Académique Documents
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Submitted to :
By:-
Rakhi Kumari
LL40
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LIST OF ABBREVIATIONS & ACRONYMS
4. DG Deputy General
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12. USD United States Dollar
LIST OF CASES
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LIST OF LEGISLATIONS:
Monopolies and Restrictive Trade Practices Act, 1969 (Repealed and replaced
by the Competition Act, 2002)
1. Section 2 (r) : Definition of service.
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TABLE OF CONTENTS:
Acknowledgements
List of Abbreviation
List of Cases
List of Legislations
I. Objective & Research Methodology……..……………………………...7
II. Introduction………………………………………………………………8
III. Facts of the Case……………………………………………….….………9
IV. Allegations of the Informant…………………………..………..…......….10
V. Submissions by DLF Ltd.…………………………………………………13
VI. Key Issues involved in the Case……………………...…………………….14
VII. Decision Of The Commission And Penalty Imposed….………………….21
VIII. Appeal to the COMPAT…………………………………………….……21
IX. Analysis……………………………………………………………………..22
X. Conclusion…………………………………………………………………23
XI. References………………………………………………………………….24
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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.
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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 DLF’s average turnover for the last three financial years) and a ‘cease and desist’
order was issued against them as well.
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1. FACTS OF THE CASE:
DLF announced the launch of a Housing Complex, named ‘Belaire’ comprising five
multi-storied residential buildings to be constructed in DLF City, Gurgaon, Haryana.
In its initial plan, DLF designed five multi-storied buildings, which would consist of
only 19 floors with a total of 368 apartments to be constructed within a period of 36
months. However, in place of 19 floors with 368 apartments, which was the basis of
the apartment allottees booking their respective apartments, 29 floors had been
constructed. Also, DLF even imposed highly arbitrary, unfair and unreasonable
conditions on the owners of apartments in the complex in their buyer agreements.
These unfair conditions were brought to the notice of the CCI by the Belaire Owners’
Association against DLF Ltd., And, with this unlawful authorization for the foregoing
construction was also brought to the notice of the CCI simultaneously against
Haryana Urban Development Authority and Department of Town and Country
Planning, State of Haryana.
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 CCI’s 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 DG’s 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 Owner’s Association.
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2. ALLEGATIONS OF THE INFORMANT:
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plans of the building have to be registered under the Indian Registration
Act, 1908.
C. Further, neither before coming up with the Project nor after the
Agreement, it was mentioned that the Layout Plan for the Building was not
placed/gotten approved by the Department of Town and Country Planning,
State of Haryana (Opposite Party 3). Thus, the quintessential fact was
concealed by the DLF Ltd. and money was procured by keeping the buyers
under the garb of adorned agreement.
D. DLF had conferred on itself the exclusive right to reject and refuse to
execute any Apartment Buyers Agreement without assigning any reason,
cause or explanation to the intending allottee for doing so. It could further
carry out any changes in the layout plan for which the consent of the
allottee shall not be a necessity and if any amount is liable to be returned
in respect of preferential location charges to the allottees on account of
such change, it would not be refunded but adjusted in the last installment
without any interest. Plus, apartment allottee would not even be permitted
to carry out any investigation and would not be entitled to raise any
objection to the competency of DLF Ltd.
E. Time is made of essence with respect to the payment obligations of the
allottee but not the performance of DLF, more particularly, handing over
the physical possession of the apartment to the apartment allottee.
F. In case of failure by DLF to deliver the possession, the allottee is obligated
to give a notice to terminate the agreement. DLF is not bound to refund the
money but gets the right to sell the apartment and only thereafter repay the
amount.
G. There’s serious encroachment on rights of the apartment allottees as
although both the land beneath the building and the super areas of the
building have been paid by the apartment allottees and for all practical
purposes these areas belong to the apartment allottees, yet DLF Ltd.
unilaterally has reserved to itself the right to mortgage/create lien and
thereby raise finance/loan. In case of non-payment, the allottee becomes
the direct sufferer.
H. It has further been submitted by the informant that clause 35 brings to the
fore the arbitrary mis-match between the buyer and seller, whereby the
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apartment allottee has been foist with the liability to pay exorbitant rate of
interest in case the allottee fails to pay the instalment in due time i.e. 15%
for the first 90 days and 18% after 90 days. When this lop-sided provision
is compared to clause 11.4 the unfairness of the agreement is amply
demonstrated as DLF Ltd. would pay only Rs. 5/- sq. ft. to the allottee for
per month delay, i.e. 1% per annum.
I. Between the date of booking and the date of execution of the ABA, the
allotee had already paid amounts to the tune of Rs 85 lakhs without
knowledge of the unfair terms that would be included in the ABA.
Thereafter, there was delay in taking the necessary approvals by the
company and before the construction was even started, DLF had around
33% of the consideration in its pocket.
J. It has used its position of strength in dictating the terms by which while on
the one hand it has excluded itself from any obligations and liabilities, on
the other hand it has put the apartment allottees in extremely
disadvantageous conditions.
K. The informant has alleged that the various clauses of the agreement and
the action of DLF Ltd. pursuant thereto are ex-facie unfair and
discriminatory attracting the provisions of Section 4 (2)(a) of Competition
Act, 2002 and per-se the acts and conduct of DLF are acts of abuse of
dominant position by DLF Ltd.
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3. SUBMISSIONS BY DLF LTD.:
A. That the basic terms and conditions between the company; and allottees were
agreed to, prior to the coming in to force of Section 4 of the Competition Act
(20.05.2009). The said Act is prospective and not retrospective. Further, prior
to 20.05.2009, there was no legally recognized concept of a company having a
“dominant position”. This concept is introduced by Section 4 as defined in
Explanation (a) thereof. As such, even if a company can be said to have a
dominant position, such position would only be on or after 20.05.2009.
B. DLF contended that as ‘sale of an apartment’ can neither be termed as sale of
goods nor sale of service, section 4(2)(a)(ii) is not relevant and applicable in
the present case because it can be invoked only when there is purchase or sale
of either goods or service.
C. The conditions included in the agreement are “usual conditions’ as per
industry practice and thus cannot be said to have been imposed by abuse of
dominant position. It is necessary to incorporate such clauses in order to
remain competitive. Such agreement is fully protected under the explanation
to subsection 2(a) of Section 4 of the Act.
D. That mere mention in reports that a company is a leading company or that it
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
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industry practice.
The 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.2as follows:
“The question here is whether this agreement, which was valid until coming
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
1
Section 4 of the Act came into force.
2
W.P. No. 1785 of 2010, High Court of Bombay
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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
matter squarely falls within the ambit of term ‘service’. To substantiate on this
Commission relied upon several Supreme Court cases5.
3
Section 2(r) of the MRTP Act.
4
Section 2(o) of the Consumer Protection Act.
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)
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may not fall within the ambit of section 4.
Now, in the present case the commission held that a relevant market 7 is
delineated on the basis of a distinct product or service market 8 and a distinct
geographic market9.
6
Section 4(2) (e) of the Competition Act, 2002
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Section 2(r) of the Competition Act, 2002
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Section 2(t) of the Competition Act, 2002
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Section 2(s) of the Competition Act, 2002
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mentioned earlier, may be broadly considered to define the characteristics of
‘high-end’ residential accommodation.
On 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.
The evaluation of this “strength” is to be done not merely on the basis of the
market share of the enterprise in the relevant market but on the basis of a host
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of stipulated factors such as size and importance of competitors, economic
power of the enterprise, entry barriers etc. as mentioned in Section 19 (4) of
the Act. This wide spectrum of factors provided in the section indicates that
the Commission is required to take a very holistic and pragmatic approach
while inquiring whether an enterprise enjoys a dominant position before
arriving at a conclusion based upon such inquiry.
Consequently, the commission came to the finding that due to the sheer size
and resources, market share and economic advantage of DLF over its
competitors, DLF is not sufficiently constrained by other players operating on
the market and has got a significant position of strength by virtue of which it
can operate independently of competitive forces (restraints) and can also
influence consumers in its favour in the relevant market in terms of
explanation to Section 4 of the Act. Economies of scale, resources, and the
fact of it being in business since last sixty years in the relevant market is also
giving it a distinct advantage over the other players in the market. DLF has
built a brand over the years, which affects the consumers in its favour. It was
held that DLF had the highest market share (45%), vis-a-vis the market share
of the nearest competitor (19%) which was more than twice of its competitor,
leading to hardly any competitive constraints. Further, DLF had a clear early
mover's advantage and occupies a leadership position as real estate is a sector
with natural entry barriers due to high cost of land and brand value of
incumbent market leaders. Thus, it is established that DLF is the dominant
player in the market.
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Inordinate delay in completion and possession and forfeiture of amounts
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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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 DLF’s
default.
P. DLF’s 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.
CCI 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.
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
furnishing an undertaking to pay 9% interest on the amount of penalty to be
determined by COMPAT for the period from the date of order by CCI till the date
of payment by DLF. Further, COMPAT ordered that the directions of CCI for
modifications of terms of the Agreement shall remain in abeyance. However, the
direction of CCI to "cease and desist" with the implementation of the Agreement
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was not stayed. As per the COMPAT remand, both the parties submitted the
modified terms and conditions before CCI. The CCI after hearing both the parties,
has modified the standard terms and conditions of the flat buyers agreement in its
simple meaning order with deleting nearly 16 clauses from the agreements. This
modified agreement order by CCI was again challenged by the DLF in COMPAT.
Accordingly, in January 2013, the CCI modified the standard terms and conditions
of the flat buyers agreement in a detailed order which raised a number of
legitimate concerns in the real estate sector as to whether the terms and conditions
suggested by the CCI would apply to all builders’ flats with regard to the
respective flat buyer agreements.On May 19, 2014, in a landmark order 11 , the
COMPATupheld the order of the CCI imposing a record penalty of INR 630
crores (USD 140 million) on DLF Limited for abusing its dominant position.
The COMPAT observed that the “Competition Law must be read in the light of
the philosophy of the Constitution of India, which has concern for the consumers
and the dominant player in the market has a special duty to be within the four
corners of law.”
7. ANALYSIS-
The 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 real-
estate 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 ‘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
11
http://compat.nic.in/upload/PDFs/mayordersApp2014/19_05_14.pdf
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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
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http://indialawjournal.com/volume7/issue-1/article5.html
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CONCLUSION
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REFERENCES
ACTS-
Competition Act, 2002
JOURNALS/ARTICLES-
MM 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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WEBSITES-
cci.gov.in
nujssitc.wordpress.com
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