COMPETITION LAW

CIA 3

CASE ANALYSIS
JAGMOHAN CHHABRA & ANR. V. UNITECH

2011 COMP LR 31 (CCI)

SUBMITTED BY: VINAYAK GUPTA

REG. NO.: 1750238

CLASS: 9BALLB ‘B’

 CASE ANALYSIS

FACTS

Unitech ltd, a Gurgaon-based real estate firm, is the target of the informant's accusation. They
argued the opposing party had violated section 4(1) of the legislation. They argued in their
complaint that the opposing firm had a monopoly in Gurgaon, that their arrangement was
unfair and unjustified, and that they utilised their clients' money with malice. According to
the sources, the deal's terms and conditions are one-sided and favourable to Unitech. If
Unitech fails to deliver the flats to the customers on time, Unitech must compensate the
buyers with Rs.5 per Sq ft/per month, but if the buyers fail to pay the cost of the apartments
in instalments, they must pay at an annual rate of 18 percent compounded quarterly.
According to the informants, such one-sided terms and conditions are unacceptable, and
Unitech should pay them for any delivery delays at an annual rate of 18 percent. On May 2,
2011, Unitech sent the informants a letter stating that their flats would be terminated if they
did not make the outstanding instalments towards the cost of the units on calendar interest at
the rate of 18 percent per year compounded quarterly. Unitech is reportedly
diverting/misusing cash obtained from purchasers for building projects as a result of its
dominant position, resulting in the project not being completed on time, according to the
sources. It has also been claimed that Unitech had nefarious intents from the start of the
project, and as a result, the purchasers were forced to pay on a time basis, i.e. calendar basis,
rather than the "construction linked basis," which is standard industry procedure.

ISSUES

1. Whether there is a prima facie case for investigation under section 26(1) of the
Competition Act?
2. Has Unitech abused their dominant position in the market by adding unreasonable
clauses for payment in the contract?
3. Are the acts of Unitech ‘anti-competitive’ under Section 4 of the Competition Act,
2002?
LAWS INVOLVED

1. Section 4 of Competition Act, 2002 – Abuse of Dominant Position

2. Section 19 of Competition Act, 2002 – Inquiry into certain agreements and dominant
position of enterprise
3. Section 26 of Competition Act, 2001 – Procedure for inquiry under section 19
4. Section 33 of Competition Act, 2002 – Power to issue interim order

ANALYSIS

The Commission, in this case, ruled that in order to assess a market's dominant position, the
relevant market must be examined. The phrase "relevant market" is defined as the market on
which the Commission may make a judgement based on the relevant product market, relevant
geography market, or both markets under section 2(r) of the Competition Act. Another factor
to consider is the price of switching buyers. If buyers wished to convert from Unitech to
another developer, the switching fees would be extremely high because the earnest money
paid by the buyers would be forfeited. The information suppliers became enslaved clients as a
result of their agreements with the developers, allowing the builders to exert control over
their consumers. The project itself, in this case "ESCAPE," is the important market. Escape is
made up of a variety of different flats, and there are a lot of people interested in buying them.
As a result, in this situation, the relevant market is the market for developers' services in
supplying high-end residential flats to clients in the Gurgaon, Haryana, geographical region.

Although Unitech is a well-known builder, the Commission highlighted that other significant
developers and builders are also part of the relevant market. After completing an in-depth
analysis, and various decided case laws like the Belaire Owners case 1, the Commission
determined that a different builder, DLF Limited, was the dominant player in the relevant
market while resolving matters and passing judgments under Section 27 of the Competition
Act, 2002. Since DLF has been declared to be a dominant player by the Commission, no
other business in the same relevant market may be considered dominant, even when the
analysis period is almost comparable. In the case of DLF Park Place Residents vs. DLF
Limited2, DLF announced a Group Housing Complex in Phase-V, Gurgaon, Haryana. It was
to consist of 13 towers which comprised of 19 floors each with the total number of
1
Belaire Owners Association v. DLF Ltd. (Case No. 19 of 2010)
2
DLF Park Place Residents vs. DLF Limited (Case No. 18 of 2010)
apartments in the complex not exceeding 950. DLF promised that possession for the flats
would be handed over within 30 months to the allottees. However the sequence of events that
followed was contrary to the promises made. DLF scrapped the above mentioned project
without informing the allottees and instead launched a new project on the very same land
comprising of 29 floors and 1560 apartments in total. This not only led to a substantial
reduction in the size of the apartments but also an abnormal delay in the completion of the
project. Huge financial losses were suffered by the allottees as most of them had already paid
80%-85% of the total consideration.

The CCI decided that there is a prima facie case after reviewing all of the relevant facts and
materials and instructed the DG to investigate the matter further under Section 26. (1). It must
be demonstrated that the corporation has a position of economic strength in the relevant
market, as defined by the relevant product market and geographic market, in order to
determine if there has been abuse. Developers are said to provide services in order to provide
clients with high-end apartments, according to the associated product market. Gurgaon,
Haryana, is the geographical market under question. The elements specified in Section 19(4)
must be examined after finding the suitable market. DLF has the biggest market share,
according to the DG, and has a distinct edge over the other businesses in terms of size,
resources, and the fact that it has been in business for over sixty years.

In the present case, Unitech's capacity to operate independently of the competitive dynamics
at work in the relevant market and to sway competitors in its favour cannot be taken for
granted. Unitech cannot be characterised as a dominant entity in the relevant market under
investigation, according to the Commission.

However, one the judges in this case, J. R. Prasad dissented to the views of the Commission.
He stated that this is evident from the fact that instead of delivering premises within 36
months of signing the contract, the builder took more than 5 years and still needs additional
time. Furthermore, if the customers delayed payment, they were required to pay interest at the
rate of 18 percent per annum compounded quarterly, however if the developer delayed the
project, it was only had to pay Rs. 5 per square foot per month. This is clearly unjust. It's also
worth noting that the agreement specifies that maintenance fees must be paid in advance for
the next three years, and that the developer or its nominee would be responsible for the
upkeep.
CONCLUSION
On a careful consideration of the entire matter, the Commission accordingly holds that prima
facie as Unitech does not hold a dominant position in the relevant market, hence any
allegation of abuse under Section 4 will not arise in this case. Therefore, no case can be made
out for making a reference to the Director General (DG) for conducting investigation into this
matter tender Section 26 (1) of the Act.

In this view, the Commission deemed it fit to close the proceedings of the case under Section
26(2) of the Act.

However, after reviewing the facts, Justice R Prasad concluded that there appeared to be a
case of abuse of dominance under section 19(4)(g) of the Competition Act, as well as clauses
a, b, c, d, f and Section 19(4) of the Competition Act. There was also an instance of a tie-in
agreement that was anticompetitive under Section 3(4) of the Act and might be regarded one
of the criteria under Section 19(4)(m) of the Act.
He was of the opinion that real estate agents are dominated in the aftermarket. He describe
this situation as aftermarket where after contract consumer has no choice to go anywhere
except that contracting party, in this situation the seller becomes its market which called as
aftermarket by him. In his dissenting order, as there appeared to be prima facie violation
under Section 4 of the Act as Unitech in this case is a dominant position in the relevant
market, Justice Prasad directed the Director General to investigate this case with reference to
Section 26(1) of the Act.