CCI introduces Leniency “Plus” regime in India- Will it suffice?
CCI imposes penalty of Rs. 1 Crore plus on Ghaziabad Development Authority for arbitrary increasing cost of EWS residential flats as abuse of its dominant position in Ghaziabad.
The Competition Commission of India (CCI), acting on an information filed by an individual Satyendra Singh, vide its order dated 28.2.2018 has found Ghaziabad Development Authority (GDA/ Opposite Party-OP) to have abused its dominant position by raising the cost of flats, meant for the Economically Weaker Sections (EWS), from Rs. 2.0 Lakhs in 2008 to Rs. 7.5 lakhs in 2015 without any enabling provision either in the Brochure of the Scheme or allotment letter, finding it to be an arbitrary and unilateral conduct. While imposing a penalty of Rs. 1, 00, 60,794/- on GDA, being 5% of the average of the relevant turnover of GDA for the last three years for this abuse of dominant position by GDA and directing GDA to cease and desist from indulging in the abusive conduct in future, CCI refused to accept, inter alia, the defense of “calculation error in costing due to officers’ negligence “submitted by GDA. CCI also found the condition for levying penal interest @ 10.5% per annum in case of delay in the payment of the quarterly instalments by the allottees without a corresponding provision for GDA in case of delay in giving possession of the flats, as an abusive condition being one sided and unfair in its Pratap Vihar Residential Housing Scheme. CCI held that such conduct of GDA is in violation of Section 4(2) (a) (i) of the Competition Act, 2002 (the Act).The details of the case are as under:
The Informant an allottee of a low cost residential flat under the Pratap Vihar residential housing scheme announced by the OP in 2008 for the EWS [hereinafter, ‘Scheme’] in Pratap Vihar, Ghaziabad, Uttar Pradesh. The OP is a statutory body created under the provisions of Section 4 of the Urban Planning and Development Act, 1973 of Uttar Pradesh and has been, inter alia, engaged in the activity of development and sale of real estate in Ghaziabad district of Uttar Pradesh. The Informant, after paying registration amount of Rs. 20,000 was allotted a flat in the Scheme on 4.5.2009. As per the allotment letter the total cost of the flat was to be Rs. 2, 00,000 and it mentioned other conditions of allotment such as payment of Rs. 20,000/- by 31.05.2009, payment plan for balance amount of Rs. 1,60,000/-, penal interest in case of delay in payment of balance amount, date of giving possession of the allotted flat etc. On 27.11.2015, OP intimated all allottees that at the time of registration, estimated price was Rs. 2 lakh but the cost after taking into account the real cost of construction, price was estimated at Rs. 7 lakh. Accordingly, the letter asked all allottees to tender written consent to revised estimated price of the units by 12.12.2015 failing which the allotments would stand cancelled. Based on the above, the informant challenged the OP’s actions of increasing evaluation of the units as being arbitrary and abusive of its dominant position in contravention of provisions of section 4(2)(a) of the Act. Based on the information, CCI passed a prima facie order under section 26(1) of the Act asking the Director General (DG) to undertake investigations pursuant to allegations.
DG Investigation:
DG delineated the relevant market as the “market for provision of services for development and sale of low cost residential flats under affordable housing schemes for the economically weaker sections in the district of Ghaziabad.” As regards dominance of the GDA, the DG reported that during 2008 and 2009, there were only two entities offering flats under EWS schemes i.e. GDA and Uttar Pradesh Avas Evam Vikas Parishad (UPAVP). Ansal API was the third enterprise which entered into the relevant market only in 2011. It was noted that, in terms of the total number of EWS flats offered, during 2008-2015 GDA was having 77.42% market share. Apart from this, on the basis of size and resources, GDA enjoying exclusive power to undertake development work in Ghaziabad, the DG has reported that the consumers in the relevant market were predominantly dependent upon GDA. After analyzing the factors enumerated under Section 19(4) of the Act, DG concluded that GDA is in a dominant position in the aforesaid relevant market. Further, DG noted that GDA has abused its dominant position by imposing unfair conditions and price on the allottees of the Scheme in contravention of the provisions of Section 4(2)(a)(i) and (ii) of the Act, respectively. It was noted by the DG that in the absence of any enabling stipulation or clause in the allotment letter or Brochure, the conduct of GDA in revising the price from Rs. 2, 00,000 to Rs. 7, 00,000 could not be said to be fair especially when no new facilities were being provided. It was also reported by the DG that the condition requiring the allottees to pay interest @ 10.5% per annum in case of delay in payment without any corresponding financial liability on GDA to compensate the allottees in case of delay in delivery the possession of the flats is one-sided and unfair. Further, with a view to determine liability under Section 48(1) and (2) of the Act, the DG also identified eleven individual officers of the OP who were in-charge of and responsible for the conduct of the affairs of the GDA at the time of contravention of the provisions of the Act by the GDA. The Investigation report of the D.G. was submitted on 04.09.2017 (DG report).
Objections by the OP to the DG report
In response to the DG report, the OP raised several objections on law and facts , including some preliminary objections such as (i) the provisions of Section 4 of the Act notified on 20.05.2009 do not apply retrospectively the Scheme and the allotment of EWS flats, allotted in 2008, (ii) GDA is not an enterprise as within the meaning of section 2(h) of the Act since GDA was carrying out a ‘sovereign function’, and the announcement of the Scheme was an example of such sovereign function.
It was contended that GDA is not a profit making body as averred by the Informant and that the Scheme under which the informant was allotted a flat was not the sole scheme launched during 2008 and 2009. UPAVP had also launched EWS scheme at Siddharth Vihar. Several other options were available to the potential allottees in Delhi/ National Capital Region (NCR). Ghaziabad district should not be considered as the relevant geographic market as any resident of NCR is eligible to apply for the housing schemes announced by GDA on fulfilling the conditions set out in the Brochure of the Scheme. The informant, for instance, is a resident of Delhi. The O.P. is not dominant and the present case must be distinguished from scenario observed in cases like “Belaire Owners Association”[1] wherein the allottees did not have an exit option. In present case, allottees were eligible for full repayment of sums along with interest if they chose to withdraw from the scheme. Extended time period for repayment had also been provided for in terms of 20 years. Price of Rs. 2 Lakh mentioned on brochure was on approximation, estimated at the initial stage and not the final price since final price depended on the actual cost of construction. Construction was being carried out by contractors over a period of time and an increase in the price was inevitable in such a case. U.P. Govt. had, through its Guidelines for Costing, established that if prices increased by more than 10% and the allottees were not willing or able to pay the additional amount, a refund must be offered at 9% simple interest p.a.
Houses were developed on already developed area and therefore no significant land remained with GDA to cross-subsidize the cost of land of the development project, as it would have done usually. Further, price of the flats offered after revision were still lower as compared to the market value of similar flats in nearby areas. U.P. Governments Costing Guidelines require 15% contingency and 10% overhead charge to be levied. Had said charges been levied, the final price would have come to more than Rs. 7 lakh. Further, the allegations of the informant would not survive since majority of the allottees of the Scheme including the Informant had accepted the demand raised and had submitted their acceptance in writing. Lastly, it was submitted that matter was sub judice pursuant to Writ Petition No. 7431 of 2016 pending before the Allahabad high Court where 10 other allottees had challenged the demand notices of payment of additional Rs. 5 Lakh.
Further, individual Officers indicted in the DG report also filed replies before the Commission along with GDA’s submissions. However, CCI decided not to proceed against them in determination of liability under Section 48(1) and (2).
FINDINGS of the COMMISSION:
On Preliminary Objections
CCI rejected all the preliminary objections taken by GDA. Tackling the O.P.’s challenge to the jurisdiction of the Commission, CCI observed that the trigger point for the Informant in agitating this matter before the Commission was the letter dated 27.11.2015 which was, as per contents of the letter, in pursuance of allotment letter dated 20.05.2009 and was ,therefore, in continuance of the same agreement. This was issued much after the provisions of Sections 3 and 4 the Act came into effect on 20.05.2009. The action amounted to fresh imposition of a condition which was not contemplated in the earlier allotment order or the Brochure. The Commission was, therefore, well within its jurisdiction to hear the present matter. In response to objection raised by GDA relating to the interpretation of “enterprise” as under the provisions of Section 2(h) of the Act, CCI observed that apart from the four departments of the Central Government, i.e., atomic energy, defence, currency and space, all other activities of the Government, were covered under Section 2(h) of the Act.
Assessment of the relevant market
CCI, agreeing with the DG report, observed that ‘the market for provision of services for development and sale of low cost residential flats under affordable housing schemes for the economically weaker sections in the district of Ghaziabad’ is the relevant market in present case.
Assessment of the position of dominance of GDA in the relevant market.
As regards the size and resources of GDA during the said period, CCI observed that the total capital fund of GDA was Rs. 2324.05 crores in 2008-09, it was Rs. 1454.63 crores in 2014-15. Further, the DG has reported that the dominance of the GDA is established by virtue of the Urban Planning and Development Act, 1973 of Uttar Pradesh which has put the responsibility solely on the GDA to plan, control, manage and develop housing societies, infrastructure etc. in Ghaziabad. This Act also mandates that no developer can construct any property in the district of Ghaziabad without the approval of GDA. Thus, being a Government of Uttar Pradesh owned entity, the GDA enjoys the market power and has an edge over its competitors in the relevant market because of the mandate given to it under the aforesaid Act. The Commission noted from the D.G.’s report that the ratio of the number of applicants and number of allottees of the O.P. during 2008 to 2015 was 7:1 whereas it was 3:1 in case of UPAVP. This indicates consumers’ preference for the EWS flats launched by GDA as compared to UPAVP and showing that GDA had the highest market share in the relevant market in 2008 and 2009 and between 2008 to 2015. Further, the dominance of the O.P. is established by virtue of the Urban Planning and Development Act, 1973 of Uttar Pradesh which has put the responsibility solely on the OP to plan, control, manage and develop housing societies, infrastructure etc. in Ghaziabad, which gives it market power and an edge over its competitors. Not only that, consumers are largely dependent on the GDA for EWS flats. CCI, therefore, observed that GDA has ability to influence the conditions of competition and has the strength to operate independently of the competitive forces in the aforesaid relevant market and hence is dominant in the relevant market.
Examination of the alleged abusive conduct of GDA
The Commission did not agree with any of the Objections of the GDA. The Scheme which was announced earlier, had remained the same for past 8 years with nothing added to it or its surroundings. In such a situation, compelling the consumers to pay a far higher price after a gap of more than seven years of launching the Scheme and, specially, when they belong to EWS and have limited capacity to pay was unfair and abusive under the Act. Further, while the allottees, belonging to EWS category, are charged with an interest of 10.5% p.a. on default in repayment, no corresponding financial liability lies on GDA.
CCI observed that, there has been an inordinate delay of more than eight years in the delivery of flats to the allottees of the Scheme. Moreover, GDA has not been able to provide a reasonable explanation for the delay in giving possession of the flats. From the statements of the officers of the GDA before the DG, it is noted that generally it takes about three years to complete construction of a project. But, in this case, even after more than eight years of announcement of the project, GDA has not been able to give possession of the flats. Initially, flats were promised to be delivered around August, 2009 which was postponed to March, 2016. As on date, the status of delivery is not known. CCI further observed that for the allottees there is no provision for compensation by the GDA for the delay in delivery of possession of the flats. Thus, the said conduct of GDA is not only unfair but extremely arbitrary.
Although the Commission has found the aforesaid conduct of the GDA whereby the cost of EWS flats was increased without any valid justification as an abuse of GDA’s dominant position, the Commission differs from the conclusion drawn by the DG that it also amounts to imposition of unfair price in violation of Section 4(2) (a) (ii) of the Act. The Commission is of the view that the conduct of GDA in raising the price of the EWS flats from the initial price without any enabling provision (either in the Brochure of the Scheme or allotment letter) on the pretext of miscalculation of cost of the project and increase in the cost of the project over the years by the contractor, can only be explained as a case of abuse of dominant position by GDA in the relevant market. The Commission observed that the consumers who belong to EWS have been made to suffer because of such abusive conduct of GDA. That conduct tantamount to unilateral modification of the terms of the allotment of the flat as well as imposition of unfair condition in the sale of services provided by GDA in the relevant market in contravention of the provisions of Section 4(2)(a)(i) and not Section 4(2)(a)(ii) of the Act. The abusive behaviour of GDA is also seen in respect of imposing arbitrary and unilateral term and condition in the allotment letter if there is a delay in payment of the instalments by the allottees. Further, in the present case, GDA has not delivered possession of the flats to the allottees even after lapse of almost 10 years. Based on all this, the Commission is of the view that the impugned term and condition of the allotment letter is abusive being one sided and unfair and in violation of Section 4(2) (a) (i) of the Act.
Order
Accordingly, CCI directed GDA to “cease and desist” from indulging in such abusive conduct which has been found to be in contravention of Section 4(2) (a) (i) read with Section 4(1) of the Act. CCI also imposed a penalty amounting to Rs. 1, 00, 60,794 calculated at the rate of 5% of the average turnover of the O.P. generated from the provision of services for development and sale of low cost residential flats under affordable housing schemes for EWS for the preceding three financial years was imposed on the O.P. The penalty amount was to be deposited within 60 days from the date of the Order.
COMMENT: The present order represents the hardening stance of the Commission towards lackadaisical approach of the public sector housing enterprises and sends an appropriate message. Noticeably, the Commission refused to accept the attribution of the arbitrary increase in the cost of the low budgeted houses on the staff negligence by the GDA, which is often taken as a common excuse in departmental inquiry proceedings. However, by choosing not to impose penalties on the erring individual employees of the GDA, though recommended in the DG report, the Commission seems to have discriminated in favor of the public sector enterprises, which may dilute the message. In my view this is not a correct approach and the Commission ought to have taken a similar tough stand on the individual employees at par with its earlier stance of imposing harsh penalties on private sector individual violators.
[1] Case No. 19 of 201, Order of CCI Available @: http://www.cci.gov.in/sites/default/files/DLFMainOrder110811.pdf
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