLF’s sole discretion to determine ownership rights. DLF countered these orders with the following argument:
a) Alleging mere abuse is not enough unless the same is corroborated with necessary evidence.
b) The conditions imposed in the agreements are standard clauses inserted as per industry practice and are no way a reflection of abuse of dominant position. Moreover, several benefits have been provided by DLF to the buyers and the same is not to be ignored.
c) Further, there is no law which acts as an impediment to launching new projects prior to submitting building plans, layout of the project.
d) All agreements have been entered between the partied consensually and are thus binding; thereby the issue of abuse of dominant position does not arise.
COMPAT recapitulated its view that CCI is not in a position to examine the buyer’s agreement which came into existence when sec.4 was not available to the parties. a) CCI was wrong to hold that these clauses were one-sided, unfair and heavily leaned in the favour of DLF. However, COMPAT also held that DLF has abused the dominant position in the market on account of various impositions of unfair and discriminatory conditions in sale of services within the meaning of Sec 4(2)(a). These include:
i. Mysterious silence on the part of DLF to let the informants know the number of additional floors, which the planned to and would be constructing which in fact they knew at the very moment of starting of the construction. The intimation about the increase of the number of floors after 20th May,2009 amounts to an imposition of unfair condition
ii. The unfairness lies on the sinister silence on the part of DLF about the increase in the number of floors The informants did not have even a ghost of idea as to how many persons they shall share the lifts with or the common area or for that matter sharing the swimming pool or the gymnasium. Here the DLF had a duty to let the informants know about the proposed increase and obtain their views on same.
iii. Moreover, DLF started constructing additional floors before the final approval from the concerned authorities which came in 2009 is wholly illegal and unauthorized. Therefore, DLF was actually offering to the informants a piece of illegal and unauthorized construction which amounts to imposing unfair conditions against the wishes of the consumer.
Thus, COMPAT held that the DLF has abused its dominant position and committed breach of sec. 4(2)(a)(i) and (ii) of the Act.
JUDGEMENT: BELAIRE OWNER’S ASSOVIATION V. DLF LTD.
As there was a clear abuse of dominant position by DLF in the real estate market, as per the CCI order, the COMPAT imposed a penalty of INR 6,300 million which was 7% turnover of the DLF. However, the order of CCI upon inflicting fine for similar instances to other apartments such as Park Place and Magnolia was rejected by the COMPAT as all the three buyer’s agreements were similar and the penalty could not be imposed on DLF for the same reason again.
From the analysis of the facts as well as key issues put forth by the CCI and DLF Ltd. before the COMPAT, it is justified that DLF indeed abused its dominant position in the real estate market. DLF has not only imposed unfair developer conditions upon the buyer’s of Belaire, but has imposed similar unfair conditions upon other complexes of DLF such as Park Place and Magnolia by increment in the number of floors in each of these DLF buildings. Moreover, DLF imposed these conditions unlawfully before getting legal permission from relevant authorities. Hence this is a clear performance of abuse of dominance by DLF Ltd. and the penalty imposed upon them is just. This case not only encouraged DLF to quit such unfair, dominant practices but it also set an example to several other competitors in varied markets within the economy to not take up abusive trade practices and provide only quality goods and services to the consumers in India.
Author Details: Gayathri Vijayan (CMR School of Legal Studies)
The views of the author are personal only. (if any)