CCI Penalizes Jaiprakash Associates Limited for Contravention of Abuse of Dominance

On August 9, 2019, CCI imposed a penalty on Jaiprakash Associates Limited (‘Jaypee’) for imposing unfair/ discriminatory conditions in a Provisional Allotment Letter (‘PAL’) in relation to independent villas developed by Jaypee in its housing project located at Greater Noida. [1]

The allegations pertained to unfair and one sided terms invoked by Jaypee in the PAL which led to: (i) imposition of arbitrary rates by Jaypee while computing the costs of additional construction; (ii) failure by Jaypee to include details of the provision of complimentary golf membership, total area of the plot and additional basement area; and (iii) delay in handing over the possession of the plot.

On Jaypee’s challenge over jurisdiction, CCI rejected Jaypee’s argument that the matter should have been dealt under the Real Estate (Regulation and Development) Act, 2016 and the claims/remedy should be made under the Indian Contract Act, 1872, on the grounds that Jaypee’s operations fell within the ambit of ‘services’ as per Section 2(u) of the Act.

CCI also disagreed with Jaypee’s submissions on what constituted the relevant market and held that integrated townships with independent residential units provide a distinct facility to the consumers and are therefore not substitutable with apartments/ residential units/multi-storey apartments in group housing societies. Accordingly, CCI defined the relevant market as ‘market for the provision of services for development and sale of independent residential units such as villas, estate homes, town homes and row-houses in integrated townships in Noida and Greater Noida regions’. On the issue of dominance, CCI noted that Jaypee had the largest market share in terms of number of units sold in the relevant market during the relevant period of FY 2009-10 to 2011-12. CCI further noted that Jaypee had sold many independent industrial units in comparison to its closest competitors and had a larger pool of financial assets and land resources. Based on the above, CCI found Jaypee to be dominant in the relevant market.

In its analysis of Jaypee’s conduct, CCI analyzed the effects of each clause alleged in the complaint and held the following:

i.       Clause Restraining Buyers from Preventing Jaypee to Construct Additional Structures/Buildings: CCI observed that the allottee had booked a villa keeping in mind the location, open space surrounding the villa, availability of sun light and air, greenery, etc. This clause gives Jaypee unilateral powers to construct or continue to construct other buildings, adjoining areas and alter the plans, thus taking away the rights of allottees at all the stages i.e., before or after taking possession. Therefore, this clause was held to be unfair and one-sided, in violation of the provision of Section 4(2)(a)(i) of the Act.

ii.      Clause on Charging of Interest for Delayed Payments: CCI found that the interest rate chargeable from the allottee in case of delay in making payments was much more than interest payable by Jaypee for delay on account of handing over of possession to the allottee. CCI held the clause is heavily in favour of Jaypee and is unfair given that Jaypee incurs a lighter penalty in case of its default but the allottees end up paying a huge penalty amount in case of a default by them.

iii.     Other Clauses in relation to Jaypee’s Right to Raise Finance from Banks, No Compensation against Delay in Possession, One Sided Arbitration Clause and other miscellaneous obligations: CCI held that these clauses are unfair, one sided in nature, and mandate that the buyers waive their essential rights.

Accordingly, CCI held that Jaypee has contravened provisions of Section 4(2)(a)(i) of the Act, and therefore, imposed penalty of 5% of the relevant turnover of Jaypee i.e., INR 13,82,00,000 (approx. USD 2,000,000).

[1] Case No. 99 of 2014.

Published In:Inter Alia Special Edition- Competition Law - September 2019 [ English
Date: September 21, 2019