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BUSINESS LAW

ASSIGNMENT
COMPAT upholds CCI order in DLF
Belaire Owners Association Case







Submitted By
Shruti Malhotra
Enrollment No 06216688512
Section : B
MBA WK (GEN)



Contents
COMPAT upholds CCI order in DLF Belaire Owners
Association Case ..................................................................... 1
COMPAT upholds CCI order in DLF Belaire Owners
Association Case ..................................................................... 3
Introduction ............................................................................. 3
Background.............................................................................. 3
Findings of the COMPAT .......................................................... 4
Issue I: Jurisdiction of the CCI ................................................................................................................... 4
Issue II: Retrospective Operation of the Act & Applicability of Kingfisher Judgment............................... 4
Issue III: Relevant Market and Dominant Position of DLF ........................................................................ 5
Issue IV: Abuse of Dominant Position by DLF ........................................................................................... 5
Issue V: Quantum of Penalty and Role of Government Departments ...................................................... 6
Analysis ................................................................................... 6





COMPAT upholds CCI order in DLF
Belaire Owners Association Case
contributed by Vaibhav Choukse, Senior Associate - Competition Law and Policy,

Introduction

On May 19, 2014, in a landmark order, the Competition Appellate Tribunal (COMPAT)
upheld theorder of the Competition Commission of India (CCI) imposing a record
penalty of INR 630 crores (USD 140 million) on DLF Limited (DLF) for abusing its
dominant position (COMPAT Order). Based on amedia report, the allottees are
planning to move the COMPAT to file compensation claims under Section 53-N of the
Competition Act, 2002 (the Act).

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.

Background

On the basis of information filed by Belaire Owners Association, an association formed
by the apartment allottees of a DLF building, the CCI found DLF guilty for abusing its
dominant position in the market for services of developer/builder in respect of high-end
residential accommodation in Gurgaon in contravention of Section 4 of the Act. The CCI
imposed a penalty of INR 630 crores (USD 140 million), at the rate of 7% of the average
turnover of DLF and issued a cease and desist order against DLF from imposing unfair
conditions in the Apartment Buyer's Agreement (ABA) executed between DLF and
allottees. CCI also directed DLF to suitably modify the terms of the ABA.

Following the order of CCI, DLF moved to COMPAT challenging the findings of the CCI.
During the pendency of appeal, COMPAT directed the CCI to furnish a suitably modified
ABA post consideration of the draft modified terms submitted by DLF and Association.
Following the directions of COMPAT, the CCI suitably modified the abusive clauses of
ABA.


Findings of the COMPAT

COMPAT has, inter alia, made the following observations:

Issue I: Jurisdiction of the CCI

The CCI was right in assuming the jurisdiction on the basis of the definition of the term
service in Section 2 (u). The term service as contemplated in Section 4 has a direct
relation to Section 2 (u), which provides for the service of the nature which is being
provided by DLF i.e. real estate & construction.

Issue II: Retrospective Operation of the Act & Applicability
of Kingfisher Judgment

Retrospective Operation of the Act: Section 4 is not retrospective in operation. Section 4
(2) (a) will only attract if there is an imposition of unfair or discriminatory condition or
price. In 2006-07, when the Section 4 was not in force, the allottees entered into ABA
voluntary without any element of coercion and hence, there was no imposition of any
condition in the ABA by DLF.

Applicability of the Kingfisher Judgment: COMPAT rejected CCIs approach in
examining the clauses of ABA and observed that 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 want to perform certain acts in pursuance of the agreement, which are now
prohibited by the Act, then those acts would be illegal. No provision in the Act permits
the re-writing of the agreements. If DLF acted in pursuance of ABA, which was contrary
to the Act, then CCI could have taken an exception to those acts, but not to the
clauses of ABA, which were valid. Also, the continuation of the agreement after May
20, 2009 by itself would not attract the mischief of the Act, unless there was some act in
pursuance of those clauses, which were not contemplated in the agreement and would,
therefore, amount to an imposition of condition.

Moreover, the CCI cannot direct modification of the ABA. The power to modify
agreements lies under Section 27(d). Only the agreement under Section 3 (anti-
competitive agreements) can be ordered to be modified under Section 27(d), since,
Section 27 speaks about action when it speaks about contravention of Section 4.



Issue III: Relevant Market and Dominant Position of DLF

Relevant Market: The CCI market definition was correct i.e. services of developer /
builder in respect of high-end residential accommodation in Gurgaon. On the issue of
Geographic Market, it was observed that, the residential housing is not connected with
investment. Ordinarily, for a common man, basic need is food, other amenities of life
and a property to reside, as that creates a sense of security in his mind. If that is so, it
will be futile to examine the question only from the angle of investors.

Dominance: The CCIs reliance on the CMIE (Centre for Monitoring Indian Economy
Private Limited) data over other data/ reports available while assessing market share
(55%) of DLF was correct. DLFs market share was more than double of its next biggest
competitor, Unitech. DLF is a market leader and enjoy a unique position as it lay down
the rules of the game, which power/strength it exercises in its favor to the potential
detriment of its competitors and consumers' interests.

Issue IV: Abuse of Dominant Position by DLF

COMPAT did not consider any ABAs executed after May 20, 2009 and restricted the
inquiry only to the ABAs executed in 2006-2007 against which the information was filed
with the CCI. COMPAT only focused on the actions taken by DLF pursuant to ABA, post
May 20, 2009.

ABA authorizes DLF to increase the number of floors by constructing additional floors,
but this imposition of additional construction without intimation & consent from allottees
and without prior approval from the Government Authority amounts to abuse of
dominant position by DLF.

The DLF offer to the original allottees regarding moving to a higher floor is
discriminatory vis--vis other allottees. It is against Article 14 of the Constitution of India
and Section 4(2) (a) (i) of the Act.

Unilateral increase in the super area and holding charges by DLF was in breach of the
ABA and amounted to abuse as DLF was well aware that allottees had no other choice,
but to accept the same. The only option left with the allottees was to exit the scheme,
which was unimaginably costly.



Issue V: Quantum of Penalty and Role of Government Departments

CCI has given sufficient reasons for imposing the penalty of INR 630 crores on DLF.
Further, COMPAT severely criticized DTCP (Town & Country Planning
Department, Haryana) for remaining blissfully ignorant about the illegal conduct and for
not taking any action against DLF.

Analysis

The COMPAT 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 principle had been laid down
by European Court of Justice in the Michelin Case 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. For example,
in Australia, there are three major associations of builders, each of which
provides standard pro-forma contracts to the potential buyers for various
kinds of contracts ranging from purchase of a new property to existing
property to renovation of bathrooms and kitchen in order to reasonably
protect the interests of homebuyers. Recently, National Federation of
Builders (NFB), a prominent builders association in United Kingdom
launched an industry-wide code of conduct. The code demands that UK
construction companies meet the highest standards of competition law
compliance and will form a mandatory part of the NFBs code of conduct for
members. It is time that real-estate developers fastened their best practices
to responsible compliance with the Competition Act.