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SUBMITTED TO
Miss. Tulika Shree
(FACULTY COMPETITION LAW)
SUBMITTED BY
GURPREET KAUR CHAWLA
SEMESTER IX, ROLL NO: 47
B.A. LL.B. (HONS.)
ACKNOWLEDGEMENTS
I, Gurpreet Kaur Chawla, consider it my most humble privilege to have been able to
work on the demanding yet most interesting and enthralling of all issues, as one of A
Case Study Analysis On Belaire Owners' Association Vs. Dlf Limited, Huda &
Others. Working on this paper has been one of the most enriching experiences of my
life and has not only amassed bulk of highly relevant and extremely functional
information, but has also endowed me with an empirical, at the same time empathetic
perspective towards the subject. In this context, Id like to extend heartfelt thanks to
the people who have rendered this project as a reality. I would take this privilege to
thank my Faculty, Miss. Tulika Shree, for her unwavering and unconditional support,
incomparable and illuminating knowledge and guidance, without which this project
would not have been feasible. I would also like to express my earnest gratitude to the
HNLU library staff, I.T department, ever-so-helpful seniors and my friends and
colleagues and each and every person without whose help, support and guidance, and
in fact mere presence, this project would never have transformed from strands and
traces of mere thought into tangible black and white reality.
2. COMPAT
3. CREDAI
4. DG
Deputy General
5. DLF
6. DTCP
8. DPA
9. FAR
10. HUDA
11. INR
Indian Rupees
12. USD
13. Anr.
Another
14. Govt.
Government
15. Ltd.
Limited
16. Ors.
Others
LIST OF CASES
LIST OF LEGISLATIONS:
4
or
their
association
or
trade
association.
TA BLE OF CONTENTS:
5
I
II
III
IV
V
VI
VII
VIII
IX
X
XI
Acknowledgements
List of Abbreviation
List of Cases
List of Legislations
Objective & Research Methodology.....7
Introduction8
Facts of the Case..9
Allegations of the Informant...........10
Submissions by DLF Ltd.13
Key Issues involved in the Case....14
Decision Of The Commission And Penalty Imposed..21
Appeal to the COMPAT.21
Analysis..22
Conclusion23
References.24
OBJECTIVE
RESEARCH METHODOLOGY
The methodology for the current research has been non doctrinal with an extensive
use of both primary and secondary sources of data being put to use.
INTRODUCTION
The Competition Act, 2002 which was enacted in order to provide India with a
modern competition law in keeping with internationally established antitrust
principles, seeks to effectively regulate competition in all economic sectors, including
the real estate sector and is enforceable through the Competition Commission of India
(CCI), which replaced the old Monopolies and Restrictive Trade Practices Act
Commission in October, 2009. The Indian Real Estate Sector is widely unregulated.
Though there is some regulation in the form of the various approvals mandated by the
law for the developers, there is specifically no regulator for the sector.
The DLF case began when the Owners Association of Belaire (a DLF building
complex in Gurgaon) filed a complaint against DLF for breaching provisions of the
Competition Act, 2002 dealing with abuse of dominance. On hearing the evidence, the
CCI pronounced DLF Limited (DLF) guilty for grossly abusing its dominant market
position in the relevant real estate market to impose unfair sale conditions for
apartments in the Belaire complex. DLF incurred a penalty of INR 6,300 million (7%
of DLFs average turnover for the last three financial years) and a cease and desist
order was issued against them as well.
The CCI analyzed this information, and on review held that a prima facie case of
abuse of dominance existed and requested the Director General (DG) to conduct
further investigation. DLF immediately challenged the CCIs jurisdiction, but dropped
the matter subsequently. The DG conducted an in-depth investigation and discovered
that the conditions imposed by DLF did indeed violate the Competition Act. So,
before analyzing the DGs report and the issues involved in this case in general, it is
imperative to have a glance of the allegations made against the defendants in the
present case by the Belaire Owners Association.
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Act, 2002 and per-se the acts and conduct of DLF are acts of abuse of
dominant position by DLF Ltd.
2.2. AGAINST GOVT. AGENCIES
The informant also alleged that various Government and statutory authorities
have allotted land and given licenses, permissions and clearances to DLF Ltd.
when it is ex-facie clear that DLF Ltd. has violated the provisions of various
Statutes including Haryana Apartment Ownership Act, 1983, the Punjab
Scheduled Roads and Controlled Areas (Restriction of Unregulated
Development) Act, 1963 and Haryana Development and Regulation of Urban
Areas Rules, 1976.
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enjoys a Dominant Position does not by itself prove that the enterprise
enjoys a dominant position in the alleged relevant market.
E. DLF Ltd. has further stated that since there are a large number of players in
Gurgaon, there is intense competition in the market and therefore no one
enterprise can be said to enjoy a dominant position within the meaning of
Explanation (a) to Section 4.
F. DLF Ltd. has also contended that the data relied upon by DG for determining
dominance while analyzing factors mentioned in Section 19(4) are incomplete,
not authentic and therefore not reliable. No conclusion can be drawn based
upon such data.
G. On the issue of exit option, DLF Ltd. has contended that DG has proceeded on
assumption that whenever an apartment is booked, an exit option must be
provided, although there is neither any such requirement of law nor is it the
industry practice.
4. KEY ISSUES INVOLVED IN THE CASE:
The DG conducted an in-depth investigation of various allegations made in the
information. Using the DGs report, the CCI framed the following four issues and
dealt with them as stated hereinafter:
4.1. Applicability of provisions of Competition Act, 2002 to the facts and
circumstances of the instant caseThe Commission held that section 4 of the Competition Act is relevant and
applicable in the present case. It said that if DLF acts under the clauses of the
agreement, which are now prohibited by the Act, such action can certainly be
examined under the relevant provisions of the Act even though the agreements
were entered between the DLF and the allottees before 20.05.2009 1. The
commission substantiated the above view by mentioning the clarifications
made under Kingfisher Airline Ltd. & Anr. Vs. CCI & Ors.2 as follows:
The question here is whether this agreement, which was valid until coming
1 Section 4 of the Act came into force.
2 W.P. No. 1785 of 2010, High Court of Bombay
13
into force of the Act, would continue to be so valid even after the operation of
the law. The parties as on today certainly propose to act upon that agreement.
All acts done in pursuance of the agreement before the Act came into force
would be valid and cannot be questioned. But if the parties went to perform
certain things in pursuance of the agreement, which are now prohibited by
law, would certainly be an illegality and such an agreement by its nature,
therefore, would, from that time, be opposed to the public policy. We would
say that the Act could have been treated as operating retrospectively, had the
act rendered the agreement void ab initio and would render anything done
pursuant to it as invalid. The Act does not say so. It is because the parties still
want to act upon the agreement even after coming into force of the Act that
difficulty arises. If the parties treat the agreement as still continuing and
subsisting even after coming into force of the Act, which prohibits an
agreement of such nature, such an agreement cannot be said to be valid from
the date of the coming into force of the Act. If the law cannot be applied to the
existing agreement, the very purpose of the implementation of the public
policy would be defeated. Any and every person may set up an agreement said
to be entered into prior to the coming into force of the Act and then claim
immunity from the application of the Act, such thing would be absurd, illogical
and illegal. The moment the Act comes into force, it brings into its sweep all
existing agreements.
Thus, the Act applies to all the existing agreements and covers those also
which though entered into prior to the coming into force of section 4 but
sought to be acted upon afterwards.
Further, the commission held that sale of an apartment can be termed as sale
of service and therefore section 4(2)(a)(ii) is relevant and applicable in the
present case because it can be invoked purchase or sale of either goods or
service. It stated that dealing in real estate or housing construction has always
been taken as service whether it be MRTP Act3 or Consumer Protection Act4 or
Finance Act. Also, a plain reading of section 2(u) of the competition Act
makes it abundantly clear that the activities of DLF in context of the present
3 Section 2(r) of the MRTP Act.
4 Section 2(o) of the Consumer Protection Act.
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matter squarely falls within the ambit of term service. To substantiate on this
Commission relied upon several Supreme Court cases5.
In addition to this, in terms of the section 4 the responsibility of the dominant
player has been made more onerous so, the contention of the DLF that the
impugned clauses existing in the agreement entered between DLF and the
allottees are usual conditions as per industry practice does not hold any
validity. And if such practices are also adopted by a non-dominant player it
may not fall within the ambit of section 4.
4.2. Determination of Relevant MarketSection 4 states that there is an abuse of dominant position if an enterprise or a
group uses its dominant position in one relevant market to enter into, or
protect, other relevant market6. So, before ascertaining dominance or abuse of
dominance it is imperative to identify the Relevant Market in the instant
scenario. And, section 19(5) states that for determining whether a market
constitutes a relevant market, Commission shall pay a due regard to the
relevant geographic market and relevant product market.
Now, in the present case the commission held that a relevant market 7 is
delineated on the basis of a distinct product or service market8 and a distinct
geographic market9.
A. Relevant Service or Relevant Product MarketThe characteristics of a relevant product market has been given under
section 19(7) of the Act. In the instant case, the CCI referred to the DG report,
which described the DLFs services as services provided by real estate
developers for high-end residential building in Gurgaon to say that while
5 Chandigarh Housing Board Vs. Avtar Singh and Ors (III (2007) CPJ 387 NC); Lucknow
Development Authority Vs. M.K.Gupta (1994 SCC (1) 243)
6 Section 4(2) (e) of the Competition Act, 2002
7 Section 2(r) of the Competition Act, 2002
8 Section 2(t) of the Competition Act, 2002
9 Section 2(s) of the Competition Act, 2002
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B. Relevant Geographical MarketOn the issue of relevant geographic market, In terms of section 2(s) of the Act,
condition of competition for the services provided by competitors should be
distinctly homogeneous and can be distinguished from the conditions
prevailing in neighbouring areas. The Commission took into consideration
factors such as local specification requirements and consumer preferences
given as determining factors in section 19(6) of the Act. Based on the facts of
the case, Gurgaon is seen to be the relevant geographic market. CCI also stated
that a decision to purchase a high- end apartment in Gurgaon is not easily
substitutable by a decision to purchase a similar apartment in any other
geographical location. Thus the Commission was of the view that Gurgaon is
known to posses certain unique geographical characteristics such as its
proximity to Delhi, proximity to airports and a distinct brand image as a
destination for upwardly mobile families.
Thus, it was held that high end residential apartments in Gurgaon constitute
the relevant market.
4.3. Determination of Dominant Position-
16
HoffmannLa
uri=CELEX:61976CJ0085
Roche
Case,
http://eur-lex.europa.eu/legal-content/EN/TXT/?
17
After considering the various factors and replies from the parties
concerned, CCI held that DLF Ltd. has contravened the section 4 (2) (a)
(i) of the Act by directly or indirectly, imposing unfair or discriminatory
condition in sale of services, as mentioned below:
Increasing of Floor Area Ratio (FAR) and Density Per Acre (DPA)
Clauses of the agreements are heavily biased in favour of DLF Ltd. and
against the consumers.
The following are the sixteen clauses in the Apartment Buyers Agreement
which were considered to be unfair by the Commission:
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impact on ambience and quality of living, with the allottees having no right to
object.
I. Allottees liable to pay external development charges, without there being
disclosed in advance and even if these are enhanced.
J. Total discretion of DLF regarding arrangement for power supply and rates
levied for the same.
K. Arbitrary forfeiture of amounts paid by the allottees in many situations.
L. Allottees have no exit option except when DLF fails to deliver possession
within agreed time, but even in that event he gets his money refunded without
interest only after sale of said apartment by DLF to someone else.
M. DLF has sole authority to make additions / alterations in the buildings, with all
the benefits flowing to DLF, with the allottees having no say in this regard.
N. Third party rights created without allottees consent, to the detriment of
allottees interests.
O. Punitive penalty for default by allottees, insignificant penalty for DLFs
default.
P. DLFs exit clause gives them full discretion, including abandoning the project,
without any penalty.
Thus, clearly there was abuse of dominance by the DLF Ltd. in the present
case and that DLF Ltd. is in contravention of section 4 (2) (a) (i) of the
Competition Act.
5. DECISION OF THE COMMISSION AND PENALTY IMPOSEDCCI after considering the above alleged abuses by DLF Ltd. and coming to the
finality and conclusion of its validity imposed a penalty of a 630 Crores or INR
6.3 billion (USD 132 Million) on DLF, which is calculated on the basis of 7
percent of the average of the turnover of the Group for the last three years. CCI
has also directed DLF to 'cease and desist' from formulating and imposing such
unfair conditions in its agreements with buyers in Gurgaon and to suitably modify
unfair conditions imposed on its buyers within 3 months of the date of receipt of
the order.
6.
APPEAL
BEFORE
COMPETITION
APPELLATE
TRIBUNAL
(COMPAT)
DLF challenged the CCI order before COMPAT which granted stay order against
the CCI order of imposing penalty under section 27 (b) of the Act subject to DLF
19
7. ANALYSISThe Order sends a strong signal to both the real estate industry and the state-level
government authorities, and may even expedite the process of establishing a realestate regulator by the new government.
The COMPAT Order assumes significance because, firstly, it is one of the initial cases
of the CCI and COMPAT which dealt with exploitative nature of abuse (exploiting
customers) as the jurisprudence on abuse of dominant position mainly centered on the
11 http://compat.nic.in/upload/PDFs/mayordersApp2014/19_05_14.pdf
20
exclusionary abuses like price predation or refusal to deal etc., resulting in the
exclusion of a competitor from the market. Secondly, the COMPAT recognizes the
principle of special responsibility of a dominant enterprise. This principle had been
laid down by European Court of Justice in the Michelin case12 in 1983. It means that a
firm in a dominant position has a special responsibility not to allow its conduct to
impair undistorted competition on the market. Thirdly, COMPAT confirmed the
approach of the CCI on penalty, unlike the cases in the past where COMPAT has
substantially reduced the penalty imposed by the CCI.
At present, the CCI is investigating more than 70 real-estate companies for alleged
cartelization. In the wake of the COMPAT Order, the real estate industry must agree to
voluntarily commit itself to ensuring the highest standards of competition law
compliance within the sector by adhering to the principles of fair competition in all of
its business practices. In this regard, Apex Builders Associations like CREDAI can
play a vital role in sensitizing their member builders on the benefits of competition
compliance. In many other countries, responsible builders associations prescribe
standard pro-forma contracts that are less skewed. It is time that real-estate developers
fastened their best practices to responsible compliance with the Competition Act13.
12 http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:61981CJ0322
13 http://indialawjournal.com/volume7/issue-1/article5.html
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CONCLUSION
The crucial point to be seen in this regard is the overlapping of the
jurisdictions of the CCI and consumer forums14. Mostly, the allegations that
the Apartment buyers are putting forward are in the nature of mere consumer
disputes. Though the preamble of the Competition Act, 2002 reads in its ambit
the protection of consumers interest also, it cannot overtake the role of the
consumer forums. Many consumers have regarded the DLF judgment as their
protector and have approached the CCI. It is further pertinent to point out that
the abuse of dominant position provisions can be applied against an enterprise
only when it is first dominant. It is due to these reasons that in a majority of
cases the CCI has held that there is no prima facie case and left the option
open to the consumers to approach an appropriate forum.
CREDAI must embark on the responsibility of ensuring that the developers do
not try to become larger than the competitive forces in the market. Specifically
after a case like DLF has come before everyone, it is expected that the
association must take a proactive step to ensure the code of conduct laid down
by it is followed and any violations should be seen strictly.
The practices in the real estate sector relating to the practice of making
standard form contracts containing unfair and discriminatory terms should be
checked so that competition in the market is not harmed. Delays in the projects
and changes in the layout without the consent of the buyer should be also
checked. It is hoped that most of the concerns will come to an end when the
Real Estate Regulator is brought in and starts functioning.
REFERENCES
ACTSCompetition Act, 2002
JOURNALS/ARTICLESMM Sharma and Vaibhav Choukse, Impact of Competition Law on
Indian Real Estate Sector: An analysis of Order against DLF, 2012
CompLR B-111.
Shobhit Ahuja and Nakul Bajpai, A Review of Competition Issues In
Real Estate Sector: An Analysis of Post Position DLF case, 2007 ILJ
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WEBSITEScci.gov.in
nujssitc.wordpress.com
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