CCI initiates investigation against real estate players

By Amit Tambe and Gautam Chawla, Trilegal
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The Competition Commission of India (CCI) directed its investigation wing, the Office of the Director General, to investigate allegations of abuse of dominant position against the Delhi Development Authority (DDA) in April and Jaypee Greens in May. The investigation has been directed against allegedly unfair and abusive clauses inserted by these (prima facie dominant) real estate players in their allotment letters and brochures, which are heavily loaded in their favour.

DDA housing scheme case

In case No. 88/2014, Sunrise Resident Welfare Association, the informant before the CCI and a (registered) society incorporated for maintenance and upkeep of common portions of the flats allotted by the DDA, alleged that the DDA had abused its dominant position in its Housing Scheme 2010.

Amit Tambe
Amit Tambe

Based on the informant’s submissions, the CCI prima facie found the DDA to be dominant in the market for sale and distribution of residential flats in Delhi, and stated that (among others) the following clauses and acts appeared to be unfair and abusive:

(1) False promise in the Housing Scheme 2010 brochure regarding the status/stage of construction of the flats. The brochure issued with the scheme stated that the flats were ready for occupation, although as per the informant they were still being constructed on the date of the draw of lots in April 2011 (and even the basic minimum facilities were not ready).

(2) Delay in issuance of “allotment cum demand letter” and handing over of possession to the successful allottees. The draw of lots was held in April 2011, but the allotment cum demand letter was issued and possession was granted only in March 2012.

(3) Charging of penal interest for delayed payments and automatic cancellation in case of non-payment. As per the brochure, to avoid payment of any interest, the allottee had to pay the demand amount within 90 days of issue of the demand letter. If the demand amount was paid within the next 90 days after that, the allottee had to pay the demand amount with 15% compounded interest. The failure to pay (including interest) within 180 days of issue of the demand letter led to automatic cancellation of the allotment.

(4) Payment of applicable free-hold charges or conversion charges by the allottee at the time of execution and registration of the conveyance deed, even though the DDA had assured that the (initial) allotments would be made on a free-hold basis.

Based mainly on the above, the informant asked that the CCI direct the DDA to: (a) refund the free-hold or conversion charges; (b) refund the penal interest charged for delayed payments; and (c) pay compensation to each of the flat owners for sub-standard construction and workmanship.

Jaypee Greens case

In case No. 99/2014, Naveen Kataria, the informant and the purchaser of a villa at Jaypee Greens in Greater Noida, alleged that the provisional allotment letter issued by Jaypee was one-sided, unfair and heavily in favour of Jaypee. She also contended that despite her repeated representations and letters to change the provisional allotment letter (for its failure to mention certain inclusions) and the deficiencies in the possession letter, Jaypee did not reply to any of her letters or her legal notice (at least until the time she approached the CCI).

Gautam Chalwa
Gautam Chalwa

The CCI prima facie agreed with the submissions of the informant that Jaypee Greens was dominant in the market for development and sale of residential units in Noida and Greater Noida, and found that the following clauses (among others) of the provisional allotment letter imposed unfair terms and conditions:

(1) The allottee had to waive its right in perpetuity to prevent (or object to) additional construction or alteration of building plans by Jayee Greens.

(2) The allottee had to pay 18% annual interest on any outstanding amount towards the purchase of the villa. The payment made by the allottee was to be first adjusted against penalty, if any, and then go towards the balance instalments.

Conclusion

These are not the first cases against the DDA or Jaypee Greens where the CCI has directed investigation on the alleged imposition of unfair clauses. However, given that these clauses have become routine and are inserted by many real estate players (which was also the subject matter of a separate investigation), the CCI has received several complaints including individual grievances against real estate companies.

The test for the CCI is to sieve through the complaints, even while discharging its statutory mandate to protect consumer interest, and resist directing investigation where the real estate player involved is not prima facie dominant in the concerned relevant market. The CCI is not, and should not become, a forum for settling individual consumer disputes regardless of the reliefs claimed by the parties.

Amit Tambe is a partner at Trilegal and Gautam Chawla is a senior associate. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad.

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