Realty major alleges selective statistics were considered to declare its `market dominance',
Realty major DLF will soon appeal the R630 crore penalty imposed on it by the competition regulator, Competition Commission of India, for “abusing its dominant position in the high-end residential segment in Gurgaon.“ A DLF official who did not want to be named also alleged in an exclusive interview with HT Estates that “selective statistics“ had been considered while declaring DLF's market dominance.
Meanwhile, owners' associations of both Belaire and Park Place, the two properties involved in the case, are preparing a compensation petition to be filed before the Competition Appellate Tribunal.
There are 2124 apartments in both the projects, owners of which are entitled to compensation, says M L Lahoty, Supreme Court lawyer representing the buyers in this case.
Both associations will be moving a compensation petition to be filed before the Competition Appellate Tribunal (Compat), with each allottee likely to claim R50 lakh to R1 crore, Lahoty says.
Belaire Owners' Association had filed a petition against the builder, complaining that the company had delayed the project and increased the number of floors from 19 to 29, based on which CCI had imposed the penalty on DLF. In it's counter-argument, the builder has said it would defend itself against the order and that the competition regulator had wrongly interpreted the relevant market and its dominant position in that market.
The developer's contention is that there are several other real estate companies in Gurgaon dominating the market. A company executive who did not wish to be named said selective statistics had been considered to declare DLF's market dominance. In this case, the CCI had refused to acknowledge a report by realty consultants Jones Lang LaSalle (JLL) and Genesis.
The JLL report positions DLF third in Gurgaon. The market share of DLF stands between 8-18% in the report, which does not qualify it as a market leader.
CCI, the DLF official alleged, had taken cognisance of only a CMIE report which had evaluated 100 projects across the country out of which only a few firms were from Gurgaon.
The report by Genesis submitted by DLF to CCI also concluded that DLF was unable to “operate independently of competitive forces prevailing in the relevant market“ as it had a modest market share. Thus, the company would need to take account
of the market in its pricing.
The Genesis report said the company was in competition with a number of large developers and buyers and could also choose from a large secondary market.
Large competitors had recently entered the market, showing that entry barriers had in practice proven to be relatively low.
However, a CCI official who also did not wish to be named, said the relevant geographical market in this case was just Gurgaon. The premise was that the entire Gurgaon area had been developed by DLF and that it held maximum property in Gurgaon.
“Market share is not the only criteria to determine the relevant market. The CCI can make use of any of the 13 criteria cited in the Competition Act. These are laid down in Section 19 (4) of the Competition Act. These range from economic power to entry barriers. If any of these factors exists, even if it is a single factor, it is good enough,“ the official said.
The relevant product in this case was an expensive flat sold to the high-end customer.
“We have proved what the relevant market is, we have also proved who the dominant player is. The point here is that dominance is not bad under the law but abuse of dominance is,“ the official said.
A builder entering into an agreement with the consumer became dominant over the latter by imparting restrictions. The premise of competition law is that the consumers should have the right to make a choice and the builder was restricting their choice in case they desired to make a switch, the official said.
The customer had gone to DLF because of its credibility and brand value. Confidence had been reposed in the player. So, when the dominance was `abused' it became a bigger issue than it would have been had the builder been less significant, the official said.
Besides the CMIE report, CCI took into account the company's marketing brochure in which it had been claimed that it was a dominant player and the biggest real estate company in India.
A similar claim had been made in the company's red herring prospectus submitted to SEBI. The promoter's own statement that the company was the largest in Asia had also been considered, he said.
M M Sharma, head of competition law practice at Vaish Associates Advocates, called the order “presumptuous. It will unnecessarily bring all sorts of customers to CCI's door even for small matters,“ he adds.
CCI should have conducted SSNIP (small but significant and non-transitory increase in price) test that was important for determining the substitutability for a product or an area, Sharma said. CCI in this case had assumed that a 5% increase in high-end apartments in Gurgaon would not force buyers to shift to an alternative location, making the city the only option for buyers.
Also, nowhere in the world was such a strict penalty imposed for a first offence -and a token penalty could have worked in this case. The order appeared to be too arbitrary, Sharma said.
DLF would also question the absence of a pre-penalty hearing or a show cause notice in this case as was the case with another recent order passed against the National Stock Exchange.
As for the delay in the projects, the company claims it had compensated allottees through R41 lakh of additional benefits that were not part of the initial deal.
Realty major DLF will soon appeal the R630 crore penalty imposed on it by the competition regulator, Competition Commission of India, for “abusing its dominant position in the high-end residential segment in Gurgaon.“ A DLF official who did not want to be named also alleged in an exclusive interview with HT Estates that “selective statistics“ had been considered while declaring DLF's market dominance.
Meanwhile, owners' associations of both Belaire and Park Place, the two properties involved in the case, are preparing a compensation petition to be filed before the Competition Appellate Tribunal.
There are 2124 apartments in both the projects, owners of which are entitled to compensation, says M L Lahoty, Supreme Court lawyer representing the buyers in this case.
Both associations will be moving a compensation petition to be filed before the Competition Appellate Tribunal (Compat), with each allottee likely to claim R50 lakh to R1 crore, Lahoty says.
Belaire Owners' Association had filed a petition against the builder, complaining that the company had delayed the project and increased the number of floors from 19 to 29, based on which CCI had imposed the penalty on DLF. In it's counter-argument, the builder has said it would defend itself against the order and that the competition regulator had wrongly interpreted the relevant market and its dominant position in that market.
The developer's contention is that there are several other real estate companies in Gurgaon dominating the market. A company executive who did not wish to be named said selective statistics had been considered to declare DLF's market dominance. In this case, the CCI had refused to acknowledge a report by realty consultants Jones Lang LaSalle (JLL) and Genesis.
The JLL report positions DLF third in Gurgaon. The market share of DLF stands between 8-18% in the report, which does not qualify it as a market leader.
CCI, the DLF official alleged, had taken cognisance of only a CMIE report which had evaluated 100 projects across the country out of which only a few firms were from Gurgaon.
The report by Genesis submitted by DLF to CCI also concluded that DLF was unable to “operate independently of competitive forces prevailing in the relevant market“ as it had a modest market share. Thus, the company would need to take account
of the market in its pricing.
The Genesis report said the company was in competition with a number of large developers and buyers and could also choose from a large secondary market.
Large competitors had recently entered the market, showing that entry barriers had in practice proven to be relatively low.
However, a CCI official who also did not wish to be named, said the relevant geographical market in this case was just Gurgaon. The premise was that the entire Gurgaon area had been developed by DLF and that it held maximum property in Gurgaon.
“Market share is not the only criteria to determine the relevant market. The CCI can make use of any of the 13 criteria cited in the Competition Act. These are laid down in Section 19 (4) of the Competition Act. These range from economic power to entry barriers. If any of these factors exists, even if it is a single factor, it is good enough,“ the official said.
The relevant product in this case was an expensive flat sold to the high-end customer.
“We have proved what the relevant market is, we have also proved who the dominant player is. The point here is that dominance is not bad under the law but abuse of dominance is,“ the official said.
A builder entering into an agreement with the consumer became dominant over the latter by imparting restrictions. The premise of competition law is that the consumers should have the right to make a choice and the builder was restricting their choice in case they desired to make a switch, the official said.
The customer had gone to DLF because of its credibility and brand value. Confidence had been reposed in the player. So, when the dominance was `abused' it became a bigger issue than it would have been had the builder been less significant, the official said.
Besides the CMIE report, CCI took into account the company's marketing brochure in which it had been claimed that it was a dominant player and the biggest real estate company in India.
A similar claim had been made in the company's red herring prospectus submitted to SEBI. The promoter's own statement that the company was the largest in Asia had also been considered, he said.
M M Sharma, head of competition law practice at Vaish Associates Advocates, called the order “presumptuous. It will unnecessarily bring all sorts of customers to CCI's door even for small matters,“ he adds.
CCI should have conducted SSNIP (small but significant and non-transitory increase in price) test that was important for determining the substitutability for a product or an area, Sharma said. CCI in this case had assumed that a 5% increase in high-end apartments in Gurgaon would not force buyers to shift to an alternative location, making the city the only option for buyers.
Also, nowhere in the world was such a strict penalty imposed for a first offence -and a token penalty could have worked in this case. The order appeared to be too arbitrary, Sharma said.
DLF would also question the absence of a pre-penalty hearing or a show cause notice in this case as was the case with another recent order passed against the National Stock Exchange.
As for the delay in the projects, the company claims it had compensated allottees through R41 lakh of additional benefits that were not part of the initial deal.
