Experts question CCI definition of service and market dominance

Track2Realty Exclusive

By: Ravi Sinha

The Competition Commission of India (CCI) penalty of Rs.630 crore on DLF has raked up the old debate in the sector as to whether the business falls under the service sector. The real estate fraternity across the country, legal experts and industry bodies are unanimous that in the complex business of real estate, in addition market dominance can not be defined by the sheer presence in a given geographical location or in a product market. Also the legal experts are mulling over the thin line that bifurcates between the competition related dominance and the consumer activism, they are also wondering whether such a narrow definition of market dominance will open can of worms for the CCI across the country because it defies the boundaries of Competition Law.

R R Singh, Director General of industry body National Real Estate Development Council (NAREDCO), questions the very narrow definition of relevant market. It has skewed by not taking into consideration the secondary and investment markets before arriving at any conclusion. In addition it has failed to undertake the economic research and correctly apply the SSNIP test to arrive at its conclusion.

“The question is will it stand against the legal scrutiny? Personally I don’t think so. As far as the agreement and its clauses are concerned, it’s again a standard format and people are signing it after the due diligence. More importantly, they signed the application which has similar clauses,” Singh says.

Agrees consumer advocate Anand Pathak who feels CCI has used the rules of competition to achieve consumer protection. “I think there is a blurred vision because CCI jurisdiction is on competition whereas consumer protection is a separate subject. So, in the case of DLF, CCI has incorrectly defined real estate as a service with an objective in mind. Its not realistic with a very narrow definition of market. The CCI has done incredible work so far but in this case they have gone down a path of analysis that could be argued as common protection and not competition,” says Pathak.

Anand Pathak also has an advice, “DLF must challenge it and in all likelihood they will win by definition of market dominance. This is because in legal terms a dominant firm should also be in a position to practice indiscriminate behavior. But in this case DLF is well within its liberty of freedom of contract.”

DLF too seems to be determined to challenge the verdict and take the case to its logical legal conclusion. “The company and its subsidiary will be filing an appeal with COMPAT shortly and the company continues to believe that it has a strong case,” said Sanjey Roy, DLF spokesperson.

Sunil Dahiya, Managing Director of Vigneshwara Developers wonders how come there is abuse of dominant market position between a company and buyers. If DLF restricts other companies, then only it will be a case of dominance in the market and its subsequent abuse.

“In the given case there is an agreement between the two parties, clearly defined clause and no coercion. According to me the CCI has taken into account a very small locus standi of market dominance. Basically it’s a case of imposition of its position on the sector where the CCI has exceeded its locus standi and the case in all likelihood will not stand against judicial scrutiny. If a property is being transferred to the consumer, how come it falls under the service sector? There is no service commitment between the developer and the customer,” says Dahiya.

Lalit Kumar Jain, National President of Confederation of Real Estate Developers’ Association of India (CREDAI) says that “as far as service tax is concerned, in real estate it is charged on certain specifics like construction. But real estate is a composite act and can not fall under one service sector or any other. Real estate is a complex business where market dominance can’t be defined on the basis of one or two parameters. This market is so complex that across the country no one can claim a leadership position just because of sheer market share,” says Kumar.

So, experts are unanimous they neither fall under the service sector, nor the nature of the business allows them to be dominant in a fiercely competitive market.