CCI finds Ghaziabad Development Authority Guilty of Abusing its Dominance by imposing Unfair Conditions on EWS Flat-Buyers

On February 28, 2018, CCI while deciding on a disputed DG investigation, based on information filed by Shri Satyendra Singh (‘Mr. Singh’) against the Ghaziabad Development Authority (‘GDA’), held GDA to be guilty of conduct in contravention of Section 4 of the Competition Act.[1]

GDA is a statutory body created under the Urban Planning and Development Act, 1973 of Uttar Pradesh, engaged in developing and selling real estate in Ghaziabad district of Uttar Pradesh. On May 4, 2014, Mr. Singh was allotted a low cost residential flat under the GDA’s housing scheme (‘Scheme’) for the Economically Weaker Sections (‘EWS’) in Ghaziabad. The final price of the flat was stated to be ₹ 2 lakhs (approx. US$ 3,000) but the GDA later informed all allottees that based on the real construction cost of the project, the price had increased to ₹ 7 lakhs (approx. US$ 11,000) vide letter dated November 27, 2015. GDA asked all allottees to consent in writing to the increased price of the flat within 15 days, failing which their allotment would stand cancelled.

Delineating the relevant market as “market for provision of services for development and sale of low cost residential flats under affordable housing schemes for the EWSs in the district of Ghaziabad”, and the relevant product market as “market for provision of services for development and sale of low cost residential flats under affordable housing scheme for EWS”, the DG concluded that the GDA abused its dominance by imposing unfair conditions and price on the allottees, and even found 11 individual officers of GDA responsible. The investigation report of the DG was provided to the parties to file their objections/replies/suggestions to the same. In pursuance of the same, GDA argued that (i) Section 4 of the Competition Act was notified on May 20, 2009, and the scheme belonged to 2008, therefore it cannot apply retrospectively; (ii) GDA is not an ‘enterprise’ in terms of Section 2(h) of the Competition Act because it was performing a sovereign function under the Scheme; (iii) GDA is not-for-profit and constructs houses for general public, working out their final price on the basis of the actual construction cost incurred on the project, and the costing procedure drawn from the Guidelines for Costing issued by the UP Government, which provides that if the cost of the house increases more than 10% then the allottee may get the money back with 9% interest; (iv) as for the relevant market, the GDA’s Scheme was not the only scheme – Uttar Pradesh Avas Evam Vikas Parishad (UPAVP) had also launched an EWS scheme and several other options were available in Delhi and NCR, additionally, the relevant geographical market should not be restricted to Ghaziabad, since residents of NCR could also apply; (v) allottees had the option to withdraw from the Scheme, therefore no unfair conditions were imposed; (vi) estimation done at the time of announcement was incorrect and proceeding against the responsible officers were being conducted.

On GDA’s objection of the Competition Act not being retrospective, CCI relied on Kingfisher Airlines Limited and Another v. Competition Commission of India,[2] where the Bombay High Court had held that “the Act does not render the agreement entered into, prior to coming into force of the Act, void ab initio…. But if the parties want to perform certain things in pursuance of the agreement, which are now prohibited by law, would certainly be an illegality and such an agreement by its nature, therefore, would, from that time, be opposed to the public policy.”

CCI also made a reference to the observations of the erstwhile COMPAT in the matter of DLF Limited v. Competition Commission of India,[3] wherein COMPAT has held that “Any imposition, or the act after 20th May, 2009 could be validly inquired into by the CCI, as the language of section 4 of the Act is not retrospective, but prospective. Therefore, any tainted imposition after that date could be a subject matter of the inquiry, but it cannot be said that the entering into the agreement in the year 2006-07, as the case may be was an imposition after the Act”. Therefore, the Scheme could have been of 2008, but the letter of increased price was sent in 2015.

With regard to the GDA not being an enterprise under Section 2(h) of the Competition Act, the COMPAT has held in India Trade Promotion Organization v. Competition Commission of India,[4] that the functions which are an integral part of the Government and which are inalienable, are ‘sovereign functions’ and commercial actions/ trading activities and actions, which can either be delegated or performed by the third parties, are alienable and are not ‘sovereign functions’. CCI concluded that the GDA’s actions were not inalienable sovereign functions, and thus, not immune to the Competition Act.

CCI rejected the contention that the relevant market included NCR and other areas, keeping in view the economic conditions of EWS persons, and the restrictions on their choices. Considering the 81.45% market share of the GDA, the dependence of EWS consumers on GDA as a result of lack of other options in Ghaziabad, and the surplus of resources at its disposal, CCI verified its dominance in the relevant market. The GDA had abused its dominant position knowing well that the informants belonged to the EWS category, by changing its stance from ‘final cost – ₹ 2 lakhs (approx. US$ 3,000)’ to ‘estimated cost’, by not including any stipulation in the brochure about a potential change in prices, and by including only one-sided conditions in the scheme, etc.

CCI held that the GDA was guilty and imposed a penalty of approximately ₹ 1 crore (approx. US$ 0.15 million). A cease and desist order was also passed against GDA.

[1] Case no. 86 of 2016.
[2] Writ Petition 1785 of 2009.
[3] (2014) Comp LR 1 (COMPAT).
[4] Appeal No, 36 of 2014.

Published In:Inter Alia Special Edition Competition Law June 2018 [ English
Date: June 20, 2018