Caso Paradiso Owner’s Welfare Association v. M/s Sanathnagar Enterprises Ltd

The court in this case discusses the judgement of the Competition Commission of India in light of the previously decided cases on the same issues. The Competition Commission of India had allowed complaints against an alleged dominant player.
Estimated Reading Time: 9 minutes

Introduction

The matter was before the Competition Commission of India. The Decision was given in 2013. The presence of a dominant player in any market can affect the prospective buyers either constructively or adversely. More often than not, these dominant players enter into an agreement and use their position of dominance and subtly strong-arm the small-time buyers or purchasers. The Competition Act, 2002, keeps a check on these dominant players from abusing their position in the market. The Competition Commission, in several cases, has denied going against the well-known players in the market just because the other party could not give a proof of their dominance. In the present case, the Competition Commission of India had allowed complaints against an alleged dominant player but did not proceed further due to the lack of any substantial proof of the alleged party being a dominant player in the relevant market. In this case comment, I shall be discussing the judgment of the Competition Commission of India in light of the previously decided cases on the same issues.

Facts in brief

Through its Associate Company-Sanathnagar Enterprises Ltd.(OP), the Lodha Group Launched “Project style Casa Paradiso (Hyderabad), in October 2010. A brochure was issued that depicted the floor plans of different sizes and structures of the apartment and an overall, broad layout. On the basis of this brochure, the bookings were made, upon payment of the booking amount by the buyer. The OP and the individual purchasers executed the sale agreement “Agreement” post the lapse of a considerable amount of time. It was alleged that the sale agreement was different, from the promises made prior to the agreement, on many points. The unilateral alteration and inconsistencies that the OP made in the oral promises to the informant, vitiated the confidence and mutual trust as a result of which the informant was aggrieved. He approached the Authority with a claim against the OP. After considering the information submitted and examining the matter, the Commission closed down the case under S. 26(2) of the Act.[1]

Issue in the Case

Whether, on the basis of the materials provided, OP can be held liable for the abuse of the dominant position in the relevant market under Section. 4 of the Act[2].

Arguments on behalf of the Informant

  1. It was argued that the sale agreement was mostly in favor of OP and was one-sided. It was further argued that the sale agreement had wrong facts like information regarding mandatory requirements, verification and satisfaction of the buyers with approval plans, etc., while actually no such verification or discussion had taken place with those buyers. The circulated brochure had no mention of any vital information regarding the quantity and quality of potable water or the supply water. The brochure had originally mentioned that the Club House would be built in-campus, but it was built on the premises on the other side of the road. It was argued that the buyers had to incur significant losses owing to the delayed handing over of the flats and the penalty levied on the OP, which was at 9%, was much lesser than the penalty levied on buyers, which was at 18%. The purchasers were restricted from entering the construction sites due to the safety reasons cited by the OP. These facts, as argued by the Informant, were a clear abuse of a position of dominance by the OP and violations of the provisions of the Act.[3]
  2. In this case, the “relevant geographic market” was fixed to be Hyderabad. As the Informant indicated, the “relevant product market” was “market for ‘provision of services towards the development of residential apartments”. The OP allegedly acquired a dominant position in the said relevant market regarding his economic position and market share. This argument was substantiated by an informant by presenting the draft, which was the OP’s misleading prospectus, in which he had claimed of being the “Major Real Estate Developer in Mumbai” with almost “38 projects in Mumbai and one project each in Hyderabad, Pune, and Lonavala” in its hands. The Informant also presented several newspaper articles and reports which had stated the Lodha Group as one of the biggest real estate companies. The Informant prayed, Commission to examine and investigate this matter, based on the information submitted, under S. 4 of the Act.

Summary of the Judgement

  1. After examining the submitted information and hearing the details put out by the informant, it was observed that the matter falls under S. 4 of the Act that prohibits an enterprise’s act of abuse of “dominant position” in a given market. “Relevant market” as directed by the informant is “market for the provision of services towards the development of residential apartments in Hyderabad”. Thus, it seemed correct to determine the relevant market position of the Enterprise by the Commission.
  2. S. 26(1) of the Competition Act states that “Procedure for inquiry on complaints under section 19-On receipt of complaints or a reference from the Central Government or a State Government or statutory authority or on its own knowledge or information, under section 19, if the Commission is of the opinion that there exists a prima facie case, it shall direct the Director-General to cause an investigation to be made into the matter” On the basis of the information submitted by the informant regarding the position occupied by OP in the market, the newspaper reports along with the proof that OP had several major projects in Mumbai, but only one in Hyderabad, the Court observed that OP had a very small market share in the place where the Informant had intended to buy the house. It was observed that “self-acclaims” made by the companies or enterprises in the prospectus, that they themselves had issued, cannot be per se be held a legitimate proof or evidence of their dominant position in the market. The fact that OP was a known name in the relevant market, cannot be used to prove or establish his dominion in that market. Also, there were other well-known established builders in that market which negated the argument that the buyers had to depend on OP to a large extent on OP to buy a residential apartment. It was held that the information that was submitted is not enough to reach a conclusion that OP occupied a dominant position in the relevant market. Thus, the Commission did not consider it proper to further investigate the matter of abuse of the dominant position of OP as it couldn’t be shown by the materials on the face of it that OP had abused the position prohibited under Section. 4 of the Act[4]. thus, the case was dismissed.

Analysis

The Commission allowed the investigation into the matter on the basis of the information and material provided by the informant. However, upon proper examination of those facts, the commission came to the conclusion that there is no prima facie evidence that OP had acquired a dominant position in the market. Thus, since there was no domination, there lies no case under S. 4 of the act.

In the case of CCI v Fast Way Transmission India Pvt. Ltd.[5], it was explained regarding S. 4 that “ for an enterprise to be in a dominant position, it is sub sequential that that enterprise do not face any competition from the opposing forces in the market”. In this case, it was evident that, in the relevant market there were other big players too and thus OP was not independent from any opposing forces.

Even though the Informant could show that he had to incur substantial losses due to certain delayed acts and defaults in the part of the OP, the Commission could not have looked into that issue as it does not fall within the ambit of its jurisdiction. Such is a case of breach of agreement. Similarly, in  M/s Mittal Auto Sales and Service v Global Automobiles[6], the Commission had held that “ as the informant could not substantiate the allegations that the OP was a dominant player and could be investigated under S. 4 of the Act, the allegations as made in the information and the reliefs as prayed by the informant do not fall within the ambit of Competition Act, 2002 and the Commission is of the view that the case on these facts appears to be a case of breach of contract and effective remedy on the basis of allegations made in the information appears to be for specific performance of the contract, which remedy can be granted by a competent civil court and not by the Competition Commission under the Competition Act, 2002.”. Also regarding the cases falling in the ambit of S. 4, in the case of Neelam Sood v Raheja Developers Pvt. Ltd.[7], it was said that “There can be a violation of Section 4 only when an enterprise is dominant in the relevant market in terms of the provisions of Section 4 read with Section 19(4) of the Act”. In the present case too, the presence of other known players in the market had concluded that OP was not in a dominant position in the market and thus, no violation under S.4 arose. The same was said in Mr. Achyut P. Rao v M/s. Designarch Infrastructure Pvt. Ltd.[8]  that “In absence of dominance of OP in the relevant market, there is prima facie no reason for abuse of the same in that market.”

Where the abuse of dominant power has been established

In the case of Deepa Narula v Taneja Developers and Infrastructure Ltd.[9] , the Commission found out that matter was prima facie a case of abuse of dominant position. It was said that “when a buyer decides to buy a flat or property he has the choice of going to a large number of builders for this purpose and by and large there is a competition in the market. But when a consumer makes a choice and enters into an agreement with a builder he falls into his trap as there is information asymmetry in this market and also because all the elements of the agreement are neither understood by the consumer nor explained by the builder about its consequences and that the builders/developers automatically acquire dominance the moment agreement is signed with the consumers.”

In Poonam Gupta v Unitech Limited[10]  it was held that “once the abuse of the dominance is established and it is also established that the dominance came due to the agreements which the information providers had entered into with the OP, the question which arises is to whether the action of the OP creates an adverse effect on competition in India.” The Court had observed that in case of abuse of the dominant position due to “unfair conditions” that had been set in the contract/ agreement , it adversely effects the Competition in India.

Also, in that case, the contracts that were entered into by the OP and informants were “contracts of adhesion and the agreements entered were between a very big economic player and small time buyers”. It was observed by the Court that “the agreements were signed in the format given by the OP and consumers had paid substantial sums of money to the OP and thus, if a buyer wanted to shift to another builder, he would have lost a substantial amount of money In which case where the number of buyers was limited, a new entrant in the building market would have got no buyer even if the new builder was more innovative or had better products,” Thus, the market for a new builder would be shut due to the high switching cost.”

Conclusion

Thus, the Court, after a proper examination of the information provided, dismissed the application. The Commission’s decision was in consonance with observations made by the CCI in the previous cases. Even though the OP had followed some unfair practices, the Competition Commission on India excused itself from looking into the matter as the matter was a case of a breach of contract and thus, outside its jurisdiction. Finally, the requirement of proof, that the OP is a dominant player in the relevant market, in order to bring an action against it in S.4, was highlighted in this case. The Judgement has clearly stated that a dominant player should not abruptly use its position of dominance to strong-arm the other parties. Similarly, in the case of Poonam Gupta v Unitech Limited[11], the court had followed the same lines as laid down in this case and set out standards in determining whether the actions of OP can affect the completion in the Indian markets. Later in CCI v Fast Way Transmission India Pvt. Ltd.[12], the court had reiterated that a dominant player must not face competition from other players in the market. Thus, following this judgment, the Competition Commission of India has, in several later cases, decided on the same lines that were followed in this case.


[1] Competition Act 2002

[2] Caso Pradiso Owner’s welfare association v M/s Sanathnagar Enterprises Ltd. 2013 SCC OnLine CCI 57

[3] Competition Act 2002

[4] Competition Act 2002

[5]CCI v Fast Way Transmission India Pvt. Ltd 2018 4 SCC 316 para 16

[6] in  M/s Mittal Auto Sales and Service v Global Automobiles 2010 SCC OnLine CCI 11 para 9

[7]Neelam Sood v Raheja Developers Pvt. Ltd.[7], 2011 SCC OnLine CCI 86 para 5

[8]Achyut P. Rao v M/s. Designarch Infrastructure Pvt. Ltd.2013 SCC OnLine CCI 59 para 6

[9] Deepa Narula v Taneja Developers and Infrastructure Ltd 2012 SCC OnLine CCI 61 para 5

[10] Poonam Gupta v Unitech Limited 2012 SCC OnLine CCI 33 para 10

[11] Poonam Gupta v Unitech Limited 2012 SCC OnLine CCI 33 para

[12] CCI v Fast Way Transmission India Pvt. Ltd

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