CCI introduces Leniency “Plus” regime in India- Will it suffice?
CCI fines Jai Prakash Associates for abusing its dominant position in the market for sale of independent villas in Integrated Townships in the territory of Noida and Greater Noida
Competition Commission of India (“CCI/Commission”), by way of order dated 09.08.2019, has imposed a penalty of INR 13.82 Crores on Jai Prakash Associates (“JPA”) for abusing its dominant position by including various one sided and unfair clauses in its Provision Allotment Letter (“PAL”).
Background and allegations
JPA is a company engaged in the business of real estate development and has developed real estate projects in Sectors 128, 129, 131, 133, 134, and 151 under the names of Wish Town, Jaypee Greens, in Noida and Greater Noida .
Mr. Naveen Kataria (‘informant’) had booked a villa on 19.01.2011 measuring 655 sq. yds. in the said project having a super area of 5700 sq. ft. along with a basement measuring 500 sq. ft. for a consideration of INR 4,05,00,000/-. The Informant had paid 95% of the total consideration i.e., INR 3, 84, 75,000/- to JPA before the specified timeline.
It was alleged that in the PAL dated 02.03.2011, JPA had failed to mention about the provisions such as complimentary golf membership, total area of the plot, and additional basement area of 500 sq. ft. It was further alleged that it was informed by JPA that additional construction beyond the agreed area would be charged @ INR 7105/- per sq. ft. The Informant, vide letter dated 25.04.2011, pointed out those deficiencies to JPA and contested that the cost of additional construction could not be more than INR 1000/- per sq. ft. After repeated reminders, JPA informed the Informant that additional construction would be charged @ INR. 5000/- per sq. ft.
Looking for a recourse, the Informant vide e-mail dated 20.5.2011 requested JPA to not consider 500 sq. ft. of basement area, as a part of the agreed super area and not to charge INR. 5000/- per sq. ft. for any additional construction beyond the agreed area, as the cost of constructing the shell and core was barely INR 1000/- per sq. ft. To this, JPA vide e-mail dated 21.05.2011, replied that ‘with your captioned unit of standard villa of 655 sq. yds. comes along with a basement of 500 sq. ft. The Provisional Letter of Allotment is a standardized text and does not separately mention the basement area which is in-built in the transaction as per the sale brochure’. However, JPA ignored the issue pertaining to charging @ INR 5000/- per sq. ft. for the additional construction.
It was also alleged that the due date for completion and handing over the possession of the plot and construction was 18 months from the date of signing of the plan with ninety days of grace period, however the said period expired on 22.02.2013 and the Informant received the letter for possession on 09.11.2013 i.e., after a delay of eight months and seventeen days.
As per the informant, JPA levied an extra charge of INR 25,00,000/- along with applicable service tax for 500 sq. ft. representing the area of basement @ INR 5000/- per sq. ft. It was also alleged that JPA had charged an extra sum of INR 4, 22,200/- (INR 4000/- per sq. ft. for 105.55 sq. ft.), representing the cost of construction of additional area.
The informant had also complained about the terms and conditions in the PAL being unfair, one sided and loaded in favor of JPA.
On being prima facie convinced that such conduct by JPA is in violation of Section 4 of the Competition Act, 2002, CCI directed the Director General (“DG”) to investigate the matter.
DG Investigation
In his investigation report dated 01.08.2016 , DG defined the relevant market as the ‘market for provision of services of development and sale of residential properties (including flats, villas and plots) in integrated township in Noida and Greater Noida and found JPA to be dominant in the said relevant market, however when the CCI considered the investigation report, it noted that the DG had not considered the subject matter of the case i.e., villa bought by the Informant separately. The report had included flats, plots, and villas in the same category and failed to take into account the differences in the characteristics between flats and villas thereby, erring in defining the relevant market. The Commission was of opinion that the provision of the services of development and sale of residential villas was a distinct product compared to the services of development and sale of residential units/ apartments in terms of end use. CCI opined that villas are large luxurious houses, having own garden, swimming pool, fountain etc. are more private and elegant; allow buyers to decide on their own discretion about the floor plan, number of floors, structure, and other specifics of dwelling units subject to applicable regulations. Thus, from the consumer’s perspective, a residential villa or an apartment or a plot are not substitutable with one another. Hence, villas and other residential units such as apartments and plots could not be considered in the same category as has been done by the DG. Therefore, the Commission deemed it appropriate that the matter be further investigated and be assessed on the relevant market for provision of services of development and sale of residential villas in integrated townships in Noida and Greater Noida. The matter was directed to re investigate and submit a supplementary report .
Accordingly, a supplementary investigation report dated 31.03.2017 was submitted by the DG in which he assessed the issue as to whether residential properties such as multi-storey apartments, villas, estate homes and town homes situated in an integrated township were interchangeable and substitutable with each other. It was noted by the DG that the buyers of multi-storey apartments have undivided share in the common plot and the prices of those multi-storey apartments were also on the lower side as compared to villas. Other factors such as immediate neighborhood, community living, separate security arrangement etc. are not available to the occupants of independent units such as villa/ town homes/estate homes and the independent houses built on the relevant plots. The DG also observed that a multi-storey apartment in an integrated township is unique and different from other types of residential properties in an integrated township. On the other hand, residential units such as villas/town homes/estate homes in an integrated township are not interchangeable and substitutable with multi-storey apartments due to the differences in price, intended use and characteristics such as exclusivity/privacy /flexibility of internal layout, etc. DG was also of the view that the independent residential units such as villas, estate homes, town houses in one integrated township could only be substituted with villas, estate homes, and town houses in another integrated township.
Accordingly, the DG concluded that the relevant product market is ‘the market for the provision of development and sale of independent residential units such as villas, estate homes, town homes and row-houses in integrated townships’, while the relevant geographic market is Noida and Greater Noida. As regards dominance, DG concluded that JPA was dominant in the said relevant product market in Noida and Greater Noida having 100% market share and had abused its dominant position due to the unfair and one-sided clauses in the PAL.
CCI Analysis
Preliminary issues
Before dwelling into the merits of the case, the CCI dealt with a number of preliminary issues as under:
- The Informant no longer wished to pursue the instant case, since all the pending disputes with the JPA had been settled, and also stated that the disputes were in the nature of contractual/ consumer disputes and , therefore, the Informant requested to recall the order passed under Section 26(1) of the Act.
Held: CCI observed that the scheme of the Act and the Regulations made thereunder do not provide for withdrawal of the information filed under Section 19 of the Act. CCI held that Commission is a market regulator established to prevent practices having an adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto and thus, does not decide lis between parties.
- JPA contended that the matter should have been dealt with under RERA and claims/remedy be made under the Contract Act.
Held: CCI stated that availability of remedies before other fora do not oust the jurisdiction of the Commission as it is the duty of the Commission to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade carried on by other participants, in market and the parties are at liberty to approach RERA or any other authority as per law but matters of competition concerns are to be dealt under the Act only.
- JPA contended that the Commission has no jurisdiction as the definition of ‘goods’ as provided under the Act refers to the Sale of Goods Act, 1930, expressly excludes immovable property from its ambit. Therefore, the sale of residential unit in the instant case would not amount to sale of goods. It was further argued that the transaction pertained strictly to sale of the residential unit by the OP and did not in any manner contemplate the provision of services as between the OP and the prospective allottees.
Held: CCI held that a plain reading of Section 2(u) of the Act makes it abundantly clear that the activity undertaken by JPA i.e. construction of residential units intended for sale to the potential consumers after developing the land, will fall under the definition of ‘service’ under the Act as the term ‘service’ has been defined as service of any description and includes provision of services in connection with business of any industrial or commercial matters such as real estate.
- JPA contended that the Commission’s order directing the DG for further investigation was erroneous as a combined reading of Section 26(7) of the Act and Section 26(5) provides that ‘further investigation’ can be directed by the Commission only in cases where the investigation report of the DG recommended no contravention of the provisions of the Act, which is not the case here.
Held: CCI held that it had directed the DG to conduct further investigation under Regulation 20(6) of the Competition Commission of India (General) Regulations, 2009, and therefore, the aforesaid contention did not hold good.
- JPA further contended that a previous order of the Commission under Section 26(6) in Case Nos. 72 of 2011; 16, 34 & 53 of 2012; and 45 of 2013, wherein it was also the Opposite Party, would operate as a bar for the present case under the doctrine of res judicata.
Held: To this, the Commission observed that JPA has failed to take into account the earlier cases which were related to residential apartments whereas the instant case relates to independent residential units such as villas, estate homes, town homes and row-houses which are two distinct relevant markets and cannot be considered and clubbed together.
Relevant Market
The Commission agreed with the observation of the DG that there are distinguishable features of an independent residential unit which are as under: (i) these are composite residential units built on a separate plot of land and, therefore, provide privacy and exclusivity to the occupants. The occupant does not have to share its common area such as entrance, corridors, etc. with other occupants in the same integrated townships; (ii) these units are large, elegant and luxurious and may have their own gardens, fountain, etc; (iii) the builder/ developer delivers a ready built unit to the consumer as per the agreed internal lay-out plan and specifications of the unit; and (iv) the price of the independent units is higher as compared to multi-storey apartments in an integrated township. Accordingly, the Commission was of the view that there is no commonality or convergence between multi-storey apartments and plots or independent residential units situated in the integrated township. The Commission noted that there is no commonality or convergence between multi-storey apartments and plots or independent residential units situated in the integrated township, and, residential units such as villas, estate homes, town homes, row-houses in an integrated township can only be substituted with similar residential units that provide almost equal benefits and advantages, in another integrated township only. Therefore, the relevant product market was decided as the ‘market for the provision of services for development and sale of independent residential units such as villas, estate homes, town homes and row-houses in integrated townships in Noida and Greater Noida’.
Dominant Position
CCI observed that JPA has the largest market share in terms of number of units launched/ sold in the relevant market of independent residential units, such as, villas, estate homes, town homes and row-house in integrated township in Noida and Greater Noida during the relevant period of FY 2009-10 to 2011-12. JPA had launched 180 independent residential units during the FY 2010-11 whereas none of its competitors had launched any independent residential units during the relevant period in their integrated townships in Noida and Greater Noida. CCI also observed that during the relevant period the total sale value in respect of independent residential units sold by the OP in its integrated township project in Noida/ Greater Noida was INR 828.95 crore. On the other hand, none of its competitors in the relevant market namely Unitech and Omaxe had not sold any independent residential unit during the aforesaid period in their integrated townships in Noida/ Greater Noida. Apart from these factors, CCI noted that JPA’s financial resources, land resources available at its disposal or through its group companies, vertical integration also revealed that it was enjoying a dominant position during the relevant period.
Abuse of Dominant position
CCI assessed the following clause in the PAL and found them to be abusive in nature:
- Clause 2.4: Additional constructions and amending/ altering the layout plans
The Commission observed that this clause had the effect of taking away the rights of allottees at all the stages i.e., before or after taking possession, to prevent JPA from amending/ altering the plans, putting-up additional constructions and constructing other buildings or other structures in the area adjoining the said premises. The Commission agreed with the DG that it cannot be denied that an allottee books a property keeping in mind its location, open space surrounding the property, availability of sunlight/ air/ greenery etc and therefore putting such a clause in the PAL which gives unilateral powers to the builder to effect such changes without even consulting, much less seeking concurrence of, the allottees, is unfair and one-sided, in violation of the provision of Section 4(2)(a)(i) of the Act.
- Clause 5.6: Charging interest on delayed payments
The Commission noted that the interest rate imposed on the allottee under clause 5.6 of the PAL was one-sided and unfair since the interest rate chargeable from the allottee in case of delay in making payments was much more than interest payable by JPA for delay on account of handing over of possession to the allottee. JPA had contended that it had reduced the interest rate payable by allottee to 12% p.a. in case of default and thus is in line with the industry practice. However, CCI held that it cannot be considered as a fair imposition of the clause because not only does a substantial difference exist between the penalty levied on the allottees and penalty paid by JPA in case of default but the clause is still in favor of JPA.
- Clause 6.9: Right to raise finance from any bank/ financial institution/ body corporate
Commission noted that this clause confers JPA the right and sole discretion to create an equitable mortgage or charge or hypothecation on the leased land and construction thereon in process or on the completed construction in favor of one or more lending institutions even after a substantial amount has been paid by the allottees. In this regard, it is observed that as the allottees pay a substantial amount after booking units in the project, JPA ought to inform the allottees and also seek their views before such charge is created by it. In the absence of such mechanism, the Commission was of the view that such clause, which gives unilateral power of creating a charge or interest on the property without any say of the allottee, is unfair and arbitrary.
- Clause 7: Obligations of the Company
The Commission was of the opinion that by no stretch of imagination non-availability or scarcity of steel and/or cement and/or other building materials and/or water supply and/or electric power and/or slow down can be given the colour of force-majeure. The Commission noted that clause 7.2 ensured that JPA does not pay any compensation/ damage to the allottees in case of the above-mentioned events even when they are actually not within the meaning of the term ‘force majeure’. JPA had provided for waiving off of its liability of paying compensation on delayed delivery of possession by including such factors in the clause.
- Clause 8.1: Miscellaneous obligations/ holding charges
The Commission observed that the above clause provides that upon expiry of a period of 90 days from the date of dispatch of the notice of possession, JPA, in addition to reserving the right to levy holding charges, also has the right to cancel the provisional allotment and refund the payments received from the applicant. The Commission observed that JPA had retained unilateral power to cancel the provisional allotment and the allottee has no option but to accept the unilateral decision of the JPA. The inclusion of such clause in terms and conditions of the PAL by JPA, a dominant player in the relevant market was one sided, arbitrary and anti-competitive, as per CCI.
- Clause 10.9: dispute resolution by arbitration
The Commission observes that the clauses pertaining to arbitration and conciliation in contracts encourage alternative dispute settlement mechanism which is the need of the hour keeping in mind the backlog and pendency of cases with civil courts. CCI was of the view that JPA, no doubt, had taken a step in this regard by incorporating this clause in the contract to ensure that disputes, if any, are settled expeditiously and amicably. However, one of the facets of justice is the presence of an impartial arbitrator and the same was not provided for by JPA. The conduct of JPA in appointing the arbitrator itself, that too the one related to it, and mandating that the allottees should waive the right to object to the above said appointment, was considered to be totally unfair and one sided.
Accordingly, CCI concluded that JPA had violated Section 4(2) (a) (i) of the Act for imposing unfair/discriminatory conditions in the PAL and imposed a penalty calculated @ of 5% of the average turnover of the preceding three years amounting to INR 3.82 crores.
Comment: This is the fourth case against JPA before the CCI and is unique because of delineation of a new relevant market for the provision of services for development and sale of independent residential units such as villas, estate homes, town homes and row-houses in integrated townships in Noida and Greater Noida’. An appeal is certainly going to be filed by JPA against this order and the market definition is likely to be the contentious issue in the appeal.
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