Housing comes under heat

The Financial Express, August 24, 2011

By Pradeep S Mehta

Even while the case where the Competition Commission of India (CCI) imposed a penalty on NSE for abuse of dominance was still under public debate, CCI has followed up with yet another crackdown on abuse of dominance, this time by India’s largest real estate company, DLF. DLF Limited was slapped with a record R630 crore fine for abuse of dominance of an exploitative nature. DLF Limited was found guilty by CCI of imposing arbitrary, unfair and unreasonable conditions on apartment allottees of one of its numerous housing complexes, the Belaire situated in Gurgaon.

The case arose following complaints from the Belaire Owners’ Association, which was formed by the allottees of flats. The case had also sucked in two government institutions, namely the Haryana Urban Development Authority (HUDA) and the Department of Town and Country Planning (DTCP), Haryana. They, however, managed to escape unscathed. HUDA is a statutory body under the Haryana Urban Development Authority Act, 1977, while DTCP is a government department established to enable regulated urban development in the state of Haryana.

The case was characterised by a lot of drama as DLF, acting in a typically guilty fashion, tried all legal tricks to ensure that the case was shut down.

n During the trial, DLF threatened cancellation of allotments to the complainants, which the CCI stopped through an interim order on September 20, 2010.

n DLF tried to get out of the trap by challenging the jurisdiction of CCI before the Competition Appellate Tribunal, but failed as COMPAT directed the CCI to proceed.

n DLF raised the issue of CCI’s jurisdiction by pointing out that the case was arising from contracts signed by the allottees in the year 2006 etc, before the enabling provision in the Competition Act came into force in May, 2009.

n DLF tried to suppress the investigation report by the director general by filing a writ petition in the Delhi High Court. The court did not oblige DLF, but directed CCI to allow DLF to inspect the report.

DLF vigorously argued throughout the case that it was not in a dominant position as defined under the Act, looking for various loopholes in the Act to pull off an escape. This is despite various pronouncements and postulations in its annual report and at different fora, where it claims to be the largest property developer in the country and boasts of being the dominant player. It is only when such information was used against DLF that it started crying foul.

Another misconception that is going around is that an abuse of dominance can only exist when the players are in an oligopolistic situation, or dominant as a market player. If there is competition in the field, then a player cannot abuse its dominance. This is wrong because the seller(s) can be abusive when the buyers are already in contract under unilateral and onerous conditions. Please see my article on collective abuse of dominance, where, in fact, CCI had erred on the grounds that housing finance providers cannot abuse their dominance as there are a large number of players http://www.financialexpress.com/

news/column-watch-out-for-collective-abuse/797304/0). It is good to see that CCI is travelling up on the learning curve.

We have also argued for an Unfair Terms of Contract Act on the lines of a similar law in the UK, which can then be used by CCI (and consumer fora) whenever faced with a complaint of an exploitative nature, such as in the present instance.

While the efforts and thorough investigations by CCI are commendable, it is not overly pleasing that the two government institutions were easily let off the hook. It had also been alleged that HUDA and DTCP, by virtue of being public bodies, had also facilitated the abuse of dominance by providing DLF with the necessary ammunition to act in an illegal, unfair and irrational manner by allotting land and giving licenses, permissions and clearances to the company despite the evidence that the company was

in violation of the provisions of various statutes that the government institutions are actually supposed to administer.

From the report, it is quite apparent that CCI let them off the hook simply on the basis that they are not providing services of a commercial nature related to those by the DLF group or its competitors; hence, whatever they did would not constitute an abuse of dominance.

Whilst this might be true, CCI could also have used its advocacy role, as provided under section 49 (3) of the Competition Act, to at least caution the public sector bodies against facilitating abuse of dominance, as part of its measures targeted at creating awareness and imparting training about competition issues. It is quite apparent that HUDA and DTCP unwittingly facilitated the violation of the Act. Hopefully, such matters can be addressed through the National Competition Policy—under discussion at the highest levels of the government—the aim of which is to attack competition distortions created by bad policy.

It is also commendable that CCI imposed a penalty calculated as 7% of average turnover for the last three preceding years. Under section 27 of the Act, a maximum fine of 10% is provided for, which implies that CCI imposed a rate that is quite close to the maximum allowable. This could have been motivated by the frustration CCI endured as DLF was trying to stop investigations by hook or crook, which only helped in creating hostility.

The decision of CCI to be harsh with a real estate firm is also commendable, given that cases of abuse of dominance in the sector are also being unearthed elsewhere. In Canada, for example, the competition authorities have taken an interest in the sector, settling a lengthy investigation into the practices of the Canadian Real Estate Association in October 2010 before announcing a new case in May 2011, alleging an abuse of dominance by the Toronto Real Estate Board in the market for residential real estate brokerage services. This is a market susceptible to abuse.

It is hoped that the two recent cases by CCI will go a long way in appeasing the negative opinion of CCI that consumers had been building, that it is a toothless bulldog. Now DLF has the option of appealing to COMPAT and then the apex court, which it will surely use. It may take a long time for consumers to get justice, but the CCI decision will certainly send a scare among similar practitioners and also build greater public support for CCI.

Pradeep S Mehta Secretary General, CUTS International, Cornelius Dube of CUTS contributed to this article

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