This article is split into two parts, with Part I discussing the first CCI order with regard to DLF Ltd. v. Belaire Owners Association and Part II discussing the appeal to the abovementioned order before the COMPAT and the subsequent CCI order regarding the same case. This part seeks to analyze the impact of the appeal before the COMPAT and the subsequent CCI order.
Appeal before Competition Appellate Tribunal(COMPAT)
The CCI order was challenged by DLF on several grounds by filing appeals before the Competition Appellate Tribunal (COMPAT). In November, 2011 the COMPAT granted DLF a stay on the CCI’s order (except the cease and desist order) till the appeal was decided by them. In March 2012, the COMPAT remanded the matter to the CCI to suggest suitable amendments to the agreements concerned as per § 27(d) of the Competition Act, after considering the drafts modified Agreements submitted by both parties.
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.
Impact of the recent CCI order modifying the DLF Buyers Agreement
Broadly, the salient modifications made by the CCI include making time an essence of contract for both parties, listing out the events of defaults and consequences thereof, rejection of rights to make additional constructions and exclusive ownership of common areas and amenities and curtailing DLF’s right to nominate either the Resident’s Welfare Association (RWA) or a maintenance agency at its sole discretion and force a tripartite agreement upon the apartment owners or the RWA.
Though the order is a final order under § 27(d) of the Competition Act, it is still subject to challenge by DLF in the pending appeal before COMPAT and subsequently the Supreme Court. It is still not applicable to buyers’ agreements negotiated by other builders.
Moreover, even if DLF is eventually made to pay the imposed penalty of INR 630 crore (which could potentially increase to INR 900 crore since the regulators have received complaints from more than 10 other DLF project associations including Park Palace, Magnolias and New Township Heights), the same principle will not apply in the case of complaints filed against other real estate developers because the CCI proved the dominance of DLF in the market by making other developers look smaller in size by comparison and hence the ‘dominance’ argument could not be applied against them as a precedent and would have to be established on a case by case basis depending on individual facts of each complaint.
While the CCI order has raised some apprehension among the real estate community, the order by itself need not make other realty players modify their buyers agreements as on date. There can be no doubt that even if the COMPAT approves the changes made by the CCI, DLF will appeal to the Supreme Court. Only if the Supreme Court upholds the CCI’s decision (including the modifications) will it be established as judicial precedent. However, even if this occurs, the Supreme Court decision will not automatically bind other builders. It is only in the event that the Supreme Court order specifically directs that the order applies to the industry as a whole that changes need to be made by all builders and promoters. In such an eventuality, the industry will have to become more customer-friendly and shed a number of age-old business practices which exploited the general public.
Criticism of the Supplementary Order passed by the CCI
The CCI’s order has been criticized on various grounds. Numerous questions have been raised regarding why the competition regulator failed to issue a show cause notice to the DLF prior to imposing its penalty. Furthermore, in the opinion of some legal experts, the CCI’s definition of the term ‘legal market’ is said to be based on weak ground. This played an imperative role in their key argument for determining whether or not DLF qualified as a ‘dominant’ player which had abused its role in the market. There is also much speculation by industry observers that the decision may be in conflict with one of the fundamental principles guaranteed by law i.e., the freedom to contract. The decision handed down by the CCI is thus replete with ambiguous aspects of law which need to be rectified by a higher forum.
In fact, one of the main grounds of appeal of DLF is that CCI has not conducted the necessary econometric analysis called SSNIP[1] (small but significant and non-transitory increase in price) which is based on an established practice in international competition law. The guiding principle of the SSNIP (also known as the Hypothetical Monopolist test) is that ‘a relevant market is worth monopolizing.’ It used to establish the correct relevant geographic market and would, in the present case, determine whether DLF was in a dominant position within the relevant market of the high end apartments in Gurgaon. Incidentally, in this regard, the CCI has closed a large number of cases (including one against DLF itself in Chennai) on grounds of absence of dominant position in the relevant markets. The reasons for the same included lack of a prima facie case of the company holding a dominant position in market, nothing on record or otherwise to show that the company could operate independent of the market forces in the relevant market, lack of circumstantial and economic evidence to this effect pursuant to an official probe into such charges.
The Way Forward
The order passed by the CCI is not a panacea for all ills affecting the real estate sector, which is in dire need of a sector regulator so that it can be approached directly in matters like these. Deepak Parekh (ex- Chairman of HDFC) has also strongly endorsed this idea and called for tighter regulations to cleanse the housing sector of vested interests and its characteristic opaqueness in the recent decade because it has intrinsic linkages with the economy. He also feels that consumers can only approach the consumer or civil courts as recourse in case of disputes, which do not offer an immediate remedy.
The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill recently received the President’s assent in September, 2013 and is expected to come into force from January, 2014. This new law will guide all land acquisitions by central or state governments, bringing in stricter norms and increasing landowners’ compensation significantly.The aim of the bill is to provide fair compensation to people whose land has been taken away for setting up the buildings, factories or infrastructural projects. This brings in more transparency to the process of land acquisition and assures people of rehabilitation if they fall under the affected areas. It establishes regulations for land acquisition as a part of India’s massive industrialization drive driven by public-private partnership. The Act will replace the Land Acquisition Act, 1894, a nearly 120-year-old law enacted during British rule.
The Real Estate (Regulation and Development) Bill has not been passed in two years now and awaits Parliamentary approval. The first part of the bill aims to establish a full-fledged regulator to bring order in urban housing and the latter plans to put in place incentive mechanisms for construction of affordable housing by the private sector. Members of the developer fraternity strongly lobby against the bill as they claim it is too draconian and would be an added deterrent in the time consuming process of approval obtainment.
There is also the possibility of overlap between the real estate regulator and the CCI. Similar conflict has arisen between the CCI and other regulators (like the electricity regulator CERC) as well. It leads to uncertainty, ambiguity and policy incoherence due to divergence in approaches between the airline sector regular (DGCA) and the CCI. CCI’s mandate is to regulate competitive conditions for all goods and services in the Indian Market as it is responsible for promotion and protection of competition in the economy as a whole. A possible real estate regular would have a similar aim, specific to the field of real estate. Thus, in this sector too, there could be possible clash leading to further complications.
The requirement of a real estate regulator as an apex national body is a necessity to protect home buyers and ensure transparency in the functioning of developers. The need for it is further enhanced by the recently increasing number of cases throwing light on malpractices and dominant actions of real estate developers. A balance needs to be struck between the interests of builders and the middle-class home buyers. However, till the time the basic requirement of an effective real estate regulator emerges (which serves the same purpose as SEBI does in the sphere of investment protection), CCI will continue to attract attention of the common flat buyers from the middle class.
This post has been authored by Pratik Ranjan Das and Yamini Kumar, students at the West Bengal National University of Juridical Sciences and members of the Society for International Trade and Competition Law.
[1] Introduced by the US Department of Justice Merger Guidelines, 1982 and recognized by the European Commission. This analysis provides a systematic and scientific method to determine ‘relevant product market’ in order to ascertain whether companies have significant market power. Competition regulating authorities and other actuators of anti-trust law use it to prevent market failure caused by cartels, oligopolies, monopolies, or other forms of market dominance.
Comments