By way of two separate orders(1) dated 31 August 2018, the Competition Commission of India (CCI) dismissed two allegations of abuse of dominance against DLF Limited and DLF New Gurgaon Home Developers Pvt Limited (the DLF group) by holding that the enterprises were not in a dominant position in Gurgaon during the relevant period.
Both cases emanated from information filed by two individual allottees for flats in Regal Gardens and Skycourt, which were built by the DLF group between 2011 and 2013. In both cases, the main allegation was that the DLF group had abused its dominant position by imposing harsh and one-sided terms and conditions in its sales agreements. The informants contended that certain clauses in the agreements were highly unfair and discriminatory towards the allottees, while being heavily biased towards the DLF group. On consideration, the CCI was of the prima facie view that the DLF group's conduct was abusive and contravened Section 4 of the Competition Act. The CCI directed the director general to investigate.
Director general's investigation
On 21 March 2016 the director general defined the 'relevant market' as:
provisions for services for development/sale of residential units apartments/flats/independent floors/villas) under the licensed category of residential group housing (RGH) and residential plotted land (RPL) in Gurgaon.
Presumably, the director general found the DLF group to be in a dominant position in the relevant market (as defined above) and thus in violation of Section 4(2)(a) of the act based on the unfair and one-sided terms and conditions in the sales agreements.
However, on consideration of the director general's report, the CCI disagreed with the director general's market definition, instead defining the relevant market as the "provisions of services for development and sale of residential apartments/flats in Gurgaon". The CCI stated that the director general had not confined itself to the relevant property (ie, the flats) and instead included the residential units developed under the residential group housing and residential plotted land licences in the same category, even though these comprised different types of property (eg, flats, plots and villas). Accordingly, the CCI directed the director general to:
- reinvestigate the matter in light of the revised relevant market; and
- determine whether the DLF group was in a dominant position and, if so, whether it had abused its dominant position.
Accordingly, the director general re-examined the DLF group's market power between 2011 and 2012 and 2014 and 2015 and further considered factors such as:
- the DLF group's market share and other developers in the revised relevant market;
- the size and resources of the group; and
- the economic power of the group (including its commercial advantage over other competitors and consumers' dependence).
Following this, by way of a supplemental investigative report dated 11 August 2017, the director general observed that the extent to which the DLF group could operate independently of the relevant competitive forces or affect its competitors or consumers in the relevant period was insignificant.
Agreeing with the director general's findings, the CCI observed that the relevant period in relation to Regal Garden was between 2011 and 2012. For Skycourt, the relevant period was between 2012 and 2013.
Regal Garden In relation to Regal Garden (Case 73/2014), the CCI observed that residential licences were granted to 96 developers between 2007 and 2008 and 2011 and 2012, culminating in approximately 5,549 acres of land. Of this land, the DLF group held the third largest market share (8.3%) compared to its competitors (eg, Emmar MFG (8.84% share), Vatika (8.56%), Ireo (7.68%) and Unitech (7.3%)).
Further, the CCI noted that if the DLF group's market share was considered between 2011 and 2012 and 2012 and 2013 (ie, when the informant decided to purchase a flat), the DLF group held the second and fourth largest market share (10.67% and 7.69%, respectively). From this data, the CCI inferred that:
- several developers had launched their projects at the same time that the informant had purchased the flat; and
- the DLF group did not hold a dominant position in such a fragmented market, as other developers (approximately 50% of which were top-10 developers) had launched projects for 90% of the flats.
Skycourt In relation to Skycourt (Case 84/2014), the CCI observed that residential licences were granted to 110 developers between 2007 and 2008 and 2012 and 2013 for a total of approximately 6,246 acres, out of which the DLF group was the market leader with respect to its competitors (eg, Ireo, Vatika and Ramprastha). However, the CCI noted that if the market shares were considered between 2012 and 2013 and 2013 and 2014 (when the informant decided to purchase the flat), the DLF group held the fourth and third largest market share (7.69% and 7.74%, respectively). From this data, the CCI inferred the same as the above: the DLF group did not hold a dominant position in such a fragmented market.
As regards the dependence of consumers and possible entry barriers, it was observed that there were several established real estate players operating in the same field and thus consumers could choose whom to purchase from. Consumers did not appear to be dependent on the DLF group, given the options available.
Further, the presence and rapid growth of innumerable players in the market refuted that there were barriers to entry.
Finally, the CCI held that the DLF group was not in a dominant position in terms of the relevant market during the relevant period and thus there was no case of abuse of dominance.
In reaching its decision, the CCI noted that although the DLF group was found to be in a dominant position in Belaire Owner's Association v DLF limited (Case 19/2010, dated 12 August 2011) and other subsequent cases, the case at hand was distinct – predominately due to the different assessment year. The CCI further highlighted that markets are, by their very nature, dynamic and everchanging. Thus, while analysing dominance, it is paramount to consider "time-period during which the contravention is alleged".
This case is unique because it is the first time that the CCI has introduced the concept of 'relevant period' when determining the market position of an enterprise which was previously held to be dominant in the same relevant market. The CCI has categorically set out that markets are dynamic by nature and thus it is critical when determining any abuse of dominance to consider the "time-period during which the alleged contravention has taken place i.e. whether the enterprise was still in a dominant position when the alleged contravention took place".
For further information on this topic please contact MM Sharma at Vaish Associates by telephone (+91 11 4249 2525) or email ([email protected]). The Vaish Associates website can be accessed at www.vaishlaw.com.
Endnotes
(1) Cases 73/2014 and 84/2014.
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