By: Ravi Sinha
As the realty major DLF moves the Competition Appellate Tribunal (Compat) to challenge the Competition Commission of India (CCI) penalty of Rs.630 crore, the real estate sector will soon get an answer as to whether their business falls under the service sector.
The fact of the matter is that the CCI has used the rules of competition to achieve consumer protection. There is a blurred vision because CCI jurisdiction is on competition whereas consumer protection is a separate subject.
In the case of DLF, CCI has incorrectly defined real estate as a service with an objective in mind. The fact of the matter is that any real estate product ultimately gets transferred under Transfer of Property Act and not being governed by Goods and Service Act, even Finance Bill has classified it as deemed to be service not service.
It is not just the real estate fraternity across the country which is unanimous that in the complex business of real estate, market dominance cannot be defined by the sheer presence in a given geographical location or in a product market, but even the legal experts are mulling over the thin line that bifurcates between the competition related dominance and the consumer activism.
The CCI verdict came as a surprise to the sector and seemed to be a result of its jurisdiction overreach. If such a narrow definition of market dominance will define the real estate market, then such defiance of the boundaries of competition law is set to open can of worms for the CCI across the country.
The narrow definition of relevant market has been skewed by not taking into consideration the secondary and investment markets before arriving at any conclusion. In addition, it has failed to undertake the economic research and correctly apply the SSNIP (small but significant non-transitory increase in price) test to arrive at its conclusion.
As the DLF moves Compat to challenge the verdict, the relevant question today is will it stand against the legal scrutiny? As far as the agreement and its clauses are concerned, it is a standard format and people are signing it after the due diligence.
More importantly, even the banks follow the same kind of format where the customer is expected to sign and agree the not-so-foreseeable clauses, including the interest hike in future.
The CCI which has been applauded in the past for some incredible work has in this case raised many questions than answered any. They have gone down a path of analysis that could be argued as common protection and not competition. In legal terms, a dominant firm should also be in a position to practice indiscriminate behaviour. Has DLF in this case gone beyond its liberty of freedom of contract? The answer is a clear No.
DLF too seems to be determined to challenge the verdict and take the case to its logical legal conclusion. It spokesperson says the company and its subsidiary continues to believe that it has a strong case. DLF’s optimism is not without any basis. After all, the question remains as to how come there is abuse of dominant market position between a company and buyers. If DLF restricts other companies, then only it will be a case of dominance in the market and its subsequent abuse.
In the given case there is an agreement between the two parties, clearly defined clause and no coercion. The CCI has taken into account a very small locus standi of market dominance. Basically, it is a case of imposition of its position on the sector where the CCI has exceeded its locus standi and the case in all likelihood will not stand against judicial scrutiny. If a property is being transferred to the consumer, how come it falls under the service sector? There is no service commitment between the developer and the customer.
Moreover, as far as service tax is concerned, in real estate it is charged on certain specifics like construction. But real estate is a composite act and can not fall under one service sector or any other. Real estate is a complex business where market dominance can’t be defined on the basis of one or two parameters. This market is so complex that across the country no one can claim a leadership position just because of sheer market share.
The fact of the matter is that the business of real estate neither falls under the service sector, nor the nature of the business allows a realty company to be dominant in a fiercely competitive market.
However, post the CCI penalty and the subsequent challenge by the DLF, it would be interesting to see the verdict coming out in the open. Till then, it is not the DLF but the CCI that needs a lot of arguments to establish something that does not seem to be tenable either by the law of natural justice or within the established law of the land.
