Ghaziabad Development Authority Abused Dominant Position By Imposing Unfair Terms On Allottees Of EWS Housing Scheme, NCLAT Imposes 5% Penalty

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench comprising Justice Rakesh Kumar Jain (Judicial Member) and Mr. Naresh Salecha (Technical Member) upheld the findings of CCI, observing that GDA constitutes an "enterprise" under Section 2(h) of the Competition Act since its activities were 'commercial' in nature. It concurred with the determination of 'relevant geographic market' as the district of Ghaziabad (not the entire NCR region). The Tribunal held that GDA abused its dominant position in the relevant market and held that its unilateral actions, such as increasing the price of flats from Rs. 2 lakhs to Rs. 7 lakhs without any enabling provision amounted to contravention of Section 4(2)(a)(i) and (ii). Furthermore, it held that imposition of interest on delayed payments by allottees without reciprocal obligations on delayed possession constituted unfair practices. The Tribunal ruled that the 5% penalty imposed was reasonable to deter similar conduct in the future.

Brief Facts:

Ghaziabad Development Authority (GDA), the Appellant, filed the appeal under Section 53 (b) of the Competition Act, 2002 for challenging the order dated 28.02.2018 passed by the Competition Commission of India (CCI) under Section 27 of the Competition Act.

In the impugned order dated 28.02.2018, CCI had found that the Appellant unilaterally increased the price of flats and imposed arbitrary and unfair terms on allottees from the economically weaker sections of society. The conduct of the Appellant was found to constitute an abuse of its dominant position in the market for the provision of services related to the development and sale of low-cost residential flats under affordable housing schemes in Ghaziabad, thereby violating Section 4(2)(a)(i) of the Competition Act.

Issues:

1. Whether the Appellant is an 'enterprise' in terms of Section 2(h) of the Competition Act since GDA is an organ of the Government of Uttar Pradesh.
2. Whether the relevant geographic area should have taken the entire NCR rather than the district of Ghaziabad.
3. Whether the Appellant is a dominant player since other players exist in the relevant market.
4. Even assuming it was a dominant player in the relevant market, whether the Respondent/CCI should not have imposed the penalty looking into the mitigating factors.

Submissions:

By the Counsel for the Appellant:

• GDA was constituted under Section 4 of the Uttar Pradesh Urban Planning and Development Act, 1973 and engaged in the development and sale of real estate in Ghaziabad and is duly empowered to acquire, hold, and dispose of land while undertaking various development activities within the region.
• On 27.12.2016, after hearing the parties, CCI erroneously directed the Director General (DG) to conduct an investigation based on an order dated 02.02.2017 issued under Section 26(1) of the Competition Act.
• GDA is an organ of the State of U.P. and therefore cannot be treated as 'Enterprise' u/s 2(h) of the Competition Act.
• A proper assessment of its dominant position in the relevant market must consider the criteria laid down in Sections 19(6) and 19(7) of the Competition Act for defining both the 'relevant product market' and 'relevant geographic market'. The DG's classification of 'relevant geographic market' should've included the NCR region.
• Merely being in a dominant position as per Section 4 of the Competition Act does not constitute a contravention unless there is an abuse of that position. For abuse to be established under Section 4(2)(a)(i) of the Competition Act, there must be evidence of unfair or discriminatory conditions imposed on the purchase or sale of goods or services. Moreover, the Appellant obtained consent from several allottees regarding this adjustment in pricing.
• Even if it were found to have engaged in an abuse of dominant position under Section 4(2)(a)(i) of the Competition Act, the CCI has erred in determining the quantum of the penalty imposed under Section 27 as the appellant is not a habitual offender and this instance was its first contravention of the Act.
• CCI's directive for the Appellant to 'cease and desist' from conduct found in violation of Section 4(2)(a)(i) of the Competition Act could stall the progress on these developments.

By the Counsel for the Respondent:

• There was no provision for interest on delayed possession nor was there a fixed date for possession, highlighting the one-sided nature of the scheme. Even after 7 years without any delivery of flats, GDA informed allottees in 2015 that the price had been revised to Rs. 7 lakh requiring their consent within 15 days or risk cancellation of their allotment.
• The activities undertaken by GDA, such as land acquisition and property sales, are commercial in nature and can also be performed by private entities; thus, GDA qualifies as an 'enterprise' under the Act.
• Only because the scheme was accessible to individuals outside Ghaziabad does not justify categorizing Delhi NCR as a single relevant geographic market. The relevant geographic market is defined as an area where goods or services are interchangeable under similar competitive conditions.
• Even if there is a modest price increase in Ghaziabad, consumer preferences are influenced by external factors such as transportation costs when purchasing EWS flats.
• The so-called 'exit option' does not support GDA's position and instead it exemplifies a 'take it or leave it' approach, which is characteristic of an abuse of dominance.
• The penalty imposed by CCI that is 5% of average turnover, is not reasonable given its objective of deterrence and considering no mitigating factors were presented during proceedings.

Observations:

GDA is an Enterprise under Section 2(h) of the Act:

The Tribunal observed that the activities performed by GDA were economic activities being carried on for commercial consideration. The Tribunal held that GDA is an 'enterprise' in terms of Section 2(h) of the Competition Act. The Tribunal rejected the argument of the Appellant that it is not for profit organization and thus cannot be treated as an 'enterprise'.

Relevant Geographic Market:

The Tribunal observed that considering the factors enumerated under Section 19(7) and 19(6) of the Act, the DG had 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'. The Tribunal observed that only because of the reason that schemes of the Appellant are open for all residents of NCR, the relevant geographic market cannot be taken as NCR. It noted that a relevant geographic market means “an area where goods or services are sufficiently interchangeable or substitutable under similar conditions of competition and are distinct from the neighbouring areas.”

Position of Dominance:

The Tribunal noted that Explanation (a) to Section 4(2) of the Competition Act provides that 'dominant position' means a position of strength, enjoyed by an enterprise in the relevant market, which enables it to - (i) operate independently of the competitive forces prevailing in the relevant market; or (b) affect its competitors or consumers or the relevant market in its favour.

The Tribunal noted further that to determine whether an enterprise is in a dominant position or not in a relevant market, the CCI is required to have due regard to all or any of the factors as enumerated under Section 19(4) of the Act such as market share of the enterprise, its size and resources, size and importance of its competitors etc.

The Tribunal observed the consumers in the relevant market were predominantly dependent upon GDA and, after analyzing the factors enumerated under Section 19(4) of the Act, concluded that GDA is in a dominant position in the relevant market. It reiterated that GDA was a dominant player in the relevant market and abused its dominant position by imposing unfair conditions and prices on the allottees of the Scheme in contravention of the provisions of Section 4(2)(a)(i) and (ii) of the Act.

The Tribunal noted that the cost of EWS flats was increased by the Appellant without any valid justification and thus can be treated as an abuse of GDA's dominant position. The conduct of the Appellant in raising the price of the EWS flats from Rs. 2 lakhs to Rs. 7 lakhs without any enabling provision on the pretext of miscalculation of the project's cost and increase in the cost of the project over the years by the contractor can be construed as a case of abuse of dominant position by the Appellant in the relevant geographic market. The conduct of the Appellant tantamounts to unilateral modification of the terms of the allotment and imposition of unfair conditions in the sale of services provided by the Appellant in the relevant market in contravention of the provisions of Section 4(2)(a)(i) and Section 4(2)(a)(ii) of the Act. “...the unilateral imposition of interest on alleged delayed payments by the allottees, with no corresponding obligation on the part of the Appellant for delayed handing over of flats, is also an abuse of dominant position in the relevant geographic market”, the Tribunal stated.

Quantum of Penalty

The Tribunal observed that the CCI is entitled to impose a necessary penalty subject to the maximum stipulated penalty in the Competition Act. It noted that the CCI has no option but to impose a penalty so that such an occurrence does not repeat in the future by the Appellant or by similar players.

CCI had imposed a penalty of 5% of the average turnover/receipt from the proceeds of only services for the development and sale of low-cost residential flats in the affordable housing scheme for EWS for the last 3 relevant years. The Tribunal held that the same cannot be termed unreasonable or excessive.

With these observations, the Tribunal dismissed the appeal.

Case Title: Ghaziabad Development Authority vs. Competition Commission of India

Case Number: Competition Appeal (AT) No. 26 of 2018

For Appellants: Mr. Ajit Kumar Sinha, Sr. Adv. with Shashank Singh, Naveen Soni, Deborah Serto, Adv.

For Respondents: Mr. Balaji Subramanian, Mr. Akash Kundu, Dr. Shama Nargis, Dy. Dir. (Cci) Ms. Srashti Parashar, CCI R1.

Date of Judgment: 18.12.2024

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