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India – CCI Dismisses Allegations Of Cartelization Amongst Real Estate Developers While Criticizing Their Conduct.

17 March, 2015

 


On February 3, 2015, CCI dismissed allegations of cartelization in the real estate industry on account of insufficient evidence to establish an agreement spanning across the regions and players. The information was filed by Jyoti Swaroop (‘Informant’) against M/s Tulip Infratech Limited (‘Tulip Infratech’), Director, Town & Country Planning Haryana (‘DTCP’), Haryana Urban Development Authority (‘HUDA’) and 21 other real estate residential developers.

At the outset, it may be noted that the Informant had earlier filed information in Case No. 07 of 2011 against the same parties on similar facts alleging abuse of dominant position. However, CCI, vide order dated April 29, 2011, closed the case observing that there was no prima facie indication of Tulip Infratech being dominant in the relevant market. Moreover, none of the clauses of Section 3(1) read with Section 3(3) or 3(4) of the Act were found to be applicable in that case.

In the present case, it was alleged by the Informant that various enterprises engaged in real estate development business, including Tulip Infratech, had an arrangement / understanding amongst themselves to adopt an anti-competitive practices. In support of this allegation, reference was made to an article in the Economic Times wherein Chairman of Confederation of Real Estate Developers’ Association of India (‘CREDAI’) was reported to have stated that all the constituent members of CREDAI would be signing a Code of Conduct that would include mentioning the actual usage area to the buyers, compensation in case of project delays and honouring agreement clauses of buyers’ agreements. Such a Code of Conduct was alleged to indicate collusion amongst all members of CREDAI.
The investigation by DG concluded that the following practices were being carried on by builders/developers in India by way of a tacit agreement/understanding/informal co-operation:

i. non-disclosure of total common area;

ii. non-disclosure of applicable laws, rules and regulation;

iii. reservation of the right of further construction on any portion of the project;

iv. charging high interest from the apartment owners on delayed payments;v. restricting the rights, title and interests of apartment allottees;

vi. fastening the liability for defaults, violations or breaches of any laws; and vii. non-disclosure of all the terms and conditions of sale to the prospective buyers;

Further, DG conducted a comparative study of the flat buyer agreements and noted that even though the various clauses of the agreements conveying same or similar intent were differently worded, the same could not have been reached through independent actions of the various builders. Accordingly, DG concluded there was a contravention of Sections 3(3)(a) and 3(3) (b) of the Act. However, DG did not find any contravention of the Act by CREDAI.

Considering the presence of thousands of players in the real estate sector across the country, DG shortlisted the following builders /developers to capture a representative sample for the investigation. It was argued by the parties that DG exceeded its mandate by expanding the scope of investigation. However, CCI referred to its earlier order under Section 26(1) of the Act, wherein it had directed the DG to investigate the conduct of residential apartment / complex builders including Tulip Infratech and CREDAI. Accordingly, CCI, vide its order April 15, 2014 ordered the impleadment of the following 20 builders, who were selected by the DG as a representative sample: Amrapali Group, Ansal Properties, Ambuja Neotia Group, Avalon Group, Aparna Constructions, Amit Enterprises Housing, BPTP, Gaursons India, K. Raheja Corp, Oberoi Realty, Omaxe, Parsvanath Developers, Puravankara Projects, PS Group, Prestige Estates, Purohit Construction, Supertech, Salarpuria Group, Tata Housing Development Company and Unitech. Subsequently, since no information relating to M/s Purohit Construction Limited was found in DG’s report, CCI decided not to seek any reply from it.

CCI observed that the alleged anti-competitive conduct arising out of the agreement between the parties fell neither within the purview of Section 3(3) read with Section 3(1) of Act as the parties were not operating at the same level nor under Section 3(4) of the Act as an endconsumer is not part of any production chain in the market. Moreover, CCI in Case No. 7 of 2011 had ruled out applicability of Section 4 of CA02 as it was not established that Tulip Infratech was a ‘dominant’ enterprise.

CCI noted that the DG did not find any material other than the agreements executed between the builders and the buyers containing the common clauses to a varying degree. Such commonality, in the absence of any evidence to establish role of CREDAI or understanding, arrangement or action in concert between the individual enterprises, according to CCI, could not be held to be in contravention of Section 3(3) read with Section 3(1) of the Act in the present case.

Based on above findings, CCI differed with the findings of DG on issue of contravention of the provisions of Sections 3(3)(a) & (b) of the Act and held that the evidence on record was not sufficient enough to come to a conclusion of a contravention in this case. Accordingly, CCI dismissed the case.

Though CCI did not find any collusion between the parties due to the absence of evidence, the same was in no way suggestive of any intrinsic fairness of the impugned clauses. CCI specially recorded that the parties tried to ratiocinate their parallel conduct by passing the same off as ‘common industry practices’ and to further enable the consumers to compare apples with apples through the standardization of agreements. However, CCI criticized such conduct, saying that if the argument of the parties is taken to its logical conclusion, it would appear that all players are competing to provide consumers the option to compare ‘one rotten apple with another rotten apple’. In the present case, CCI stated that some of the practices found by the DG as anti-competitive could in no case be said to fall in the category of industry practices which are innocuous in nature.

Lastly, CCI requested the policy makers and regulators to address the present situation through appropriate legislative tools in tandem with the self-regulatory role played by CREDAI. CCI also made a reference to Parliament to take immediate and urgent steps to enact such a law which will supplement the existing regulatory architecture in addressing the grievances of the purchasers through a mix of structural and behavioral remedies. Lastly, CCI recommended that not only the parties investigated but all the players in the sector should take appropriate voluntary measures to address the concerns projected in the present case.

AZB    

For further information, please contact:

 

Zia Mody, AZB & Partners
zia.mody@azbpartners.com

 

Abhijit Joshi, AZB & Partners 
abhijit.joshi@azbpartners.com

Shuva Mandal, AZB & Partners 
shuva.mandal@azbpartners.com

 

Samir Gandhi, AZB & Partners
samir.gandhi@azbpartners.com

Percy Billimoria, AZB & Partners 
percy.billimoria@azbpartners.com

 

Aditya Bhat, AZB & Partners 
aditya.bhat@azbpartners.com

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