The question of CCI’s jurisdiction to “modify” apartment buyers agreements - A Review of COMPAT’s DLF order

The question of CCI’s jurisdiction to “modify” apartment buyers agreements - A Review of COMPAT’s DLF order

In a heavy setback to the real estate giant, DLF Ltd., the Competition Appellate Tribunal [‘COMPAT’], on May 19, 2014 upheld the 2011 order of the Competition Commission of India [‘CCI’]  holding the company guilty of abusing its dominant market position with regard to a residential society in Gurgaon. In August 2011, the CCI had, pursuant to the information filed by the Belaire Owner’s Association, found that DLF had misused its position of power in dictating the terms of the Apartment Buyers Agreement [‘ABA’] and imposed unilateral and one-sided clauses.The CCI pronounced DLF guilty for grossly abusing its dominant position by having imposed unfair conditions in the sale of flats/apartments to home buyers/consumers. It further imposed a penalty of INR 6,300 million (USD 140 million), at the rate of 7% of the average turnover of DLF for the last three financial years and issued a 'cease and desist' order against DLF from imposing such unfair conditions in its agreements with buyers for residential buildings to be constructed in Gurgaon.

The CCI had also asked DLF to appropriately modify unfair conditions imposed on its buyers, within 3 months of the date of receipt of the order. This was followed by DLF's appeal to COMPAT, which however, asked CCI in March 2012 to pass another order “specifying the extent and manner in which terms and conditions of the ABA needed to be modified”. Consequently, CCI passed a supplementary order on January 3, 2013 to modify the buyer agreement DLF's Belaire project at Gurgaon. In two separate supplementary orders announced thereafter on January 10, 2013, the CCI said the modifications suggested for the Belaire project buyers agreement would be applicable for DLF's Park Place   and Magnolia projects  as well, that were subjects of ongoing cases.

It is interesting to note that DLF’s continued argument, that the CCI is not the appropriate forum for hearing the matter, tethered majorly on two submissions – that of the non - retrospectivity of the law, and the other of CCI’s lack of jurisdiction over competition issues in the real estate sector, especially with respect to modification of ABAs. The COMPAT in its May19, 2014 Order, found that the CCI, in pursuance of its powers under S.27 of the Competition Act, 2002, can only modify those -

agreements which are in contravention of section 3... The CCI under section 27(a) of the Act can direct the total discontinuance of the agreements and also injunct the party concerned not to re-enter such agreement…In addition, it can then direct that the agreements would stand modified and that would be under section 27(d) of the Act. Insofar as the action in contravention of section 4 of the Act is concerned, the CCI can direct the concerned guilty party to discontinue its abuse of dominant position. In addition to this, the CCI would have power under section 27(b) of the Act to impose penalty.

It is further interesting to note that the aforementioned order was passed by a bench of the COMPAT, which comprised of the very same two members that gave the March 2012 order for suggesting modifications. Shri Vinod Dhall, very succinctly observed that the COMPAT’s aforesaid finding is “perplexing given that COMPAT had itself remitted the matter in March 2012 to CCI, and instructed it to specify the extent and manner in which the terms of the impugned agreement should be modified. Thus, apparently, in March 2012, COMPAT held the view that the latter had the power to direct modification to an agreement in an AOD case. When and why this view changed has not been explained by COMPAT; therefore, an air of uncertainty hangs over this issue of law.”

This finding creates a further cause of concern over the interpretation of S.27 powers of the CCI, when placed in the larger context of competition regulation and abuse of dominance in the real estate sector. In the aftermath of order imposing penalty on DLF, and the subsequent modification order, the CCI saw a huge influx of complaints from aggrieved resident associations against apartment developers and real estate companies, citing instances of delayed delivery and biased buyer-builder agreements  .  However, even though such companies might have been indulging in similar exploitative tactics, the CCI dismissed most of these cases because such companies, unlike DLF, did not enjoy a position of dominance in the relevant real estate market. Though the CCI is right in its interpretation in so far as that for any and all injustice done by the builder to the consumer, the remedy does not lie within India’s competition laws, however, while the apartment buyers of dominant real estate developers like DLF are provided an effective avenue to address their concerns, apartment buyers of smaller builders, although subject to similar exploitative terms, are left to suffer. Their only recourse is before India’s consumer law forums, which are hardly as efficacious in delivering justice  . Further, after the COMPAT order, seeking a modification of ABAs post a S.4 violation finding, seems a longshot, given the fetters now introduced on CCI’s powers under S.27. A plain reading of the text of S.27 leads one to understand that the CCI does have the power to “pass such other order or issue such directions as it may deem fit.” If the COMPAT order is literally interpreted, there is no forum which may be approached by aggrieved apartment buyers and owners, to seek amendments to oppressive and exploitative clauses in existing ABAs. And this is merely because the agreements in question were/ have been entered into prior to the coming into force of the Act, i.e. prior to May 20, 2009. On the other hand, a too literal interpretation could also lead one to conclude that any exploitative clauses in agreements entered into AFTER the coming into force of the Act, by dominant players, may be modified by the CCI if a S.4 violation is found. Was this the intention of the legislators when drafting S.27?  While humbly respecting the findings of the COMPAT order, it does seem odd, to impute the meaning to S.27 powers, that while a S.3 violation finding can lead to CCI modifying the agreement, even if the same is prior to May 20, 2009, a S.4 violation act must be only AFTER May 20, 2009  for the CCI to have the power to modify. So, in effect the finding means that if there is an agreement for cartel; that can be amended. But if there is a dominant position and that dominance is exercised pursuant to an agreement, the CCI can’t amend the agreement but can penalize for abuse of dominance. This I believe is against the letter and spirit of the Competition Act as a whole, and the residual powers available with the CCI under S.27(g). This argument was made by the counsels for the buyers, but was rejected by the COMPAT, citing an unexplained version of the lexspecialis rule.

Pursuant to the legislative framework of the Competition Act, the duty of the Commission is to “prevent 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 markets in India.” This mandate is extraordinarily wide and does in a way seem to overlap with the jurisdiction of sector-specific regulators. However, there is no real estate regulator in place in India today. The draft bill – the Real Estate (Regulation and Development) Bill, 2013 was introduced in the RajyaSabha by the then Minister of Housing and Urban Poverty Alleviation on August 14, 2013. The Standing Committee on Urban Development submitted its report on February 13, 2014.The Bill regulates transactions between buyers and promoters of residential real estate projects. It establishes state level regulatory authorities called Real Estate Regulatory Authorities (RERAs), in light of the fact that even though the Parliament’s jurisdiction to make laws related to real estate as “land” is in the State List of the Constitution, the primary aim of this Bill is to regulate contracts and transfer of property, both of which are in the Concurrent List.  Clause 29 of the Bill provides for the functions of the state level RERAs for promotion of real estate sector. It empowers the Authority to make recommendations to the appropriate Government or the competent authorityin order to facilitate the growth and promotion of a healthy, transparent, efficient and competitive real estate sector.Clause 33 on Powers of the Authority further reads thus – “… (3) Where an issue is raised relating to agreement, action, omission, practice or procedure that—

(a) has an appreciable prevention, restriction or distortion of competition in connection with the development of a real estate project; or

(b) has effect of market power of monopoly situation being abused for affecting interest of allottees adversely,

then the Authority, may, suomotu, make reference in respect of such issue to the Competition Commission of India.”

This particular provision of the Bill is in consonance with the concurrency and cooperation between the CCI and the sectoral regulators, as envisaged with the Competition Act, 2002 itself.Apart from the S.18 wordings explaining the objective of the CCI, provisions in Ss. 21 and 21 A provide for an exchange of information and reference from and by the CCI and other sectoral authorities. Through the Competition Amendment Act, 2007, attempts were made to ensure that the Competition Act, 2002, resolves turf wars with sector regulators. The original law permitted reference to CCI by another regulator only when any party requested for it. Now, the regulator can refer suomotu as well. The amendments also inserted the requirement of recording reasons for disagreeing with CCI.

Under Ss. 21 and 21A of the Act, both CCI and the sector regulators may  cooperate when it comes to dealing with issues that appear to have an impact on the jurisdiction of the other. If a sector regulator is handling a case and it turns out that there is a possibility of the decision to be taken infringing the Competition Act, the sector regulator may refer the matter to CCI for its opinion. CCI is obliged to give its opinion within sixty days. In a similar fashion, if CCI is investigating a case and it is pointed out that there is a possibility of the decision being contrary to the provision of the law entrusted to a sector regulator, then CCI may make a reference to the sector regulator, asking for its opinion and input into the matter.  However, opinions from both the sector regulator and CCI will not be binding.

Further, S. 60 provides that the Act shall have overriding effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force; and S. 62 provides that the provisions of the Competition Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force.Combined reading of the sections gives an impression that CCI has the primary jurisdiction to try cases on competition related matters 

The Bill provides for recourses available on failure to grant possession by the residential real estate project promoter and imposes a penalty in the form liability to “return the amount received by him in respect of that apartment, plot, building, as the case may be, with interest at such rate as may be prescribed in this behalf including compensation” However, nowhere in the Bill do the RERAs have the power to modify the terms of an “agreement for sale” if the buyers are aggrieved by oppressive or unilateral terms. The only contingency envisaged is a unilateral or exploitative cancellation of the entire agreement for sale. Therefore, even if the RERAs so come into existence in the future without any modifications in the law as it presently stands, the jurisdiction to modify remains with the CCI. And the same stems from S.27(g), which as Ms. NishaUberoi (Partner, AMSS, Mumbai) describes, is a “catch all

Aakanksha Kumar

Aakanksha Kumar is an Assistant Professor at NLU Jodhpur, teachingcourses in ADR and Arbitration; and Constitutional Governance. She was earlier serving as a full–time Research Associate at School of Law, ITM University, Gurgaon. She completed LL.M. (Int’l and Comparative Law) from Faculty of Law, National University of Singapore and B.A.LL.B. (Hons.) from Hidayatullah National Law University, Raipur. Her areas of academic and research interest include International Arbitration, Competition Law and Intellectual Property Rights