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India – COMPAT Upholds CCI’s Order In DLF appeal.

14 July, 2014

 


On May 19, 2014, the Competition Appellate Tribunal (‘COMPAT’) passed its order in Appeal Nos. 20 of 2011, 22 of 2011, 19 of 2012, 23 of 2011, 12 of 2012, 20 of 2012, 29 of 2013, 08 of 2013, 09 of 2013 and 11 of 2013, (‘Order’) preferred against the orders of CCI in cases involving DLF’s Bellaire, Magnolia and Park Place projects. The Order dealt with several issues, including CCI’s jurisdiction, relevant market, assessment of dominance and abuse, and lastly, the issue of penalty.

 
By way of a preliminary objection, the appellant contended that the sale of apartments could neither be considered to be a sale of goods, nor could it be classified as provision of services. The Appellant also raised a separate preliminary issue in relation to the retrospective application of the provisions of the Act. COMPAT held that the sale of apartments constitutes a service within the scope of Section 2(u) of the Act. With respect to the issue of retrospective application of the provisions of the Act, COMPAT held that while there could be no retrospective application of the provisions of the Act in relation to agreements entered into prior to May 20, 2009, actions taken pursuant to the same after May 20, 2009, could, nonetheless, be investigated into by CCI.

 
Further, COMPAT discussed at length, the Bombay High Court’s Judgment in the case of Kingfisher Airlines Limited v. Competition Commission of India,1 and determined that the judgment could not be relied upon to modify the terms of the buyers agreement, which were valid and legal when entered into before May 20, 2009, solely because the agreements were continuous in nature.

 
COMPAT specifically noted that the intervention of CCI is only warranted in situations where there are particular acts undertaken in pursuance to those clauses, resulting in the imposition of a condition, which may be an abuse of dominant position. Interestingly, COMPAT, after considering the provisions of Section 27 of the Act, held that CCI’s powers to direct modifications to agreements under Section 27(d), were limited to agreements in contravention of Section 3, and that the only relief that could be provided in cases dealing with Section 4, would be limited to addressing the “actions” taken by dominant enterprises.

 
With regard to the substantive issues, COMPAT agreed with the market definition provided by CCI in its entirety. COMPAT did not consider the Small but Significant and Non-transitory Increase in Price Test (SSNIP test) as relevant for the determination of the relevant geographic market and also emphasising upon the various differences in the legal and regulatory framework governing construction activities in Delhi and Haryana, and other factors which would dictate consumer preference.

 
Further, COMPAT upheld CCI’s ruling that DLF was a dominant enterprise in the relevant market for “high end residential accommodation in Gurgaon”. It particularly appreciated CCI’s analysis of factors above and beyond the relevant market, which would facilitate unilateral action, especially CCI’s approach of considering “the overall size and resources of an enterprise or the overall importance of a competitor (…) to see comparative position of strength and not the limited manifestation of that strength in a particular product or geographic market.”

 
In light of the above, COMPAT upheld CCI’s finding of abuse of dominant position by DLF, in its entirety, and held that CCI’s order imposing a penalty of INR 6.3bn on DLF was reasoned and justified.

 

End Notes:

 

1 W.P No. 1785/200

 

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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