Competition LawRulings

CCI fines Rs. 14 Crore on Jaiprakash Associates Ltd. for imposing unilateral and arbitrary conditions on home buyers

Naveen Kataria vs. Jaiprakash Associates Limited

CCI holds that Jaiprakash Associates Limited is dominant in the relevant geographical market and has contravened the provisions of section 4 of the Act; imposes a penalty on the OP.

In the present matter, the Informant – Naveen Kataria has filed an information against the Opposite Party/OP – Jaiprakash Associates Limited under Section 19(1)(a) of the Competition Act, 2002 (“Act”)  alleging, contravention of the provisions of Section 4 of the Act. Informant submits that the OP has imposed unfair and unlilateral provisions in the Provisional Allotment Letter (PAL).CCI directed DG to cause an investigation. CCI perused the report of the DG and directed the DG in terms of the provisions contained in Regulation 20(6) of the Competition Commission of India (General) Regulations, 2009 to conduct further investigation in light of the observations 

CCI peruses the facts and submissions and proceeds to provide its observations. The application of the Informant to recall the order of CCI on account of settlement of the disputes was rejected by CCI on the ground 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 rejects the argument of OP that the Commission has no jurisdiction on the ground that sale of residential unit would not amount to sale of goods as misplaced as Section 2(u) of the Act  defines the term ‘service’ as service of any description and includes provision of services in connection with business of any industrial or commercial matters such as real estate. The intent of the legislature is, therefore, to include service of any description including for real estate as clearly provided in this definition. CCI revisits the reliance place by Commission on the decision of Hon’ble Supreme Court in Lucknow Development Authority v. M.K. Gupta, MANU/SC/0178/1994 wherein SC observed that, 

a person, who applies for allotment of a building site or for a flat constructed by a development authority or enters into an agreement with a builder or a contractor, is a potential user and such nature of transaction is covered under the definition of ‘service of any description’. Thus, CCI opines that real estate/ construction services are squarely covered within the definition of the term ‘service’ as defined in Section 2(u) of the Act.”

CCI further rejects OP’s contention that Commission’s order dated 05.01.2016 directing the DG for further investigation was erroneous on the ground that directions were given to the DG to conduct further investigation under Regulation 20(6) of the Competition Commission of India (General) Regulations, 2009. 

The contention of OP that the 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 was also rejected by CCI as misplaced. CCI states that the previous matters and the present matter at hand cannot be clubbed together as they dealt with separate relevant markets and hence, could not be considered and clubbed under one category. 

CCI then examines the issues individually. 

  1. a) What is the relevant market in the present case?

With regards the issue of relevant market in the present case, CCI  holds that independent residential units such as villas, estate homes, town home, and row-houses in an integrated township have unique characteristics and features and are an altogether different product, distinct and separate from other residential properties such as multi-storey apartments. Therefore, the relevant product market in the instant case will be 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’. CCI agrees with the DG’s delineation of geographic area of Noida and Greater Noida as they have a brand image of their own and thus delineates the relevant market in the present case is ‘the market for 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 regions.’

  1. b) Is the OP dominant in the relevant market?

With regards the issue of the OP’s dominance, on the basis of the factors – market share, financial resources, land resources available at its disposal or through its group companies, vertical integration, CCI agrees with the conclusion of the DG that the OP clearly enjoyed a dominant position in the defined relevant market during 2009-10, 2010-11 and 2011-12.

  1. c) Being dominant, whether the OP has violated the provisions of Section 4 of the Act?

CCI proceeds to deal with the impugned clauses of the PAL. CCI observes that the clause of the PAL which allows the OP to construct or continue to construct other buildings, adjoining areas and alter the plans takes away the rights of the allottees at all stages and 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. With regards the charging of interest on delayed payments by the OP, CCI agrees with the finding of the DG that the interest rate imposed on the allottee under PAL is 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 the OP for delay on account of handing over of possession to the allottee. CCI observes that the clause is heavily in favour of the OP and is unfair whereby the OP gets away with a lighter penalty in case of its default but the allottees end up paying a huge penalty amount in case of a default by them. Further, with regards the clause of the PAL which confers a right on the OP to raise finance from any bank/ financial institution/ body corporate, CCI observes that the instant impugned clause confers on the OP 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 favour of one or more lending institutions even after a substantial amount has been paid by the allottees. CCI observes 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. For the clause containing the obligations on OP, CCI opines that the clause is wide ranging and includes within its sweep a condition which is clearly unfair and one sided.  CCI finds that making the OP itself as a ‘sole judge’ to decide whether any event is force majeure or not, the OP has virtually denied the Informant its right to have its say against any arbitrary decision of the OP. 

On examining the clause on miscellaneous obligations/holding charges, CCI notes that the clause provides that upon expiry of a period of 90 days from the date of despatch of the notice of possession, the OP, 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. CCI observes that the OP has retained unilateral power to cancel the provisional allotment and the allottee has no option but to accept the unilateral decision of the OP and the inclusion of such clause in terms and conditions of the PAL by the OP, a dominant player in the relevant market is one sided, arbitrary and anti-competitive. Further, CCI finds the clause of arbitration in the PAL which does not include the presence of an impartial arbitrator is closing doors for the allottees to make use of the mechanism of alternative dispute settlement. 

CCI observes that the terms and conditions in the PAL are unfair and one sided and are couched in a manner so as to unilaterally favour the OP and be unfavourable to the consumers and has grossly neglected the principle of equity. CCI observes that the modus operandi of the OP is an imposition of unfair conditions on the buyers by the OP and the same is a reflection of exercise of position of dominance by the OP in the relevant market. CCI holds the OP to be in contravention of the provisions of Section 4(2)(a)(i) of the Act for imposing unfair/ discriminatory conditions and imposes a penalty on the OP calculated @ 5% of the relevant turnover earned by the OP from the relevant market delineated supra. i.e., turnover from sale of independent residential units in integrated township located in Noida and Greater Noida during the financial years from 2009-10 to 2011-12.

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