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CompLR 

COMPETITION LAW REPORTS 

Consulting Editors 

Dr. S. Chakravarthy G R Bhatia Amitabh Kumar 

Former Member, Luthra and Luthra J. Sagar Associates 

MRTP Commission Law Offices New Delhi 

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Contents 

Section A 

Case Laws 

COMPETITION COMMISSION OF INDIA 

Belaire Owner’s Association v. DLF Limited and Haryana Urban 

Development Authority, Department of Town and 

Country Planning, State of Haryana at page 0239 

Case No. 19 of 2010, Decided on: 12.08.2011 

MANU/CO/0044/2011 

Definitions of “Consumer” and “Service” — Sections 2(f) and 2(u) of the 

Competition Act — Whether scope wider than the definition of these terms 

provided in Consumer Protection Act, 1986 — Real estate dealings or housing 

construction always taken as service whether it be MRTP Act or Consumer 

Protection Act or Finance Act — Competition Act applies to all the existing 

agreements — Covers also those entered into prior to the coming into force 

of Section 4 but sought to be acted upon now — Section 4 makes 

responsibility of the dominant player more onerous 

Relevant market — Meaning — Section 4 read with Sections 2(r), 19(5), 

19(6) and 19(7) of the Competition Act, 2002 — Relevant market is the 

market for services — In instant case means services of developer/ builder 

in respect of high-end residential accommodation in Gurgaon 

Dominant Position — Abuse thereof in relevant market — Section 4 read 

with Section 19(4) of the Competition Act, 2002 — DLF in instant case enjoyed 

the position of market leader in the real estate sector in general, and in the 

relevant market in particular — A relevant factor under Section 19(4)(m) to 

hold its dominant position in the relevant market 

Abuse of Dominant Position — DLF by far the oldest and leading real 

estate service provider — A trend setter of various which over a period of 

time could be considered as “industry practices” — Industry practice cannot 

be a defence for anti-competitive practices/ conduct — No defence of having 

adopted an industry practice for practices, found to be anti-competitive 

and / or abusive can be claimed — DLF Ltd. was held to be in contravention 

of Section 4(2)(a)(i) of the Competition Act 

5

ii 

Competition Law Reports [Vol. 2 

Yashoda Hospital and Research Centre Ltd. v. Indiabulls Financial 

Services Limited (IFSL) at page 0239 

Case No. 12/2010, Decided on: 22.03.2011 

MANU/CO/0009/2011 

Dhanendra Kumar (Chairman), H.C. Gupta, P.N. Parashar, Dr. Geeta Gouri, 

Anurag Goel and M.L. Tayal (Members) 

Anti-competitive Activities — Referral — Investigation — Whether the 

pre-payment penalty and foreclosure charges levied by IFSL on Informant 

on closure of the said loan account prior to the date of maturity were 

anti-competitive and whether by levying foreclosure charges and 

pre-payment penalty, IFSL had violated any of the provisions of Section 3 

and/or Section 4 of the Competition Act, 2002 — Levy of pre-payment 

penalty and foreclosure charges is a widespread practice among banks — 

Such charges hindered free movement by borrowers — On examination of 

the internal circulars of the banks — Levy of such charges were to deter 

competition — Presence of anti-competition. 

Abuse of Dominant Position — Demand of foreclosure charges and prepenalty 

for the unexpired period of loan by OP — Detrimental to competition 

amongst banks — Prevents the borrower from switching over to other 

banks — Act contrary to Sections 3(1), 3(2), 3(3) (a), 3(3) (b), 4(1) and, 4(2)(a)(i) 

of the Competition Act, 2002 — On consideration of the report of DG no 

dominance proved — Lack of relevant evidence. 

Investigation report furnished to parties — Imposition of charges does not 

violate the Act — Investigation report does not have any evidence to suggest 

presence of any agreement with other banks or financial institutions — 

Company registered under the Companies Act, 1956 and engaged in 

provision of financial services — Activities performed were covered in the 

definition of “enterprise” under Section 2(h) of the Act — For application of 

Section 3(3)(b) there must be two or more enterprises engaged in identical 

or similar trade of goods — No such requirement proved — No concerted 

activities reported by DG — No violation of either Section 3 or Section 4 of 

the Act established — Proceedings closed. 

R. Prasad, (Dissenting Opinion) 

Mortgage loan — Levy of pre payment penalty anti competitive — Cartel 

like behaviour — Contradicts provisions 3(1), (2) and (3)(a) and (b) as well 

as 4(1), (2)(a)(i) of the Competition Act, 2002 — Detrimental to competition 

amongst financial institutions — Although a single complaint, but one of 

class action — Proved to be in contravention of the Act — Practice to be 

stopped. 

Section B 

DR. S. CHAKRAVARTHY, 

IAS (Retd), presently 

Advisor/Consultant on 

Competition Law & 

Policy. Consultant to 

World Bank, ADB etc. 

6 

The Tripod of Independence, Expertise and Accountability 

of a Regulator – An Analysis of the Indian 

Competition Law at page B-209 

This is the second part of the three part Article on Independence, 

Expertise and Accountability of Regulators. The first part appeared 

in the May-June issue. The third and final part will appear in the 

COMPETITION LAW REPORTS (JUL-AUG 2011)

2011] Index 

iii 

next issue, September-October 2011. References will appear in 

September-October 2011 issue. 

In this part, the author says that in order to effectively and efficiently 

discharge its duties, a regulator, perforce, needs some degree of 

freedom to be provided by the statute creating it. This degree of 

freedom or independence should not be absolute but should be 

circumscribed by the laws of the land and the policy of the 

government. 

Institutional independence is imperative for the regulator to 

perform the challenging task of maintaining a judicious balance 

amongst conflicting interest and maintaining an arm’s length 

relationship from interest groups. The statutes creating the 

institutional regulators may or may not explicitly mandate 

independence for them. In reality and practice, many regulators 

lack the requisite functional and organisational autonomy to be 

genuinely independent. 

CHANDRASHEKHAR A.C. 

Student, HNLU, 

Raipur, (C.G.) 

and 

SUMANGALA A.C., 

Student, Karnataka 

State Law University, 

Dharwad 

Analysis of Merger Regulation with Special Emphasis 

on the Civil Aviation Industry at page B-223 

Mergers are a feature of a growing and vibrant economy. 

Throughout the past century, there has been proliferation of 

competition laws across the globe, and most of these jurisdictions 

realise the anti-competitive effects a merger may result into and 

therefore, they have merger control mechanisms. The Indian 

Companies Act does not contain a definition of mergers. In simple 

terms, a merger is, for example if there are two companies, A and 

B, they may merge to form C or may merge to become B or may 

merge to become A. 

Firms have various reasons to merge and mergers do not 

necessarily have a negative impact on the market. In fact, they 

play a very vital role in growth of the market and in increasing 

efficient utilisation of resources. It has to be seen that what is greater, 

the anti-competitive aspect or the benefits that will ensue. This is in 

nutshell the criteria of all merger review mechanisms. Competition 

law in India is a recent phenomenon. Legislative history shows 

that we have had not much of the merger control process for 

examining anti-competitive aspects of mergers. 

Competition is the lifeblood of any economy. If there is no 

competition in the market, the market will decay. Which is why, 

competition in the market needs to be preserved. Competition has 

two-fold effects on the market, firstly, it is favourable to the 

consumer and secondly, it keeps the market efficient, i.e. it generates 

productive efficiency, allocative efficiency that leads to better 

COMPETITION LAW REPORTS (JUL-AUG 2011) 

7

iv 


utilisation of resources and dynamic efficiency that leads to 

innovation.1 It favours the consumer because it ensures that price 

and the quality of goods and services offered to the consumer are 

determined by market forces and not on the whim of the seller, 

hence saves the consumer from being exploited. Further, it also 

serves the freedom of trade an economic counterpart of political 

democracy. It preserves pluralism and distribution of market power 

thereby countering the concentration of wealth into a few hands.2 

Not only by modern economists but also by classical economists, 

competition has been fundamental to the price formation of 

consumers’ goods and of the land, labour and capital that produce 

them. A competitive process equates quantities supplied and 

demanded and sets the prices at equilibrium or near equilibrium 

levels. Moreover, it apportions capital and labour amongst 

entrepreneurs so that the expected rate of return is almost equal 

among different users. Modern economists also recognise it as a 

process for economic growth. For example, Von Hayek argues 

that it is only through competition producers may know what the 

most efficient methods are; he calls it a process of creative 

destruction that revolutionises the economic structure from within, 

incessantly destroying the old one, incessantly creating a new one. 

ANAMIKA AHIR 

Student, National 

Law Institute 

University, Bhopal 

An Appraisal of India’s New Merger 

Control Regime at page B-236 

The new merger regime enforced on 1st June, 2011 by Ministry of 

Corporate Affairs is a comprehensive set of regulations. The article 

attempts to critically examine the regulations along with its practical 

implications on the Indian markets. 

KAUSHAL KUMAR 

SHARMA, Advisor 

Commr. of Income 

Tax, Ministry of 

Finance, Government 

of India, and former 

Director General & 

Head of Merger 

Control, CCI 

Treading the Thin Wedge between “Unfair Trade Practices” 

and “Abuse of Dominant position” at page B-241 

On 12 th August, 2011, the Competition Commission of India (CCI), 

by an order under Section 27 of the Competition Act, 2002 (the 

Act), held the DLF Ltd guilty of abuse of dominant position under 

the Act and imposed a penalty of Rs. 6,300 million. After holding 

the concerned enterprise guilty of abusing its dominant position, 

the CCI had the option of levying a penalty of up to 10 per cent of 

its average turnover for last three years. The CCI has charged 

penalty at 7 per cent stating that in view of the nature of violations, 

the penalty should be harsh. Thus, in the opinion of CCI, the case 

called for some type of exemplary penalty. 

This article analyses the order of CCI. This includes the entire 

background in which the order was passed, the improving track 

record of CCI, the signal the order sends, the questions and hopes 

this order raises. 

8 


2011] Index 

v 

Section C 

Notes on International Cases 

USA 

DuPont DE Nemours and Co. v. Colon Industries Incorporated .................................. C-09 

Decided on: 11 th March, 2011 

Anti Competitive Practice — Motion to Dismiss Claim — DuPont brought 

trade secrets suit against Kolon — Kolon counterclaimed that DuPont had 

monopolised, attempted to monopolise the para-aramid market — District 

Court granted motion on basis that Kolon inadequately pled the relevant 

geographic market within which competition for para-aramid fibers takes 

place — Kolon failed to plead adequately unlawful exclusionary conduct on 

the part of DuPont — District Court held Supreme Court precedent required 

including in the relevant geographic market definition all locations where 

product suppliers are headquartered — relied on Tampa Electric Co. v. Nashville 

Coal Co. — District Court erred both in holding that Tampa Electric required 

the Netherlands and Korea to be included in Kolon’s relevant geographic 

market definition — Motion to dismiss order reversed. 

Monopoly Claim — DuPont violated Section 2 of Sherman Act — Use of 

exclusive contracts with high-volume para-aramid customers — Whether 

District Court erred in holding that Kolon failed to adequately plead anticompetitive 

conduct — As Per Kolon determination rested on information 

inappropriately considered on a motion to dismiss and on inferences in 

DuPont’s favour — Kolon adequately pled all elements of monopolisation 

claim — Order reversed. 

Section D 

News & Events 

• Coles discounting of house brand milk is not predatory pricing ............................... D-31 

• ACCC not to oppose proposed merger of Teys bros and Cargill beef Australia ... D-31 

• Competition bureau seeks to block joint venture between Air Canada and United 

Continental ........................................................................................................................... D-32 

• Bell Canada to pay a penalty of $10 million for misleading advertisement ............. D-32 

• Les Entreprises Promécanic Ltée pleaded guilty and fined $425,000 for bid-rigging .... D-33 

• Polish telecoms operator fined more than •124 million for abuse of dominance ... D-33 

• EU General court annuls fines imposed on Mitsubishi and Toshiba for gas insulated 

switchgear market ............................................................................................................... D-33 

• Government departments appeal against the Competition Tribunal’s Decision to 

permit Wal-Mart .................................................................................................................. D-34 

• Denso bids for leniency over cartel violation in USA ................................................... D-34 

• FTC approves EA proposal to buy PopCap ................................................................... D-34 

• Stanley gets us antitrust ok to buy Niscayah ................................................................. D-35 

COMPETITION LAW REPORTS (JUL-AUG 2011) 9

vi 


• Alliance agreement notified to the Competition Commission of Singapore ........... D-35 

• Cease & Desist Order to DeNA ......................................................................................... D-35 

• JFTC raids 7 auto parts makers over alleged price-fixing cartel ................................. D-36 

• CCI Probes Carmakers on parts, servicing .................................................................... D-36 

• Apple India charged of anti-competitive practices ........................................................ D-37 

• Regulatory reforms bill aims to settle SECTORAL clashes with the CCI .................. D-37 

• CCI grants interim relief to Santuka Agencies ............................................................... D-37 

• Competition Panel studying whether cartelisation led to rise in food prices ........... D-38 

• Competition Commission of India (CCI) finds M/s BigFlix Pvt. Ltd., Mumbai 

not contravening Section 3 or Section 4 of the Competition Act, 2002 ...................... D-38 

• Lafarge, Holcim say Indian units involved in antitrust probe .................................... D-38 

10 


2011] 

0239 

a 

b 

c 

2011 CompLR 0239 (CCI)* 


Belaire Owner’s Association 

v. 

DLF Limited and Haryana Urban Development Authority, Department of Town 

and Country Planning, State of Haryana 

CASE NO. 19 OF 2010 

DECIDED ON: 12.08.2011 

Coram 

Ashok Chawla, Chairman, Dr. Geeta Gouri, Anurag Goel, M.L. Tayal, and R. Prasad, 

(Members) 

d 

e 

f 

g 

h 

i 

Definitions of “Consumer” and “Service”— Sections 2(f) and 2(u) of the Competition 

Act , 2002— Whether scope wider than the definition of these terms provided in 

Consumer Protection Act, 1986 — Real estate dealings or housing construction 

always taken as service whether it be MRTP Act or Consumer Protection Act or 

Finance Act — Competition Act applies to all the existing agreements — Covers also 

those entered into prior to the coming into force of Section 4 but sought to be acted 

upon now — Section 4 makes responsibility of the dominant player more onerous 

Relevant market — Meaning — Section 4 read with Sections 2(r), 19(5), 19(6) 

and 19(7) of the Competition Act, 2002 — Relevant market is the market for 

services — In instant case means services of developer/ builder in respect of 

high-end residential accommodation in Gurgaon 

Dominant Position — Abuse thereof in relevant market — Section 4 read with 

Section 19(4) of the Competition Act, 2002 — DLF in instant case enjoyed the 

position of market leader in the real estate sector in general, and in the relevant 

market in particular — A relevant factor under Section 19(4)(m) to hold its dominant 

position in the relevant market 

Abuse of dominant position — DLF by far the oldest and leading real estate service 

provider — A trend setter of various which over a period of time could be considered 

as “industry practices” — Industry practice cannot be a defence for anti-competitive 

practices/ conduct — No defence of having adopted an industry practice for practices, 

found to be anti-competitive and / or abusive can be claimed — DLF Ltd. was held 

to be in contravention of Section 4(2)(a)(i) of the Competition Act, 2002 

Case Précis 

DLF (i.e. OP-1) had announced a Group Housing Complex, named as “The Belaire” 

consisting of 5 multi-storied residential buildings. As per the advertisement, each of 

the five multi-storied buildings was to consist of 19 floors and the total number of 

* MANU/CO/0044/2011 


11

0240 000240 00240 

Competition Law Reports 

[Vol. 2 

apartments to be built therein was to be 368 and the construction was to be completed 

within a period of 36 months. However, in place of 19 floors with 368 apartments, 

which was the basis of the apartment allottees booking their respective apartments, 

now 29 floors have been constructed. Consequently, not only the areas and facilities 

originally earmarked for the apartment allottees was substantially compressed, the 

project also got abnormally delayed. The fall-out of the delay was that the hundreds 

of apartment allottees had to bear huge financial losses, as while on one hand, their 

hard-earned money got blocked, on the other hand, they have to wait indefinitely for 

occupation of their respective apartments. 

The complaint alleged DLF of imposing highly arbitrary, unfair and unreasonable 

conditions on the apartment allottees. The Apartment Buyer’s Agreement, apart 

from being onerous and one-sided neither had any scope of discussion, nor variation 

in the terms of the agreement. The apartment allottees were not even permitted to 

carry out any investigation or to raise any objection to the competency of OP-1. 

In the in-depth investigation of various allegations made in the information, as 

conducted by the Director General (DG), in regard to dominance of the OP-1, the DG 

held that OP-1 has distinct economic advantage to it as compared to its competitors. 

The analysis of financials of OP-1 over different parameters clearly brought out that 

it is enjoying a position of market leader and it is due to its sheer size and resources, 

market share and economic advantage over its competitors that OP-1 is not 

sufficiently constrained by other players operating on the market and has got a 

significant position of strength by virtue of which it can operate independently of 

competitive forces (restraints) and can also influence consumers in its favour in the 

relevant market in terms of explanation to Section 4 of the Act. 

The following issues were framed before the Hon’ble Commission for adjudication: 

1. Do the provisions of Competition Act, 2002 apply to the facts and circumstances 

of the instant case? 

2. What is the relevant market, in the context of Section 4 read with Section 2(r), 

Section 19(5), Section 19(6) and Section 19(7) of the Competition Act, 2002? 

3. Is DLF Ltd. dominant in the above relevant market, in the context of Section 4 

read with Section 19(4) of the Competition Act? 

4. In case DLF Ltd. is found to be dominant, is there any abuse of its dominant 

position in the relevant market by the above party? 

In regard to Issue 1, i.e. do the provisions of Competition Act, 2002 apply to the facts and 

circumstances of the instant case, it was held that the definitions of “consumer” given 

in Section 2(f) and “service” in Section 2(u) of the Competition Act, 2002 are wider 

than the definition of these terms provided in the Consumer Protection Act, 1986. 

Thus, the dealings in real estate or housing construction has always been taken as 

service whether it be MRTP Act or Consumer Protection Act or Finance Act and 

hence, the contention raised on behalf of the DLF that sale of an apartment is not 

covered under the definition of service wholly misplaced and devoid of any 

substance. The Act applies to all the existing agreements and covers those also 

which though entered into prior to the coming into force of Section 4 but sought to be 

acted upon now. In addition to that, in the present matter, the documents filed by the 

informant show that indeed in some cases the agreement was entered into between 

DLF and the allottees after the date of commencement of Section 4 of the Act. The 

contention of the DLF that the impugned Clauses existing in the agreement entered 

between DLF and the allottees are usual conditions as per industry practice and they 

a 

b 

c 

d 

e 

f 

g 

h 

i 

12 


a 

b 

c 

d 

e 

f 

g 

h 

i 

2011] 

Belaire Owner’s Association v. DLF Limited and Anr. 

(Ashok Chawla, Chairman; Dr. Geeta Gouri, Anurag Goel, M.L. Tayal (Members)) 

002410241 

cannot be termed abuse was rejected because in terms of the Section 4 the responsibility 

of the dominant player has been made more onerous and if such practices are also 

adopted by a non-dominant player it may not fall within the ambit of Section 4. 

In regard to issue 2, i.e. What is the relevant market, in the context of Section 4 read with 

Section 2(r), Section 19(5), Section 19(6) and Section 19(7) of the Competition Act, 2002, it 

was held that the present matter concerns about average citizens buying a residential 

property out of their hard earned money or by taking housing loans. A small, 

5 per cent increase in the price of an apartment in Gurgaon would not make the 

person shift his preference to Ghaziabad, Bahadurgarh or Faridabad on the 

peripheries of Delhi or even to Delhi in a vast majority of cases. Accordingly, the 

relevant market is the market for services of developer / builder in respect of high-end 

residential accommodation in Gurgaon. 

In regard to issue 3, i.e. Is DLF Ltd. dominant in the above relevant market, in the context 

of Section 4 read with Section 19(4) of the Competition Act, it was held that DLF enjoys 

the position of market leader in the real estate sector in general, and in the relevant 

market in particular, and this is a relevant factor under Section 19(4)(m) for holding 

that it has a dominant position in the relevant market. Accordingly, DLF Ltd. was 

held to be holding dominant position in the relevant market in the context of Section 4 

read with Section 19(4) of the Act. 

In regard to Issue 4, i.e. in case DLF Ltd. is found to be dominant, is there any abuse of its 

dominant position in the relevant market by the above party, it was held that the agreements 

of other service providers and competitors submitted by DLF, though not identical, 

have certain similarities and common points. As evident from material on record 

that DLF is by far the oldest real estate service provider in the country, which has 

been operating at a big scale much before any competitor came on the scene, would 

automatically be a trendsetter in the sector in which it operates. All the material and 

evidence on record confirms that DLF has been, and continues to be, a market leader 

as a real estate service provider. As such, it is DLF, which would have initiated and 

developed the practices, which would have been followed by the later entrants, and 

over a period of time could be considered as “industry practices”. Therefore, even 

without taking into account the fact that being an industry practice cannot be a 

defence for anti-competitive practices/ conduct, DLF for one certainly cannot claim 

the defence of having adopted an industry practice for practices, which are found to 

be anti-competitive and / or abusive. DLF Ltd. was held to be in contravention of 

Section 4(2)(a)(i) of the Act. 

Authority referred to 

Palmer’s Company Law, 24 th Edition, page 332 [p. 0289, para 10.5 a] 

Cases referred to 

Bangalore Development Authority v. Syndicate Bank MANU/SC/2718/2007: (2007) 6 

SCC 711: AIR 2007 SC 2198: 2008 (3) BomCR 808: (2007) 3 Co MPLJ 58 (SC): II 

(2007) CPJ 17 (SC): 2007 (2) CTLJ 52 (SC): (2008) 1 GLR 624 (SC): JT 2007 (8) SC 

106: 2007 (5) KarLJ 145: (2007) 6 MLJ 975 (SC): 2007 (8) SCALE 200: [2007] 7 SCR 

47: 2007 (2) UJ 789 (SC) (Discussed) [p. 0282, para 8.36 g] 

Bharathi Knitting v. DHL Courier World Wide Express Courier MANU/SC/0628/1996: 

(1996) 4 SCC 704: 1996 VIII AD (SC) 312: AIR 1996 SC 2508: [1996] 87 CompCas 

886 (SC): JT 1996 (6) SC 254: (1996) 2 MLJ 146 (SC): 1996 (5) SCALE 142: [1996] 

Supp 2 SCR 653 (Discussed) [p. 0283, para 8.43 h] 


0242 Competition Law Reports 

[Vol. 2 

Bhim Sen v. Delhi Development Authority MANU/MR/0012/2003 (Discussed) 

[p. 0296, para 12.6 f] 

Central Inland Water Transport Corporation Ltd. and Anr. v. Brojo Nath Ganguly and Anr. 

MANU/SC/0439/1986: (1986) 3 SCC 156: AIR 1986 SC 1571: (1986) 3 Co MPLJ 1 

(SC): 1986 LabIC 1312: (1986) II LLJ 171 SC: 1986 (1) SCALE 799: [1986] 2 SCR 278: 

1986 (2) SLJ 320 (SC) (Discussed) [p. 0289, para 10.8 f] 

Chandigarh Housing Board v. Avtar Singh and Ors. MANU/SC/0749/2010 (Mentioned) 

[p. 0297, para 12.12 g] 

Classic Motors Ltd. v. Maruti Udyog Ltd. (MANU/DE/0586/1996: 65 (1997) DLT 166 

(Discussed) [p. 0293, para 11.18 b] 

Competition Commission of India v. Steel Authority of India Limited and Anr. MANU/ 

SC/0690/2010: 2010 CompLR 61 (Supreme Court): JT 2010 (10) SC 26: (2011) 2 

MLJ 271 (SC): (2010) 10 SCC 744: [2010] 103 SCL 269 (SC): [2010] 11 SCR 112: 2010 

(8) UJ 4093 (SC) (Discussed) [p. 0287, para 10.1 h] 

DLF Universal Limited v. Ekta Seth MANU/SC/7830/2008: (2008) 7 SCC 585: AIR 

2008 SC 3066: III (2008) CPJ 44 (SC): (2009) 2 MLJ 93 (SC): 2008 (10) SCALE 310: 

[2008] 86 SCL 28 (SC) (Mentioned) [p. 0282, para 8.36 g] 

Eastman Kodak Co. v. Image Tech. SVCS 504 U.S. 451(1992) (Discussed) 

[p. 0322, para 17 g] 

Gottrupp -Klim (1994 ECJ CELEX LEXIS 55, 1994 ECR I-5641 (Mentioned) 

[p. 0282, para 8.31 i] 

Jeffer Parish 466 US 17.1 (Discussed) [p. 0323, para 17 d] 

Lucknow Development Authority v. M.K. Gupta MANU/SC/0178/1994 (Relied on) 

[p. 0293, para 12.9 c] 

M/s. Unikol Bottlers Ltd. v. M/s. Dhillon Kool Drinks and Anr. MANU/DE/0008/1995: 

1994 28 DRJ 483 (Discussed) [p. 0292, para 11.19 h] 

Magus Constructions Pvt. Ltd. v. UOI MANU/GH/0115/2008: (2008) 15 VST 17 

(Gauhati): (2008) 217 CTR (Gau) 442: (2009) 3 GLR 514: 2008 (11) GLT 225: 2009 (3) 

GLT 161: [2008] 14STJ401 (Gauhati): (2009) 11Vat Reporter 46 (Mentioned) 

[p. 0292, para 11.15 h] 

PTC India Ltd. v. Central Electricity Regulatory Commission MANU/SC/0164/2010: 

(2010) 4 SCC 603: AIR 2010 SC 1338: 2010 3 AWC (Supp) 2709 SC: 2010 (5) BomCR 

762: 2010 ELR (SC) 269: JT 2010 (3) SC 1: 2010 (3) SCALE 55: [2010] 3 SCR 609: 

2010 (3) UJ 1203 (SC) (Discussed) [p. 028, para 10.3 d] 

Shri Sitaram Sugar Company Ltd. and Anr. v. Union of India and Ors. MANU/SC/ 

0249/1990: (1990) 3 SCC 223: AIR 1990 SC 1277: (1990) 2 Co MPLJ 18 (SC): JT 

1990 (1) SC 462: 1990 (1) SCALE 475: [1990] 1 SCR 909 (Discussed) 

[p. 0288, para 10.3 c] 

U.S. v. E.I. du Point de Nemours & Co. 351 U.S. 377, 391(1956) (Discussed) 

[p. 0323, para 18 c] 

Wanadoo, COMP/38.223 [2005] 5 CMLR 120 (Discussed) [p. 0258, para 5.17 e] 

Legislations referred to 

Companies Act, 1956, Section 62 [p. 0287, para 10.1 g] 

Competition (Amendment) Act, 2009, Section 4 [p. 0256, para 5.2 c] 

Competition Act, 2002 

Section 2(f) [p. 0298, para 12.13 g] 

Section 2(f)(ii) [p. 0256, para 5.6 h] 

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Section 2(h) [p. 0307, para 12.62 g] 

Section 2(r) [p. 0295, para 12.1 h] 

Section 2(s) and (t) [p. 0299, para 12.21 e] 

Section 2(u) [p. 0256, para 5.7 i] 

Section 3 [p. 0290, para 10.10 a] 

Section 3(1) and (2) [p. 0324, para 21 c] 

Section 3(3) [p. 0318, para 12.106 i] 

Section 4 [p. 0256, para 5.2 c] 

Section 4(2) [p. 0273, para 6.4 f] 

Section 4(2)(a) [p. 0254, para 2.2.29 h] 

Section 4(2)(a)(i) [p. 0319, para 13.3 d] 

Section 4(2)(a)(ii) [p. 0296, para 12.109 a] 

Section 4(g) [p. 0288, para 10.3 e] 

Section 18 [p. 0287, para 10.1 g] 

Section 19(1)(a) [p. 0248, para 2.1 d] 

Section 19(4) [p. 0260, para 5.27 a] 

Section 19(4)(a) [p. 0288, para 10.3 e] 

Section 19(4)(b) and (c) [p. 0260, para 5.27 a] 

Section 19(4)(f) [p. 0260, para 5.28 c] 

Section 19(4)(g) [p. 0291, para 11.10 i] 

Section 19(4)(h) [p. 0260, para 5.29 d] 

Section 19(4)(j) [p. 0260, para 5.30 f] 

Section 19(4)(m) [p. 0287, para 9.23 e] 

Section 19(4)(d) to (m) [p. 0308, para 12.70 i] 

Section 19(5) [p. 0296, para 12.1 h] 


Section 19(6)(b) [p. 0287, para 9.21 c] 


Section 26(1) [p. 0255, para 3.1 b] 

Section 27 [p. 0321, para 13 a] 

Section 27(a) [p. 0321, para 13.3 e] 

Section 27(b) [p. 0322, para 13.6 a] 

Section 33 [p. 0255, para 4 c] 

Consumer Protection Act, 1986, Section 2(o) [p. 0297, para 12.8 a] 

Delhi Development Act, 1957 [p. 0246, para 1.6.3 d] 

Finance Act, 1994, Section 65(105)(zzzzu) [p. 0000, para 5.9 e] 

Finance Act, 2010 [p. 0257, para 5.8 c] 

Haryana Apartment Ownership Act, 1982, Section 6(2) and 13 

[p. 0283, para 8.38 c] 

Haryana Apartment Ownership Act, 1983 

Section 6(2) [p. 0252, para 2.2.20 g] 

Section 9 [p. 0251, para 2.2.12 d] 

Section 13 [p. 0252, para 2.2.20 h] 

Haryana Development and Regulation of Urban Areas Act, 1975 

[p. 0247, para 1.6.9 h] 

Haryana Urban Development Authority Act, 1977 [p. 0247, para 1.6.8 a] 


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Indian Registration Act, 1908 [p. 0252, para 2.2.20 h] 

MRTP Act, Section 2(r) [p. 0296, para 12.6 g] 

Punjab New (Capital) Periphery Control Act, 1952 [p. 0248, para 1.6.10 b] 

Punjab New Capital Periphery (Control) (Haryana Amendment) Act, 1971 

[p. 0247, para 1.6.9 i] 

Punjab Scheduled Roads and Controlled Areas (Restriction of Unregulated 

Development) Act, 1963 [p. 0248, para 1.6.9 h] 

Punjab Urban Estates Development and Regulations Act, 1964 

[p. 0247, para 1.6.8 b] 

Subsidiary Legislations referred to 

Competition Bill, 2002 [p. 0288, para 10.2 b] 

Competition Commission of India (General) Regulations, 2009 

Regulation 20(4) [p. 0276, para 8.1 i] 

Regulation 21(1) [p. 0276, para 8.1 i] 

Haryana Development and Regulation of Urban Areas Rules, 1976 

[p. 0248, para 2.1 f] 

Haryana Urban Development Authority (Erection of Buildings) Regulations, 1979 

[p. 0284, para 8.47 g] 

Haryana Urban Development Authority (Execution of Building) Regulation, 1979 

[p. 0254, para 2.2.26 b] 

Counsel 

For Appellant/Petitioner/Plaintiff: M.L. Lahoty, Adv. 

For Respondent(s)/Defendant: Rajan Narain and Ashok Desai, Advs. 

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Ashok Chawla, Chairman; Dr. Geeta Gouri, Anurag Goel, 

M.L. Tayal (Members) 

Background 

1. The case under consideration concerns competition issues and consumer interests 

in the residential real estate market in India. 

1.1 With more than 1.2 billion people, India is the second most populous country in 

the world after China. Since 1991, a series of economic measures have led India to a 

higher sustained level of growth which has stimulated development across all sectors 

including the real estate industry. Since, the real estate industry has significant 

linkages with several other sectors of the economy, investment in real estate sector 

results in incremental additions to the GDP of the country. Along with the growth in 

real estate industry, accompanied by increased level of income, demand for 

residential units has also risen throughout India. Residential sector constitutes a 

major share of the real estate market; the balance comprising of commercial segment 

like offices, shopping malls, hotels,, etc. Apart from its importance as a segment of 

real estate sector, residential housing has a special place in India where investment 

in a home remains one of the biggest and most important investment in a person’s 

life. Along with food and clothing, a home is one of the most basic necessities of 

existence according to economic thought. 

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1.2 The growth in the residential real estate market in India has been largely driven 

by rising disposable income, a rapidly growing middle class, fiscal incentives like 

tax concessions, conducive and markedly low interest rates for housing loans and 

growing number of nuclear families. The residential sector is expected to continue 

to demonstrate robust growth, assisted by rising and easy availability of housing 

finance. The higher income levels and rising disposable income are also expected to 

lead to demand for the high end residential units, a situation which was not 

witnessed in the earlier days. 

1.3 Indian residential real estate sector offers plenty of opportunities. There is a 

huge shortage of housing units in semi-urban and urban areas and there is a scope 

of bridging the deficit. The growth in demand due to rising income and expenditure 

levels, increasing phenomenon of nuclear families and perception of investment in 

real estate as secure and rewarding has far outstripped the supply of residential 

housing. The growing rate of urbanisation, coupled with rising income has led to 

demand for better housing with modern amenities. Also the pace of growth of demand 

is far higher than the pace of growth of supply due to limited supply of urban land, 

lack of infrastructure in non-urban area, concentration of facilities and amenities as 

well as income opportunities in urban areas. This is the reason that the sector is 

witnessing tremendous boom in recent days. Real estate industry in India was said 

to be worth $12 billion in the year 2007 and is estimated to be growing at the rate of 

30 per cent per annum. 

1.4 Previously, government’s support to housing had been centralised and directed 

through the State Housing Boards and development authorities. In 1970, the 

Government of India set up the Housing and Urban Development Corporation 

(HUDCO) to finance housing and urban infrastructure activities and in 2002; the 

government permitted 100 per cent foreign direct investment (FDI) in housing through 

integrated township development. The residential real estate industry now is driven 

largely by private sector players. The mushrooming activities in the sector are reflected 

in the advertisements that come up in the newspapers and number of messages on 

the cell phones received everyday indicating launches of new products. Along with 

the increased activity in the sector, often reports of problems being faced by the 

consumers do also surface. 

1.5 The informant in this case has alleged unfair conditions meted out by a real estate 

player. It has been alleged that by abusing its dominant position, DLF Limited (OP-1) 

has imposed arbitrary, unfair and unreasonable conditions on the apartment-Allottees 

of the Housing Complex “the Belaire”, being constructed by it. 

Profile of Parties in the Case 

1.6 Before going into the details of allegations, response of different Respondents 

and proceedings before the office of DG and Commission, a brief profile of different 

parties involved in the case is discussed first. 

(A) The Informant 

1.6.1 The informant in this case is Belaire Owners’ Association. The association 

has been formed by the apartment Allottees of a Building Complex, “Belaire” 

situated in DLF City, Phase-V, Gurgaon, being constructed by OP-1. The President 

of the association is Sanjay Bhasin, who himself is one of the allotees in the 

complex. 


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(B) Respondents – DLF Limited 

1.6.2 DLF Limited (referred to hereafter, as DLF or OP-1 and includes group 

companies), the main Respondent is a Public Limited Company. It commenced 

business with the incorporation of Raisina Cold Storage and Ice Company Private 

Limited on 16 th March, 1946 and Delhi Land and Finance Private Limited on 

18 th September, 1946. Pursuant to the Order of the Delhi High Court dated 

26 th October, 1970, Delhi Land and Finance Private Limited and Raisina Cold Storage 

and Ice Company Private Limited along with another DLF Group company, 

DLF Housing and Construction Private Limited, merged with DLF United Private 

Limited with effect from 30 th September, 1970. Thereafter, DLF United Limited merged 

with another Company, then known as American Universal Electric (India) Limited 

(incorporated in the year 1963), with effect from 1 st October, 1978, under a scheme of 

amalgamation sanctioned by the Delhi High Court and the Punjab and Haryana 

High Court. The merged entity was renamed as “DLF Universal Electric Limited” 

with effect from 18 th June, 1980. In 1981, DLF Universal Electric Limited changed its 

name to DLF Universal Limited and in 2006, DLF Universal Limited changed its 

name to DLF Limited. 

1.6.3 DLF with its different group entities has developed some of the first residential 

colonies in Delhi such as Krishna Nagar in East Delhi that was completed as early 

as in 1949. Since, then, the company has developed many well known urban colonies 

in Delhi, including South Extension, Greater Kailash, Kailash Colony and 

Hauz Khas. However, following the passage of the Delhi Development Act in 1957, 

the State assumed control of real estate development activities in Delhi, which 

resulted in restrictions on private real estate colony development. As a result, DLF 

commenced acquiring land outside the areas controlled by the Delhi Development 

Authority (DDA), particularly in Gurgaon. 

1.6.4 In the initial years of 1980s, DLF Universal Limited obtained its first licence 

from the State Government of Haryana and commenced development of the “DLF 

City” in Gurgaon, Haryana. In the year 1985, DLF Group initiated plotted 

development, sold first plot in Gurgaon, Haryana and consolidated development of 

DLF City for township development. In 1991, construction of the DLF Group’s first 

office complex, “DLF Centre,” began at New Delhi and in 1993; completion of the 

DLF Group’s condominium project, “Silver Oaks,” at DLF City, Gurgaon, Haryana 

was accomplished. 

1.6.5 In 1996 “DLF Corporate Park,” DLF Group’s first office complex at DLF City, 

Gurgaon, Haryana was built and in 1999 DLF golf course was developed. 

The DLF Group ventured into retail development in Gurgaon, Haryana in 2002 and 

in the same year DLF ventured into the commencement of operation of “DT Cinemas” 

at Gurgaon, Haryana. DLF undertook development of “DLF Cybercity,” an integrated 

IT park measuring approximately 90 acres at Gurgaon, Haryana in the year 2004. 

In the year 2005, DLF acquired 16.62 acres (approx) of mill land in Mumbai. 

1.6.6 DLF in course of expansion of its business has entered into JV with Laing 

O’Rourke (one of Europe’s largest construction company). DLF has also entered 

into various MoUs, joint ventures and partnerships with other concerns like WSP 

Group Acquisition, Feedback Ventures, Nakheel LLC, a leading property developer 

in UAE, Prudential Insurance, MG Group, HSIIDC, Fraport AG Frankfurt Airport 

Services, etc. 

1.6.7 The company was listed on 5 th July, 2007 and is at present listed on NSE and BSE. 

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Haryana Urban Development Authority 

0247 

1.6.8 Haryana Urban Development Authority (HUDA) is a statutory body under 

Haryana Urban Development Authority Act, 1977. The precursor of HUDA was the 

Urban Estates Department (U.E.D.) which was established in the year 1962. It used 

to look after the work relating to planned development of urban areas and it 

functioned under the aegis of the Town and Country Planning Department. Its 

functioning was regulated by the Punjab Urban Estates Development and 

Regulations Act, 1964 and the rules made there under and the various development 

activities used to be carried out by different departments of the State Government 

such as P.W.D (B&R), Public Health, Haryana State Electricity Board, etc. In order to 

bring more coordination, to raise resources from various lending institutions and to 

effectively achieve goals of planned urban development it was felt that the 

Department of Urban Estates should be converted into such a body which could 

take up all the development activities itself and provide various facilities in the 

Urban Estates expeditiously. Consequently, the Haryana Urban Development 

Authority came into existence on 13 th January, 1977 under the Haryana Urban 

Development Authority Act, 1977 to take over work, responsibilities hither to being 

handled by individual Government departments. The functions of Haryana Urban 

Development Authority, inter alia, are: 

(a) To promote and secure development of urban areas in a systematic and planned 

way with the power to acquire sell and dispose of property, both movable and 

immovable. 

(b) Use this so acquired land for residential, industrial, recreational and 

commercial purpose. 

(c) To make available developed land to Haryana Housing Board and other bodies 

for providing houses to economically weaker Sections of the society, and 

(d) To undertake building works. 

Department of Town and Country Planning Haryana 

1.6.9 The Department of Town and Country Planning, Haryana is the nodal 

department to enable regulated urban development in the State of Haryana. The 

policies of the department aim at encouraging a healthy competition amongst various 

private developers and public sector entities for integrated planned urban 

development. The department also renders advisory services to various 

Departments/Corporations/Boards such as HUDA, Housing Board, Haryana State 

Industrial and Infrastructure Development Corporation (HSIIDC), Marketing Board. 

Major functions of the department are given as under: 

(i) Prevention of unauthorised and haphazard construction and regulation of 

planned urban development under the provision of Punjab Scheduled Roads 

and Controlled Areas Restriction of Unregulated Development Act, 1963 by 

declaring controlled areas around towns and public institutions preparation 

of their development plans and sectoral plans for planned urban development. 

(ii) To regulate the development of colonies in order to prevent ill-planned and 

haphazard urbanisation in or around the towns under the provision of the 

Haryana Development and Regulation of Urban Areas Act, 1975. 

(iii) Prevention of unauthorised constructions and regulation of planned urban 

development under the provision of the Punjab New Capital Periphery (Control) 

(Haryana Amendment) Act, 1971 applicable around Chandigarh in Panchkula 

District. 


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1.6.10 The Department of Town and Country Planning, Haryana is responsible to 

regulate the development and also to check the haphazard development in and 

around towns in accordance with the provisions of following statutes: 

(a) The Punjab Scheduled Roads and Controlled Areas Restriction of Unregulated 

Development Act, 1963. 

(b) The Haryana Development and Regulation of Urban Areas Act, 1975. 

(c) The Punjab New (Capital) Periphery Control Act, 1952. 

1.6.11 In order to involve the private sector in the process of urban development, the 

Department grants licences to the private colonizers for development of Residential, 

Commercial, Industrial and IT Park/Cyber Park Colonies in accordance with the 

provisions of the Haryana Development and Regulation of Urban Areas Act, 1975 

and rules framed thereunder. 

1.6.12 Directorate of Town and Country Planning Haryana headed by Director is a 

part of Department of Town and Country Planning. 

2. Information 

2.1 The information in the instant case was filed under Section 19(1)(a) of the 

Competition Act, 2002 (hereinafter, referred to as Act) by Belaire Owners’ Association 

against the three Respondents DLF Limited (OP-1), HUDA (OP-2) and Department 

of Town and Country Planning (DTCP), Haryana (OP-3). It has been alleged in the 

information that by abusing its dominant position, OP-1 has imposed highly 

arbitrary, unfair and unreasonable conditions on the apartment Allottees of the 

Housing Complex “the Belaire,” which has serious adverse effects and ramifications 

on the rights of the Allottees. It has also been alleged that OP-2 and DTCP OP-3 have 

approved and permitted OP-1 to act in illegal, unfair and irrational manner as they 

have allotted land and given licenses, permissions and clearances to OP-1 when it 

is ex facie clear that OP-1 has violated the provisions of various Statutes including 

Haryana Apartment Ownership Act, 1983, the Punjab Scheduled Roads and 

Controlled Areas (Restriction of Unregulated Development) Act, 1963 and Haryana 

Development and Regulation of Urban Areas Rules, 1976. 

2.2 The informant has submitted that OP-1 has used its position of strength in 

dictating the terms by which while on the one hand it has excluded itself from any 

obligations and liabilities, on the other hand it has put the apartment Allottees in 

extremely disadvantageous conditions. The allegations of the informant are 

summarised in the paragraphs below. 

2.2.1 OP-1 announced a Group Housing Complex, named as “The Belaire” consisting 

of 5 multi-storied residential buildings to be constructed on the land earmarked in 

Zone 8, Phase-V in DLF City, Gurgaon, Haryana. As per the advertisement of OP-1, 

each of the five multi-storied buildings was to consist of 19 floors and the total number 

of apartments to be built therein was to be 368 and the construction was to be completed 

within a period of 36 months. However, in place of 19 floors with 368 apartments, 

which was the basis of the apartment Allottees booking their respective apartments, 

now 29 floors have been constructed. Consequently, not only the areas and facilities 

originally earmarked for the apartment Allottees are substantially compressed, but 

also the project has also been abnormally delayed. The fall-out of the delay is that the 

hundreds of apartment Allottees have to bear huge financial losses, as while on one 

hand, their hard-earned money is blocked, on the other hand, they have to wait 

indefinitely for occupation of their respective apartments. 

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2.2.2 The informant has submitted that as the Apartment Buyer’s Agreements were 

signed months after the booking of the apartment and by that time the Allottees 

having already paid substantial amount, they hardly had any option but to adhere 

to the dictates of OP-1. In this case, OP-1 had devised a standard form of printed 

“Apartment Buyer’s Agreement” for booking the apartments and a person desirous 

of booking the apartment was required to accept it in “toto” and give his assent to 

the agreement by signing on the dotted lines, even when Clauses of the agreement 

were onerous and one-sided. 

2.2.3 The informant has stated that agreement stipulates that OP-1 has the absolute 

right to reject and refuse to execute any Apartment Buyer’s Agreement without 

assigning any reason, cause or explanation to the intending Allottee. Thus, there is 

neither any scope of discussion, nor variation in the terms of the agreement. Page 3 of 

the agreement containing the Representations “B” and “C” shows that the OP-1 

neither on the date of announcing the Scheme 

“The Belaire”, nor while executing the Apartment Buyer’s Agreement had got the 

Layout Plan of Phase-V approved by OP-3. The decision of OP-1 to announce the 

Scheme, execute the agreement and carry out the construction without the 

approved Layout Plan has serious irreparable fall-outs for which the entire liability 

in normal course would have been on it, but the consequences have been shifted 

to the Allottees. Further, the agreement, stifles the voice of the buyers by inserting 

the waiver Clause in the agreement Clause that no consent of the apartment 

Allottee is at all required, if any change or condition is imposed by OP-3 while 

approving the Layout Plan. 

2.2.4 The informant has further submitted that the action of OP-1 in advertising the 

project and issuing Allotment letter without preparing and submitting the building 

plans/lay-out plans of the project to the Town Planner is in defiance of decision 

rendered in a case involving OP-1 by the National Consumer Disputes Redressal 

Commission, New Delhi. By inserting Representation “E”, OP-1 reserves to itself the 

exclusive and sole discretion not only to change the number of zones but also their 

earmarked uses from residential to commercial,, etc. Further, as per representation 

“F”, the land of 6.67 acres earmarked for the multi-storied apartments could even be 

reduced unilaterally by OP-1 pursuant to the approval/sanction of the Layout Plan 

by the OP-3. 

2.2.5 According to informant, OP-1 has inserted Clauses “J” and “K” to the effect 

that the apartment Allottee would not even be permitted to carry out any investigation 

and would not be entitled to raise any objection to the competency of OP-1. Vide 

Clause 1.1, the apartment allotee is to pay sale price for the Super Area of the 

apartment and for undivided proportionate share in the land underneath the building 

on which the apartment is located. Out of the total payment made by the apartment 

Allottee, OP-1 has authorised itself vide Clauses 3 and 4 that it will retain 10 per cent 

of the sale price as earnest money for the entire duration of the apartment on the 

pretext that the apartment Allottee complies with the terms of the agreement. 

2.2.6 The informant has stated that the agreement does not contain the proportionate 

liability Clause to fasten commensurate penalty/damages on OP-1 for breach in 

discharge of its obligations. Since, the apartments are sold without the approval of 

the Layout/Building Plan, Clause 1.5 stipulates that due to the change in Layout 

Building Plan, if any amount was to be returned to the apartment Allottee, OP-1 

would not refund the said amount, but would retain and adjust this amount in the 

last instalment payable by the apartment Allottee. Further, the apartment Allottee 


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would not be entitled to any interest on the said amount either. Similarly, if there is 

a change in the super area at the time of completion of building and issuance of 

occupation certificate, although the total price shall be recalculated but the amount, 

if any is required to be returned, the apartment Allottee would not get the refund and 

rather OP-1 would retain this amount, with the right to adjust this refund amount 

against the final instalment as well. The apartment Allottee also in the process has 

to forego the interest thereon. 

2.2.7 It has been submitted by the informant that as per Clause 1.7, against the total 

price paid by the apartment Allottee, he is promised the ownership right of his 

apartment as also prorate ownership right of land beneath the building. Apart from 

the said right, the apartment Allottee has paid and accordingly, has pro-rata right of 

common areas and facilities within the Belaire and proportionate share of club and 

other common facilities outside the Belaire as also the common facilities which may 

be located anywhere in the said complex. Although the apartment Allottee has paid 

for the proportionate share in the ownership of the said land, OP-1 has reserved to 

itself the sole discretion to modify the ratio with the purpose of complying with 

Haryana Apartment Ownership Act, 1983. 

2.2.8 According to informant, Clause 8 also indicates arbitrary and one-sided 

stipulations of the agreement. While time has been made essence with respect to 

apartment Allottee’s obligations to pay the price and perform all other obligations 

under the agreement, OP-1 has conveniently relieved itself by not making time as 

essence for completion in fulfilling its obligations, more particularly, handing over 

the physical possession of the apartment to the apartment Allottee. The arbitrariness 

and unreasonableness of the Apartment Buyer’s Agreement is also seen in Clause 10.1 

where under it is provided that OP-1 would complete the construction within a 

period of three years but the exception to this Clause have been kept wide open to 

keep apartment Allottee totally at the mercy of OP-1. 

2.2.9 The Informant has submitted that as per Clause 9.1, in future the apartment 

Allottee shall be at the mercy of OP-1 who has reserved to itself the right not only to 

alter/delete/modify building plan, floor plan, but even to the extent of increasing 

the number of floors and/or number of apartments. While the common areas and 

facilities might stand largely compressed on account of increased number of floors, 

the said Clause has absolutely debarred the apartment Allottees from claiming any 

reduction in price occasioned by reduction in the area. The only right given to the 

apartment Allottee vide Clause 9.2 is that it would receive a mere formal intimation. 

In case the apartment Allottee refuses to give consent, OP-1 has the discretion to 

cancel his agreement and to refund the payment made by the apartment Allottee 

that too with the interest @ 9 per cent per annum, which is wholly arbitrary as in 

case of default by the apartment Allottees, the rate of interest/penal interest is as 

high as 18 per cent. 

2.2.10 The informant has further submitted that Clause 10.1 prescribes a period of 

three years from the date of execution of the agreement. However, while OP-1 starts 

collecting the payment from the Allottees w.e.f the date of allotment, it is not at all 

bothered that its collection of money must be commensurate with the stage-wise 

completion of the project. 

2.2.11 The informant has also submitted that another arbitrary and unconscionable 

Clause 11.3 stipulates that in the event of OP-1 failing to deliver the possession, the 

apartment Allottee shall give notice to OP-1 for terminating the agreement. OP-1 

thereafter has no obligation to refund the amount to the apartment Allottee, but 

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would have right to sell the apartment and only thereafter repay the amount. In the 

process, OP-1 is neither required to account for the sale proceeds nor even has any 

obligation to pay interest to the apartment Allottee and the apartment Allottee has to 

depend solely on the mercy of OP-1. The quantum of compensation has been 

unilaterally fixed by OP-1 at the rate of Rs. 5 per sq. ft. (or even Rs. 10 per sq. ft.) of the 

super area which is mere pittance. 

2.2.12 According to the informant, the terms of the agreement are one sided as can 

further be seen from Clause 11.1 in so much so that non-availability of steel, cement 

and other building materials has also been given the colour of force-majeure. 

Clause 22 is also inequitable as it not only gives exclusive discretion to OP-1 to put up 

additional structures upon the said building but also makes the additional structure 

the sole property of the OP-1 although the land beneath the building is owned by the 

apartment Allottee. Further, Clauses 23 and 24 make serious encroachment on rights 

of the apartment Allottees as although both the land beneath the building and the 

super areas of the building have been paid by the apartment Allottees and for all 

practical purposes these areas belong to the apartment Allottees, yet OP-1 unilaterally 

has reserved to itself the right to mortgage/create lien and thereby raise finance/loan. 

In an event of OP-1 DLF not able to repay or liquidate the finance/loan, the apartment 

Allottee may be direct sufferer, a Clause which is not reconcilable to the provisions of 

Section 9 of the Haryana Apartment Ownership Act, 1983 as well. 

2.2.13 According to informant, under Clause 32 of the agreement, OP-1 can abrogate 

all that has been promised to the apartment Allottee as in exercise of the power under 

that Clause it is permitted to unilaterally amend or change annexures to the agreement. 

The annexure appended to the agreement describe the apartment area, super area, 

common areas and facilities, club,, etc. as also the nature of equipments, fittings, 

which the DLF has contractually committed to provide to the Apartment Allottee. 

2.2.14 It has further been submitted by the informant that Clause 35 brings to the fore 

the arbitrary mis-match between the buyer and seller, whereby the apartment Allottee 

has been foist with the liability to pay exorbitant rate of interest in case the Allottee 

fails to pay the instalment in due time, i.e. 15 per cent for the first 90 days and 

18 per cent after 90 days. When this lop-sided provision is compared to Clause 11.4 

the unfairness of the agreement is amply demonstrated as OP-1 would pay only 

Rs. 5 sq. ft. to the Allottee for per month delay, i.e. 1 per cent per annum. 

2.2.15 According to the informant, the unfair and deceptive attitude is reflected form 

the Brochure issued by OP-1 for marketing “the Belaire” when compared with the 

Part E of Annexure-4 to the agreement. While through the Brochure a declaration is 

made to the general public that innumerable additional facilities, like, schools, shops 

and commercial spaces within the complex, club, dispensary, health centre, sports 

and recreational facilities,, etc. would be provided to the Allottees, however, Part “E” 

of the agreement stipulates that OP-1 shall have absolute discretion and right to 

decide on the usage, manner and method of disposal, etc. 

2.2.16 It has been submitted by the informant that there are various other terms and 

conditions of the Apartment Buyer’s Agreement which are one sided and 

discriminatory. The Schedule of Payment unilaterally drawn up by OP-1 was not 

construction specific initially and it was only after OP-1 amassed huge funds 

unmindful of the delay caused in the process, it made the payment plan 

construction-linked arising out of the compulsion of increase in the number of floors 

from 19 to 29. 


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2.2.17 According to informant, OP-1 from the very beginning has concealed some 

basic and fundamental information and being ignorant of these basic facts, the 

Allottees have entered into and executed the agreement reposing its total trust and 

faith on OP-1. Giving specific instances, the informant has submitted that on 

4 th September, 2006 one of the Allottee Mr. Sanjay Bhasin, has applied for allotment 

by depositing the booking amount of Rs. 20 lac pursuant whereto on 13 th September, 2006 

OP-1 issued Allotment Letter for Apartment No. D-161, the Belaire, DLF City, Gurgaon. 

On 30 th September, 2006 a Schedule of Payment for the captioned property was sent. 

According to the said Schedule, the buyer was obligated upon to remit 95 per cent of 

the dues within 27 months of booking, namely, by 4 th December, 2008. The remaining 

5 per cent was to be paid on receipt of Occupation Certificate. The Apartment Buyer’s 

Agreement, however, was executed and signed on 16 th January, 2007. By that date, 

OP-1 had already extracted from the Allottee an amount of Rs. 85 lac (approx.) 

without the buyer being aware of the sweeping terms and conditions contained in 

the agreement and also without having the knowledge whether the necessary 

statutory approvals and clearance as also mandatory sanctions were obtained by 

OP-1 from concerned Government authorities. 

2.2.18 It has been submitted that because of the initial defaults of OP-1 in not applying 

for and obtaining the sanction of the building plan/lay-out plan, crucial time was lost 

and delay of several months had taken place. This delay was very much foreseeable but 

OP-1 deliberately concealed this fact from the apartment Allottees. After keeping the 

buyers in dark for more than 13 months, OP-1 intimated the buyers on 22 nd October, 2007 

that there was delay in approvals and that even the construction could not take off in 

time. By that time, OP-1 had enriched itself by hundreds of crore of rupees by collecting 

its timely instalments from scores of buyers. Before a single brick was laid, the buyers 

had already paid instalments of November, 2006, January, 2007 March, 2007, June, 2007 

and September 2007, up to almost 33 per cent of the total consideration. 

2.2.19 According to the informant, only through the letter dated 22 nd October, 2007, 

the Allottees were further ex-post-facto conveyed by OP-1 in an oblique manner that 

the original project of 19 floors was scrapped and a new project with 29 floors with 

new terms has been envisaged in its place. 

2.2.20 The informant has submitted that the decision to increase the number of 

floors was without consulting the Allottees and while payment schedule was revised 

based upon the increase in the number of floors, there was no proportionate reduction 

in the price to be paid by the existing Allottees whose rates were calculated purely 

on the basis of 19 floors and the land beneath it although their rights/entitlements 

of the common areas and facilities substantially got compressed due to increase in 

number of floors and additional apartments, which is in violation of the provisions 

of the Haryana Apartment Ownership Act, 1983, more particularly, Sections 6(2) 

which says that the common areas and facilities expressed in the declaration shall 

have a permanent character and without the express consent of the apartment 

Owners, the common areas and facilities can never be altered and Section 13 which 

makes it mandatory that the floor plans of the building have to be registered under 

the Indian Registration Act, 1908. 

2.2.21 The informant has cited the case of one of the members of Belaire Owners’ 

Association, the RKG Hospitality Private Ltd. It was submitted that concerned with 

delays, RKG Hospitality Private Ltd. in its communication dated 3 rd June, 2009, 

informed OP-1 that the project had already been delayed by 8 months and also 

expressed resentment that the number of storeys had unilaterally gone up from 19 to 29. 

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In its reply dated 7 th July, 2009, with respect to the arbitrary and unilateral increase 

in the number of floors, OP-1 took refuge in Clause 9.1 of the Apartment Buyer’s 

Agreement. In its reply, without explaining the delay of 8 months, OP-1 tried to 

assure that it would deliver the possession within the time frame. OP-1 also stated 

that even if there was delay, compensation @ Rs. 5 per sq. ft. per month was already 

stipulated to meet the plight of the Allottees. In an admission that lay-out plans/ 

building plans were not shown to the Allottees, OP-1 agreed that the same could be 

verified by any authorised representative of RKG. RKG, expressing its disapproval 

of the stand taken by the OP-1, sent a rejoinder on 27 th July, 2009, that Apartment 

Buyer’s Agreement was unfair, unreasonable and unconscionable. 

2.2.22 According to informant, on 25 th August, 2009, OP-1 responded stating that 

the buyer had signed the agreement after going through and understanding the 

contents thereof and as such no objection could be raised that the agreement was 

one-sided. On 18 th September, 2009, when the representatives of the RKG visited the 

office of OP-1 for the purpose of verification/inspection of the building plans they 

were told by an officer of OP-1 that he did not have the sanctioned building 

plans. However, the perusal of title deeds, licensees,, etc. revealed that various 

companies/entities were involved in the transaction. On 21 st September, 2009, RKG 

conveyed all of their concerns to OP-1. 

2.2.23 It has been submitted by the informant that while the discount given to the 

prospective buyers after the revised plan was as high as Rs. 500 per sq. ft., OP-1 had 

offered only Rs. 250 per sq. ft to the older buyers. The buyers of the apartments, who 

invested huge amount of money starting from October, 2006 in “The Belaire” and 

November, 2006 in “DLF Park Place” had been put to a disadvantageous position 

vis-à-vis prospective buyers in November, 2009, i.e. after a period of 3 years. Against 

all these, on 21 st December, 2009, RKG raised grievance before the Ministry of Housing 

and Urban Poverty Alleviation showing the helplessness of the buyers who did not 

have any option even to opt out as the exit route was too heavily tilted in favour of 

OP-1 and on 28 th January, 2010, the Association in its detailed representation to 

OP-1 raised many pertinent issues pointing to the illegal acts of omission and 

commission of OP-1. The Association categorically registered its protest by stating 

that the agreement was arbitrary, lopsided and unfair, with apparent double 

standards with respect to the rights and obligations of OP-1 vis-à-vis the investors. 

In its reply dated 9 th March, 2010, OP-1 did not furnish any convincing response 

except for referring to the one-sided Clauses of the agreement. 

2.2.24 The informant has submitted that the manner in which OP-1 has exercised its 

arbitrary authority is evidenced by the letter dated 13 th April, 2010, which it has 

written to Mr. Pankaj Mohindroo cancelling the allotment of his apartment for alleged 

non-payment of dues and unilaterally went to the extent of forfeiting an amount of 

over Rs. 51 lac, notwithstanding the fact that Mr. Mohindroo has adhered and 

fulfilled his obligation of making regular payments of all the installments totalling 

over Rs. 1.29 crore, while OP-1 has defaulted in all its obligations including the 

targeted date of completion and physical handing over the possession. 

2.2.25 The informant has submitted that at the time of seeking permission for public 

issue of its equity shares in May 2007, OP-1 gave information to SEBI with regard to 

Belaire as under: 

The Belaire is expected to be completed in fiscal 2010 and consisting of 

368 residential units approximately 1.3 million square feet of saleable space in 

five blocks of 19 to 20 floors each. 


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This information given to SEBI almost after six months of the allotment of the 

apartment to the Allottees clearly brings out the fact that either the information 

given to SEBI was incorrect and misleading or for reasons not known to the Allottees, 

OP-1 scrapped the original project in October, 2007. 

2.2.26 It has been submitted by the informant that the OP-2 has framed Haryana 

Urban Development Authority (Execution of Building) Regulation, 1979 which, 

inter alia, specifies various parameters for any building. The maximum FAR therein 

is 175 per cent of the site area and population density is 100 to 300 persons per acre 

@ 5 persons per dwelling unit. So far as the maximum height of the building is 

concerned, the Regulation prescribes that in case of more than 60 mts. height, 

clearances from the recognised institutions like ITTs, Punjab Engineering College 

(PEC), Regional Engineering College/National institute of technology, etc. and for 

the fire, safety clearance from institute of Fire Engineers, Nagpur will be required. 

There is hardly any material to show that the buildings of “The Belaire” have been 

constructed in adherence to the said Regulations and there has been violation on 

account of both FAR and density per acre. 

2.2.27 As per the informant, engineering norms prescribe that the foundation of a 

building is laid out keeping in mind a margin of 25 per cent as safety factor. This 

means if a building is to be constructed up to 19 floors, the foundation work would 

be such that the 25 per cent more load can be sustained thereon. This 25 per cent 

extra cushion is only a safety measure and is never utilised in making extra 

construction. OP-1, however, has increased the height up to 29 floors while the 

foundation laid out underneath the building is suited only to sustain the load of 

19 floors. 

2.2.28 It has been submitted by the informant that the fact that the project could not 

be completed in the stipulated time was either within the contemplation of OP-1 or 

it was reasonably foreseeable by OP-1 from the very threshold stage as the statutory 

approvals and clearances were not obtained by OP-1. The Act of OP-1 in concealing 

this fact, therefore, amounts to “suppresio-veri”. From the very beginning it was in 

the knowledge of OP-1 that the project has been inordinately delayed. Yet it never 

informed the apartment Allottees of the factum of delay till the time it extracted 

substantial payment from them. In the said circumstances, the action of collecting 

the money is absolutely fraudulent and unwarranted. 

2.2.29 According to informant, acts and deeds of OP-1 are “culpa-grave” both in 

attracting the buyers by making promises in the colourful brochure/advertisement 

to enter into the contract only to be followed by gross and deliberate carelessness in 

performance of the contract. The informant has contended that in the present form, 

the agreement is heavily weighted in favour of OP-1. Taking shelter of the expression 

“Sole Discretion”, OP-1 can act arbitrarily without assigning any reason for its 

inaction, delay in action,, etc. and yet disowned its responsibility or liability arising 

there from. The informant has alleged that the various Clauses of the agreement and 

the action of OP-1 pursuant thereto are ex facie unfair and discriminatory attracting 

the provisions of Section 4(2)(a) of Competition Act, 2002 and per se the acts and 

conduct of DLF are acts of abuse of dominant position by OP-1. 

2.2.30 The informant finally has also alleged that it is not clear how the various 

Government Agencies, more particularly, OP-2 and OP-3 have approved and 

permitted OP-1 to act in this illegal unfair and irrational manner. Various Government 

and Statutory Authorities have allotted land and given licenses, permissions and 

clearances to OP-1 when it is ex facie clear that OP-1 has violated the provisions of 

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various Statutes including Haryana Apartment Ownership Act, 1983, the Punjab 

Scheduled Roads and Controlled Areas (Restriction of Unregulated Development) 

Act, 1963 and Haryana Development and Regulation of Urban Areas Rules, 1976. 

3. Reference to Director General 

3.1 The Commission, after considering the available information formed an opinion 

that a prima facie case exists and directed under Section 26(1) vide order, dated 

20 th May, 2010 that investigation be made in the matter by the office of Director 

General (hereinafter referred to as DG). 

3.2 It would be pertinent to note that the order under Section 26(1) of the Commission 

was challenged before the Competition Appellate Tribunal, inter alia, raising the 

issues of jurisdiction. The Tribunal vide Order, dated 18 th August, 2010 observed 

that the Appellant (OP-1) can raise these issues before the Commission and disposed 

of the appeal accordingly. 

4. Order under Section 33 of the Act 

4.1 The informant also filed an application for interim Order under Section 33 of the 

Act on 6 th July, 2010. Additional information/submissions were also filed on 

19 th August, 2010, 6 th September, 2010, 9 th September, 2010 and 14 th September, 2010. 

In the application under Section 33, the informant prayed following to restrain 

OP-1 from: 

(i) taking any action, which prejudices the Allottees and thereby secure the 

substantial investments already made by the Allottees; 

(ii) taking any coercive actions, including cancellation of allotment, levying of 

penalty/interest,, etc. and from raising the demand towards the installments; 

(iii) diverting/utilising the funds collected from the Allottees of “the Belaire” to 

any other Project; 

(iv) creating third party rights by selling, alienating, or transferring in any manner 

whatsoever the apartments and common areas and facilities; 

(v) to direct OP-1 to create an “Escrow Account” depositing the money collected 

from the Allottees against 564 apartments. 

4.2 It had also been stated in the application under Section 33 that faced with the 

investigation by the Commission, OP-1 had started issuing letters to the Allottees 

threatening to cancel the allotment and to impose penal interest, etc. 

4.3 The OP-1 filed written submissions on 30 th July, 2010, 17 th August, 2010, 

3 rd September, 2010, 8 th September, 2010, 13 th September, 2010 in response to the 

application under Section 33 filed by the informant. 

4.4 The Commission after considering the submissions made before it passed 

following order under Section 33 in the instant case on 20 th September, 2010. 

(i) OP-1 is restrained from cancelling allotment of “apartment Allottees” of Belaire 

Residential Complex located in Phase-V in DLF City Gurgaon, Haryana without 

leave of the Commission; 

(ii) OP-1 is further restrained from creating third party rights by selling, alienating 

or transferring in any manner whatsoever the apartments and the common 

areas and facilities relatable to any cancellation of allotments so far, without 

leave of the Commission. 


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5. Report by Director General 

5.1 The DG conducted an in-depth investigation of various allegations made in the 

information. While conducting investigation, details from OP-1 and the informants 

were obtained. The DG also collected materials from different sources in order to 

assess various issues involved in the case. Additionally, the dynamics of real estate 

market alongwith State of regulations in real estate sector in India and some other 

jurisdictions were also examined. Various issues examined by DG are discussed in 

the following paras. 

Issue of Jurisdiction 

5.2 It was argued by OP-1 before DG that the basic terms and conditions agreed to 

between OP-1 and Allottees, were set out initially as terms and conditions of the 

booking application, submitted by the allottes in the year 2006 and subsequently in 

the Apartment Buyers” Agreement executed in the year December 2006/2007. All 

these terms and conditions were agreed to, prior to the coming in to force of Section 4 

of the Competition Act (20 th May, 2009). Thus, it cannot be suggested that any 

condition was “imposed” by the company after 20 th May, 2009, so as to attract 

Section 4 of the Act. 

5.3 The DG has stated that although the agreements with some of the apartment- 

Allottees of the Complex-Belaire referred to in the context of alleged imposition of 

conditions belong to period prior to 20 th May, 2009, since the effects of the agreement 

are given in the year 2009-10 they can be examined under the Act. In this context, 

DG has relied upon the Judgment of Hon’eble Mumbai High Court in case of 

Kingfisher Airlines Limited. The DG has also stated that alleged imposition of unfair 

conditions have taken place in the year 2009-10 when they were given effect to in 

terms of cancellation of apartment units and forfeiture of amounts by invoking the 

terms of agreements and thus they can be examined under the provisions of the 

Section 4 of the Competition Act, 2002. 

5.4 Further, DG has also brought out that even after 20 th May, 2009, apartment units 

have been sold and agreements have been executed with apartment Allottees and 

advertisements were still coming in the newspapers and web site of the company 

that apartment units were up for sale as on date of investigation and possession 

will be given within 12 months from September 2010, i.e. by September-October 2011. 

5.5 The DG has thus established that the facts of the case are squarely covered in the 

jurisdiction of the Competition Act, 2002. 

Assessment of Relevant Market 

5.6 OP-1 in its submissions has stated that there can be abuse within the meaning of 

provisions of Section 4(2)(a) of the Act only when an enterprise or group directly or 

indirectly imposes, unfair or discriminatory condition in purchase or sale of goods 

or service. It has been contended that the present agreement relates to “sale of an 

apartment” and not for “purchase of service”. Further, no apartment owner can be 

described as “Consumer” under Section 2(f)(ii) of the Act as the present agreement 

does not relate to hiring or availing of any service. 

5.7 As regards, the question of provision of services, DG in his report has stated that 

it would be worthwhile to discuss the definition of service within the meaning of 

Section 2(u) of the Act, which states as under; 

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...“service” means service of any description which is made available to potential 

users and includes the provision of services in connection with business of any 

industrial or commercial matters such as banking, communication, education, 

financing, insurance, chit funds, real estate, transport, storage, material treatment, 

processing, supply of electrical or other energy, boarding, lodging, entertainment, 

amusement, construction, repair, conveying of news or information and 

advertising. 

5.8 Thus, according to DG, under the provisions of the Act, the service has been 

defined as service of any description and it includes the provision of services in 

connection with business of any industrial or commercial matters such as real estate. 

The intent of the legislature is, therefore, to include service of any description 

including for real estate as clearly provided in the Section. DG has also stated that in 

the context of Service Tax, in the Finance Act, 2010, an Explanation has been added 

w.e.f. 1 st July, 2010, to the definition of “commercial or industrial construction” and 

“construction of residential complex,” as follows: 

Explanation. For the purposes of this sub-clause, construction of a complex which 

is intended for sale, wholly or partly, by a builder or any person authorised by the 

builder before, during or after construction (except in cases for which no sum is 

received from or on behalf of the prospective buyer by the builder or a person 

authorised by the builder before the grant of completion certificate by the authority 

competent to issue such certificate under any law for the time being in force) shall 

be deemed to be service provided by the builder to the buyer. 

5.9 As per Section 65(105)(zzzzu) of Finance Act, 1994 (inserted w.e.f. 1 st July, 2010), 

any service provided or to be provided, to a buyer, by a builder of a residential 

complex, or a commercial complex, or any other person authorised by such builder, 

for providing preferential location or development of such complex but does not 

include services covered under Sub-clauses (zzg), (zzq), (zzzh) and in relation to 

parking place, is a “taxable service’. Explanation.-For the purposes of this Sub-clause, 

“preferential location” means any location having extra advantage which attracts 

extra payment over and above the basic sale price. 

5.10 In this context, relevant portion of Notification dated 1 st July, 2010 

D.O.F.NO.334/03/2010-TRU Dated: 1 st July, 2010 issued by Ministry of Finance, 

Department of Revenue, Tax Research Unit has also been quoted by DG. 

5.11 Keeping in view the provisions of Section 2(u) of the Competition Act, 2002 and 

the legislative developments as above, DG has stated that the case is covered under 

the Act. 

5.12 As far as contention of OP-1 on the issue of consumer is concerned, DG has 

brought out that as per Section 2(f)(ii) the consumer has been defined as under: 

(f) “consumer” means any person who: 

(i) xxx xxx xxx 

(ii) hires or avails of any services for a consideration which has been paid or 

promised or partly paid and partly promised, or under any system of deferred 

payment and includes any beneficiary of such services other than the person 

who hires or avails of the services for consideration paid or promised, or 

partly paid and partly promised, or under any system of deferred payment, 

when such services are availed of with the approval of the first-mentioned 

person whether such hiring or availing of services is for any commercial 

purpose or for personal use. 


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5.13 Thus, according to DG, if any person avails of any services for a consideration 

which has been paid or promised or partly paid and partly promised, or under any 

system of deferred payment (like in this particular case), he is covered within the 

meaning of Section 2(f)(ii) of the Act. 

5.14 Further, DG has also contended that as per preamble, the Act is to ensure that 

the interests of the consumers are protected and there should be free and fair 

competition in the market. 

5.15 Taking into account all the above factors, DG has submitted that the instant 

case falls within the ambit of the Act. 

5.16 As regards, relevant product market for the purposes of Section 4 of the Act, DG 

has contended that the Industrial Classification, 2008 prepared by Central Statistical 

Organisation, Ministry of Statistical and Programme Implementation has classified 

the construction of buildings under Section F - Division 41, Group 410 and 

Class 4100. The activity of construction of buildings, therefore, falls under a separate 

head. It has also been considered that the residential units which are being considered 

in the instant case are not smaller low priced dwelling units. The houses in the case 

are of the range of around Rs. 2-3 crore (considering basic cost and additional costs 

over and above the basic cost). The DG has stated it is not that if the prices of 

apartments which value between Rs. 2-3 crore are increased by say, 10 per cent 

around Rs. 20 lac, the customers will settle for a house of Rs. 20 lac or even Rs. 50 lac. 

Therefore, construction of residential buildings, particularly of Rs. 2-3 crores would 

constitute a distinct class. 

5.17 The DG has brought out that the qualitative assessments of the characteristics 

of the products were analysed in case of Wanadoo, COMP/38.223 [2005] 5 CMLR 

120, in which the European Commission defined the relevant market as the market 

for high speed internet access for residential customers. The European Commission 

in that case examined the differences in performance between high and low speed 

internet access and concluded that the differences were clearly perceived by the 

consumers and that an analysis of price differences between them showed that 

consumers were prepared to pay a premium for the extra performance and 

convenience of high speed. Keeping in view these, the DG has stated out that the 

relevant product market would be services provided by the developers for providing 

high end apartments to the customers. 

5.18 As far as relevant geographic market is concerned, OP-1 has contended that its 

dominance needs to be looked into taking into account entire Northern India since 

the informant has stated that it is a leading developer in Northern India. OP-1 has 

also contended that in any case the geographical market should be entire NCR and 

not only Gurgaon. 

5.19 The DG has submitted that the Relevant Geographic Market in the case 

is the territory of Gurgaon of National Capital Territory of Delhi in which the 

builders/developers including OP-1 are developing and selling residential houses. 

It has been stated in the report of DG that a person who wants to reside in Gurgaon 

for various reasons like offices, work place, schools, colleges and will like to settle in 

Gurgaon will ask a builder to develop and build a house for himself in Gurgaon 

only. The buildings cannot be transported from one area/ region to another. 

5.20 According to DG, the geographic limit of real estate is determined with reference 

to its locations. The geographic market is defined in case of services towards real estate 

once the determination is being considered of competition or lack of it in a particular 

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area or place. There is no doubt that builders-developers not only from Gurgaon but 

from National Capital Territory of Delhi and all over India can provide their services 

to the consumers of Gurgaon for developing and constructing a house. However, 

that is a question of entry in the market. Thus, the relevant geographic market in this 

case, according to DG, has to be Gurgaon. 

5.21 Based upon exhaustive analysis, DG has stated that the relevant market in 

terms of relevant product and relevant geographic market in this case would be 

services provided by developers/builders for construction of high end residential 

buildings carried out in Gurgaon. 

Assessment of Dominance 

5.22 On the issue of dominance it has been stated by OP-1, it does not enjoy 

“dominant position” within the meaning of explanation (a) of Section 4. In order 

to find out whether it has a “Dominant Position as defined in Explanation (a) to 

Section 4, it is to be established that it enjoys a position of strength, in the relevant 

market, in India, which enables it to act in a manner as provided in Clauses (i) 

and (ii) thereof. Even though in a general sense, in the context of describing the 

status of a leading company, it may be referred to as having a “Dominant Position”, 

in various statements/Annual Reports, etc. such description would have no 

relevance, unless there is sufficient material to establish that the enterprise enjoys 

a “Dominant Position” in terms of the exhaustive definition thereof as set out in 

Explanation (a). 

5.23 According to OP-1, there are many large Real Estate Companies and Builders in 

India, particularly in Northern India as well as in NCR and Gurgaon who offer stiff 

competition and give competitive offers in the relevant market of residential 

apartments to give a wide choice to the consumers. Even though OP-1 is a large 

builder, there are hundreds of other builders all over India as well as in Northern 

India including NCR, who offer residential apartments to prospective investors. 

5.24 According to OP-1, the conditions of offer of each builder are considered by the 

intending investor and then he makes up his mind as to which offer suits him. The 

choice of residential property available in the market has never been limited and 

apart from the Residential properties offered by it there were a large number of 

residential properties available in the market for the investor to choose from. 

5.25 OP-1 has submitted analysis reports from Jones La Salle Meghraj (JLLM), ICICI 

Direct Analyst, RBS (The Royal Bank of Scotland) Analyst, Knight Frank, Goldman 

Sachs, Prop Equity, Research to support their contention that they are not dominant 

in the relevant market. Further, a list of 83 members of CREDAI NCR obtained from 

their Website also indicates the number of Developers who are their members and 

operate in NCR, which is indicative of the fact that there are a large number of 

developers, who offer competition. Based upon these, it has been stated that the 

residential space offered by OP-1 does not constitute any substantial part of the total 

residential properties offered by various developers. 

5.26 OP-1 has also contended that it is not a dominant player as the choice of 

residential property available in the market was never limited and apart from the 

Residential properties offered by OP-1, there were a large number of residential 

properties available in the market for the investor to choose from. This also included 

offers from Government and Public Sector Organisations like DDA, HUDA, NOIDA 

Development Authority, Ghaziabad Development Authority, etc. 


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5.27 OP-1 has also discussed in its reply factors other than the market share 

mentioned in Section 19(4) of the Act to state that it is not a dominant player in the 

relevant market. With reference to Clauses (b) and (c) of Section 19(4), it has been 

stated that its total size and turnover relates to commercial as well as retail business 

also, which is large. Moreover, it is not confined only to the aforesaid markets under 

consideration as relevant market. It has other businesses also. Moreover, there are 

several other large competitors in the relevant market. According to OP-1 so long as 

it has to face competition from other competitors having large size and resources, it 

cannot be said to enjoy a “Dominant Position” in terms of Explanation (a). It is 

immaterial as to who is the largest. So long as there are large players in the market, 

no one enterprise can enjoy a “Dominant Position” in terms of Explanation (a). Such 

other competitors with large size and resources also offer competing products which 

creates intense competition in the market and the customers have ample choice to 

consider before making any purchase. 

5.28 With reference to Clause (f) of Section 19(4), it has been brought out by OP-1 that 

it cannot be said that any customer is in any way dependent on it when he desires to 

purchase a residential property. In a case where alternative apartments are available 

from different sources to the consumer, to choose from, it cannot be said that the 

consumer is dependent on the enterprise. 

5.29 With reference to the factor mentioned in Clause (h) of 19(4) during the period 

from 2007 onwards, it has been stated by OP-1 that a large number of new developers 

have entered the market to offer residential apartments including luxury apartments. 

Such new developers are also creating intense competition in the market and the old 

existing developers have to meet this intense competition. In such a situation, it 

cannot be said that because of the “Dominant Position” of any enterprise, there is an 

impediment for new entrants or that the “Dominant Position” of any enterprise 

results in “entry barriers for new entrants. 

5.30 As regards, factor in Clause (j) of Section 19(4), it has been stated by OP-1 that 

the size of market, even for Residential Properties is very large in Northern India, 

NCR and even in Gurgaon. The new master plan for Gurgaon also includes within 

it “New Gurgaon-Manesar”. Apart from customers who buy apartments for their 

own residence, there are a large number of customers who buy residential apartments 

as an investment for value appreciation and renting in the meantime. Apartments in 

the residential sectors from the point of view of investment are compared on the 

basis of the likely value appreciation and not necessarily on account of factors 

which a customer may look for in a luxury apartment for his own personal use. 

As such, an apartment in different locations and segment may compete with each 

other, keeping in view the likely appreciation in value and all such apartments 

would fall in the same segment keeping in view the competitive aspects relating to 

price appreciation. 

5.31 DG has done exhaustive assessment of dominance with reference to explanation 

(a) to Section 4 of the Act. The DG in his report has assessed dominance of the OP-1 

along the lines indicated in Section 19(4) of the Act. The assessment of DG is 

summarised as under; 

Market share of the enterprise 

5.31.1 DG has submitted that as per the annual reports of OP-1, it has a number of 

subsidiaries on which it exercises complete control out of which DLF Home 

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Developers Limited and DLF New Gurgaon Home Developers Private Limited are 

prominent ones which are engaged in the business of residential real estate 

development. OP-1 is having 82.72 per cent ownership in M/s DLF Home Developers 

Limited and 100 per cent ownership in M/s DLF New Gurgaon Home Developers 

Private Limited as per annual report of OP-1 for the year ending 2009. Under the 

description -subsidiary companies /partnerships firms under control of OP-1, names 

of DLF Home Developers Limited and M/s DLF New Gurgaon Home Developer 

Private Limited are also mentioned. DG has analysed the market share of OP-1 in 

the relevant market by taking into account the operations of DLF Home Developers 

Pvt. Ltd. and DLF New Guragaon Home Developers Pvt. Ltd. 

5.31.2 DG has stated that as per Draft Red Herring Prospectus filed before SEBI, 

dated 25 th May, 2007, OP-1 in its own admission has stated that: 

We are the largest real estate development company in India in terms of the area 

of our completed residential and commercial developments. In one of the speeches 

given by K.P.Singh, while he was conferred the degree of doctorate in April 2008, 

he stated, “I am acutely aware that-my company DLF is today regarded as the 

largest real estate developer in the world and has a pan-India presence with over 

50 million square feet under construction….” The Annual Report of the Company 

for the year 2009, states, that “DLF’s dominant position in Indian homes segment 

is established due to its trusted brand with superior execution track record, 

pioneered townships and group housing in India, complete offering of 

super luxury, luxury and mid-income homes, 195 m.s.f. of plots and 21 m.s.f. of 

group housing developed, 290 m.s.f. of development potential, 16 m.s.f. under 

construction. 

5.31.3 DG has stated that OP-1 has pointed out certain studies and reports and has 

submitted reports by Jones Lang Lassalle to establish that its share in terms of 

number of units developed/under active stock is much less compared to other real 

estate player either in Gurgaon or in the entire NCR. However, since market share in 

terms of sales was not provided by OP-1, different sources were tapped in by DG in 

order to ascertain its market share and other companies engaged in real estate 

(residential) business. DG on the basis of report from Centre for Monitoring Indian 

Economy for the month of April 2010 has brought out that the market share of OP-1 

together with its subsidiary company-DLF Home Developers Limited is the highest 

in India among all the listed companies engaged in housing construction during 

the year 2007-08 and 2008-09. In the year 2007-08, it reached 40.46 per cent and in 

the year 2008-09, it was 32.65 per cent. 

5.31.4 DG has also brought out that in the data of CMIE, sales of DLF New Gurgaon 

Developers Limited to the extent of Rs. 300.24 crore for the year 2008-09 have not 

been considered. If that is also taken into account, the market share of OP-1 would 

go up further. DG has also brought out that the market share calculated on the basis 

of data from CMIE applies to all companies operating all over India and the data of 

CMIE establishes that OP-1 has the highest share (considerably higher than the 

nearest competitor) among all the housing construction companies in India. 

5.31.5 DG in his report has also brought out that the market share of the OP-1 among 

all companies (for housing construction) in the relevant market of Gurgaon during 

the period 2007-08 and 2008-09 shall be around 70 per cent and 65 per cent, 

respectively. DG has stated that even a margin of 5 per cent-10 per cent is given on 

account of other players, data and sampling error, the market share of OP-1 among 

the companies operating in Gurgaon exceeds 55 per cent. 


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5.31.6 DG has also stated that an analysis of total sales figure of 82 companies taken 

from CMIE, who are engaged in real estate (residential) business and are not only 

operating in Gurgaon but also outside Gurgaon and all over India, also establish 

the superior market share of OP-1 at about 44 per cent. For the year 2009-10 also, DG 

has shown the market share of OP-1 in relevant market to be about 50 per cent. 

5.31.7 DG based on details of sales, operating profit, PAT, Market capitalisation, 

enterprise value, of a larger sample of different real estate players taken and 

analysed in Outlook profit (issue dated October 2010) has also stated that OP-1 is 

a market leader in India in almost all respect also in quarter ending June 2010. DG 

has shown that the share of the second large real estate company is almost one-third 

of OP-1. DG has also brought out that as far as companies operating in Gurgaon 

are concerned on the basis of their all India sales during Quarter ending June 

2010, market share of OP-1 is about 45 per cent as compared to second largest 

company, i.e. Unitech, about 19 per cent. If sales figure only for relevant market of 

Gurgaon is taken (such figures are not available in public domain), the market 

share of OP-1 may be much more than the above figures since it is mainly 

concentrated in Guragon. 

5.31.8 DG has stated that figures from different sources have been taken since OP-1 

on its own did not give any figure in terms of sales as regards its market share even 

though specifically asked. 

5.31.9 As regards market share, DG has finally concluded that it is having the 

highest market share among all the companies operating in the relevant market over 

a period of three years 2007-08, 2008-09, 2009-10 and also for the quarter ending 

June 2010, which establishes that its position as market leader remains undisputed 

over last three-four years. DG has stated that it cannot be said that any other player 

enjoys similar or near to similar market share than that of OP-1. In their annual 

reports and various literature, OP-1 have stated that Unitech is one of their close 

competitors, however, market share of OP-1 is more than double of the market share 

of Unitech its nearest competitor as on date. 

5.31.10 DG has stated that OP-1 in their submissions have stated that the relevant 

market may not be limited to Gurgaon in the case. If the scope of relevant geographic 

market is also widened and is taken to include the areas other than Gurgaon as well 

and even all over India, the market share of OP-1 in relevant product market far 

exceeds its rivals and may not be in any case less than 32 per cent-40 per cent as per 

reports of CMIE and other reported figures illustrated above. 

5.31.11 Citing case laws from other jurisdictions like EU, DG has stated since OP-1 

has market share twice that of the largest competitor, i.e. Unitech, it may be considered 

dominant. It has also been stated by DG that in case where the market is fragmented, 

even market share between 25 and 40 per cent has been considered to be sufficient 

for establishing dominance in jurisdictions like EU. DG has brought out that the 

market share of the nearest competitor is much less than OP-1, and therefore, there is 

limited competitive constraint. In totality, it can be said that market share of OP-1 as 

determined is indicative of its dominance in the relevant market. 

5.32 DG has further submitted that market share analysis is “static” and is not 

suited for application to dynamically competitive markets and that market shares 

by themselves may not be conclusive evidence of dominance and therefore, not a 

proper substitute for a comprehensive examination of market conditions. Thus, along 

with market share, analysis of other factors mentioned in Section 19(4) has also 

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been carried out by him to establish dominance. The findings of DG on other factors 

are summarised as under. 

Size and resources of the enterprise 

5.33 DG has done analysis of about 118 companies based upon CMIE data base in 

real estate sectors in India to show that OP-1 together with its group concerns is 

having superior fixed assets and capital employed as compared to other players in 

the market and it has a sizable presence across several key cities (Delhi NCR, Mumbai, 

Bangalore, Chennai, Kolkata, Chandigarh, etc.) and clear market leadership position 

in commercial, retail, and lifestyle/premium apartments. Out of 118 companies 

analysed based upon CMIE reports, DG has found that OP-1 has about 69 per cent 

of gross fixed assets and 45 per cent of capital employed which shows its size and 

resources are far greater than other real estate concerns. 

5.33.1 DG has also stated that OP-1 has huge resources at their disposal. As part of 

their business expansion strategy, they have also diversifed into other real estate 

related businesses such as the development of SEZs, the development of super luxury, 

business and budget hotels as well as service apartments. DG has pointed out that 

OP-1 has more than 13,000 acres of prime land. As per draft herring prospectus filed 

by OP-1 Limited in the year 2007, the group had the total land bank of 10,225 acres, 

out of which Gurgaon has 49 per cent, which was a big concentration in one city. 

5.33.2 OP-1 as per its own projections are developing projects throughout India, 

which will involve the development of plot, residential, commercial and retail 

developed area of approximately 46 million square feet, 377 million square feet, 

88 million square feet and 56 million square feet, respectively, totalling over 

574 million square feet. It has taken up two big real estate projects in Mumbai recently. 

It has also entered into a joint venture with Hilton, a leading US-headquartered 

global hospitality company, to set up a chain of hotels and serviced apartments in 

India. It is proposing to set up 20,000 business hotel rooms in the next five years in 

partnership with Hilton. OP-1 had also engaged itself in the buy-out of Aman Resorts 

business. 

5.33.3 DG has also brought out that in one of the presentations, OP-1 has stated that 

it is India’s largest real estate company in terms of Revenues, earnings, market 

capitalisation and developable area with a 62-year track record of sustained growth, 

customer satisfaction and innovation. 

5.33.4 On the basis of the above details, DG has stated that OP-1 is the biggest real 

estate player in terms of its size and resources. The report of DG brings out that the 

quarter ending March 2010 has seen an increase of 202.6 per cent of income and 

1308.2 per cent of sales of OP-1 further boosting their position. 

5.33.5 DG has also pointed out following to bring out that OP-1 is far ahead than 

other players in the market as far as size and resources is concerned: 

(a) In the list of Forbes published in the year 2010, OP-1 is the only real estate 

company that appears in the global 2000 occupying a significant position of 923. 

(b) Further, its promoter KP Singh has been ranked 5 th in India’s Top 10 billionaires 

in the year 2008, 6 th in the year 2009 and 8 th in the year 2010, above Sunil Mittal 

of Airtel and Kumar Birla. There is no developer from the real estate sector who 

is in top 10. Mr. Singh’s net worth is estimated to be $9.2 billion against 

Mr. Ramesh Chandra, promoter of Unitech, the nearest competitor, whose 

networth has been estimated at $1.86 Billion. 


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(c) Further, among 100 companies ranked by Business Today in May 2009, OP-1 

was positioned at 14 th position during the year 2008-09 (in 2007-08 the position 

was 15 th ) as far as overall visibility is concerned. There was no real estate 

company in the list. 

Size and importance of the competitors 

5.34 DG has also established that OP-1 is having clear edge over the competitors as 

far as market shares, size and resources are concerned. In terms of Income and Profit 

after Tax, also DLF has distinct advantage over other real estate players. DG after 

analysing Net Income and PAT of 113 companies for 2008-09 has shown that OP-1 

has about 41 per cent share as far as net income is concerned and about 78 per cent 

as far as PAT is concerned. 

5.34.1 After taking into account, figures of market capitalisation of Top 100 companies, 

taken as on 17 th September, 2010 from rediff.com of Top 100 companies in India, DG 

has shown that while OP-1 with market capitalisation of 59,782.43 crore holds 

23 rd position, Unitech holds 68 th position with market capitalisation of 22,106.70 crore, 

way behind OP-1. There is no other real sector company that appears in the list. 

In April 2009 also, OP-1 stood at 24 th rank in terms of market capitalisation. At that 

point of time Unitech Limited was positioned at 92 nd position. DG has also brought 

out following to establish that OP-1 is far ahead than the competitors in size and 

resources; 

(a) OP-1 is the only company in India in the real estate sector to have been awarded 

“Superbrand” ranking. 

(b) If position of OP-1 is compared with that of Unitech, its nearest competitor, it 

has been found by DG that OP-1 emerges as clear front runner in terms of sales, 

Net Income, PAT, Gross Fixed Assets and Capital Employed. 

(c) Similarly, OP-1 also emerges leader when financial position of other big players 

like Emmar, Parshvnath and Omaxe group are compared. 

Economic power of the enterprise including commercial advantages over 

competitors 

5.34.2 DG has established that OP-1 has gigantic asset base as compared to its 

competitors. Further, it also has enormous cash profits and Net profit as compared 

to its competitors. The position of Cash profits and Networth (figures taken from 

CMIE) shows that OP-1 is far ahead on these accounts also as compared to its 

competitors. Based on a comparison of cash profits and net profit of 128 companies, 

it has been established by DG that OP-1 has 78 per cent and 63 per cent share, 

respectively. Huge cash profits and networth of OP-1 is giving them tremendous 

economic power over their rivals. 

5.34.3 DG has stated that OP-1 is active in the market since 1946 and has also the 

distinction of developing 3,000 acre integrated township in Gurgaon. In 2009, it 

bagged a 350-acre plot for Rs. 1,750 crore in Haryana for developing a recreation 

and leisure project. It has vast Land bank and familiarity with the area which gives 

it distinct advantage. The Annual Reports of OP-1 for the year 2009 also states that, 

it is a having a dominant position in Indian offices segment too, “due to the fact that 

it is founder and pioneer of Grade A office leasing market, it has locational advantages 

and deep customer relationships having occupancy levels of 98 per cent, more than 

two-third of client base belonging to Fortune 500 list.......”. 

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5.34.4 It has been pointed out by DG that going by size of OP-1 and its scale of 

operations, Unitech may be the only comparable player. However, not only Unitech 

lags behind sales, assets, market capitalisation, income, profit and overall market 

share but in other aspects also. Further, it has higher visibility in metro cities, than 

Unitech. The presence of OP-1 in prime locations in New Delhi and Mumbai 

(NTC mill land) also suggests the high quality of its land bank. 

(iv) Based upon analysis- reports of Motilal Oswal, it has been stated by DG that 

OP-1 has a presence in 32 cities in India. Further, OP-1 has the richest quality 

landbank, with almost 45 per cent of landbank in Tier I cities and it has a clear 

market leadership position in commercial, retail, and lifestyle/premium 

apartments. 

5.34.5 It has also been pointed out by DG that OP-1 has significant gross asset value 

as per reports of Molitlal Oswal in Gurgaon in 2007 and has advantage over other 

players as far as land cost outstanding as per cent of market capitalisation, Land 

cost outstanding as per cent of net profit is concerned. 

5.34.6 It has further been pointed out by DG that in terms of execution, OP-1 is better 

positioned, due to vast experience in the industry, larger area developed till date and 

joint ventures with strategic partners. The JV with Laing O’Rourke (one of Europe’s 

largest construction company) provides access to one of the best technology, processes 

and engineering skills. OP-1 has also undertaken joint ventures and partnerships 

with WSP Group to provide engineering and design consultancy and project 

management services for real estate plans of DLF, Acquisition of stake in Feedback 

Ventures to provide consulting, engineering, project management and development 

services for infrastructure projects in India, MoU with Nakheel to develop real estate 

projects in India through a 50:50 JV company, Joint venture with Prudential Insurance 

to undertake life insurance business in India, Joint venture with MG Group to enter 

into a 50:50 joint venture with MG group for real estate development, joint venture 

with HSIIDC for developing two SEZ projects, Memorandum of Co-operation with 

Fraport AG Frankfurt Airport Services to establish DLF Fraport SPV which would 

focus on development and management of certain airport projects in India. 

5.34.6 DG has concluded that all these above establish that OP-1 has distinct economic 

advantage to it as compared to its competitors. The analysis of financials of OP-1 over 

different parameters clearly bring out that it is enjoying a position of market leader. 

Vertical integration of the enterprises or sale or service network of such enterprise 

5.35 It has been stated by DG that OP-1 has developed 22 urban colonies, and its 

development projects span over 32 cities. It has about 300 subsidiaries engaged in 

real estate business. Thus, it has a vast network through which it can do business 

effectively. According to DG, since OP-1 has large land bank, it is capable of carry 

out construction without depending upon the requirement of acquiring land. 

Moreover, the land was also acquired long back, unlike its competitors; the land 

was acquired by it quite a low cost. Its wide sales network act as a relevant factor 

conferring upon commercial advantage over its rivals. 

Dependence of consumers on the enterprise 

5.36 DG has submitted that although there are other real estate developers also in 

Gurgaon, since OP-1 has acquired land quite early and has developed integrated 

township in Gurgaon, there is an advantage and if consumers want to have all the 


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developed facilities within the DLF Township, they will have to opt for residential 

units developed and constructed in Gurgaon. Further, there is superlative brand 

power of OP-1 which affects consumers in its favour. 

Entry barriers including barriers such as regulatory barriers, financial risk, high 

capital cost of entry, marketing entry barriers, technical entry barriers, 

economies of scale, high cost of substitutable goods or service for consumers 

5.37 DG has pointed out that entry barriers exist in the sector in the form of high cost 

of land, established brand value of DLF and the fact that DLF has been in this 

business since 1946 unlike other players who have commenced business in Gurgaon 

recently. DG has also stated that DLF has developed economies of scale as in their 

own admissions in their prospectus filed before SEBI, they have stated: 

Our size allows us to benefit from economies of scale. We are able to purchase 

large plots of land from multiple sellers, thus enabling us to aggregate land at 

lower prices. We believe that we enjoy greater credibility with sellers of land as 

well as buyers of our properties as a result of our reputation and our scale of 

operations. We are able to undertake large scale projects in multiple phases, 

which provides us with the opportunity to monitor market acceptance and modify 

our projects in accordance with customer needs. We are able to integrate our 

residential, commercial and retail capabilities, allowing us to achieve greater 

value for our projects, as demonstrated by DLF City. The large scale of our 

developments within a business line creates demand for our other business lines. 

Additionally, we are able to use our bulk purchasing capabilities for the 

acquisition of raw materials such as cement and steel, the use of better construction 

technology such as pre-casting, as well as high cost equipment such as shuttering 

machines and tower cranes. Further, the extent and quality of our assets enable 

us to finance the active acquisition of land, adjust the scale of our projects and 

provide us with the flexibility of retaining rather than selling our developments 

in the event of an economic downturn. We were one of the first developers to 

anticipate the need for townships on the outskirts of fast growing cities and are 

generally credited with the growth of Gurgaon. We were one of the early 

developers to focus on theme-based projects such as The Magnolias development 

in DLF City, which includes a golf course. We are one of the few developers in 

India to provide commercial space with floor plates of over 1,00,000 square feet. 

We were an early developer of large shopping malls with integrated entertainment 

facilities. We continually offer our customers new designs and concepts. For 

example, in some of our super luxury developments, we allow purchasers to 

customize the layout of their new homes. Our developments typically integrate 

construction and safety standards which exceed nationally prescribed minimum 

levels and we provide management services for properties in all our business lines. 

5.37.1 According to DG, the above shows that OP-1 is having economies of scale 

which cannot be matched by its competitors. The sheer size of operations gives OP-1 

the advantage of economies of scale, right from raw material sourcing to higher 

utilisation of assets. This is evidenced by its ratio of Profit Before Depreciation, 

Interest and Taxes (PBDIT) over Income of about 76 per cent and Profit After Tax 

(PAT) over income of 25 per cent. OP-1 has the highest ratio of Profit Before Interest 

and Taxes (PBIT) over income among the top real estate developers of India, far 

ahead of Unitech its nearest rival. DG quoting from the judgments from EU has 

stated that particular barriers to competitors entering the market are..... economies of 

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scale from which newcomers to the market cannot derive any immediate benefit. 

OP-1 is also having the benefit of prior entry and access to bigger capital which 

makes its position quite formidable. Further, OP-1 has an experienced, highly 

qualified and dedicated management team, many of whom have over 20 years of 

experience in their respective fields. Because of their established brand name and 

reputation for project execution, they have been able to recruit high caliber 

management and employees. 

Countervailing buying power 

5.38 DG has further stated that there is a huge housing shortage and buyers cannot 

influence the business decisions of OP-1 since the residential units are in shortage. 

The consumers are dependent on OP-1 in Guragon because of its huge land reserves 

and projects under construction. The demand is huge while the supply is less. Thus, 

there is no case of countervailing buyer power in this case which has any sobering 

impact upon the dominance and market power of OP-1. 

Social obligations and Social costs 

5.39 DG has submitted that in case of developing buildings by private developers, 

the motive is profit making moreso in the case of high end builders like OP-1 which 

is providing housing for richer segment of the society. Thus, there is no social 

obligation and social costs cast upon OP-1 which will justify its conduct of abuse, if 

any, arising out of its position of being market leader. 

Relative advantage, by way of the contribution to the economic development, by 

the enterprise enjoying a dominant position having or likely to have an 

appreciable adverse effect on competition 

5.40 Finally, DG has also brought out that the advantageous position of OP-1 in 

terms of commercial advantage may be traced back to its operations which go back 

to the year 1946. Founded in 1946, OP-1 has developed some of the first residential 

colonies in Delhi such as Krishna Nagar in East Delhi that was completed as early 

as in 1949. Since, inception, the company has developed about 224 m sq ft, including 

22 urban colonies as well as an integrated 3,000 acre township in Gurgaon by the 

name of DLF City. This gives the company an edge over its competitors. DLF Group 

over the years, as above, has acquired the status of India’s largest real estate company 

in terms of Revenues, earnings, market capitalisation and developable area. The web 

site of OP-1 also displays the fact that it is the largest real estate player. It is significant 

that the promoters of OP-1-KP Singh and his family stood at the 9 th position in an 

analysis done by Business World (Super Rich 2010 of India) behind just only Tatas, 

Ambanis, Aziz Premji, Sterlite group, Sunil Mittal group, Jindals and Adanis. The 

worth of promoters was Rs. 41,232.07 crore as on March 2010. 

5.41 Based upon above analysis of factors mentioned in Section 19(4) of the Act, DG 

has stated that OP-1 is not only enjoying the highest market share, but also is enjoying 

clear advantage over other players as far as size and resources and economic power 

is concerned. Its economies of scale, resources, and the fact of it being in business 

since last 60 years in the relevant market is also giving it a distinct advantage over 

the other players in the market. 

5.42 DG has brought out that dominance in law implies that a firm because of its 

position of economic strength has a high degree of immunity from the normal 


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disciplining forces of rivals’ competitive reactions and consumer behaviour. DG 

has brought out that in Hoffmann-La Roche: 

the Court of justice while defining a position of economic strength, stated, that 

the position of strength or presence of dominance does not preclude any 

competition but enables the undertaking...if not to determine, at least to have an 

appreciable influence on the conditions under which that competition will 

develop, and in any case to act largely in disregard of it so long as such conduct 

does not operate to its detriment. Thus, the argument of OP-1 that there is large 

number of players in the market and therefore, OP-1 cannot enjoy a position of 

dominance does not hold good. 

5.43 Since, OP-1 has developed integrated townships in Gurgaon over huge piece of 

land acquired on early occasion, if the consumers want to have residential units in 

Gurgaon or in the township developed by OP-1, they have to largely be dependent 

upon it, moreso when because of its superior size, resources, market share, it has 

built a brand over the years, which affects the consumers in its favour. OP-1 stands 

at a Position No. 47 in a survey of 100 most valuable Brands of India conducted by 

Indian Council of Market Research and 4Ps (Business and Marketing). There is no 

other real estate player in the list of Top 100 Brands. The value of Brand of OP-1 

makes it capable of affecting the competitors in its favour and due to that OP-1 

stands uniquely positioned to operate independently without having disciplining 

forces of rivals’ competitive reactions. Due to its position of strength, it can operate 

independently of the other players in the relevant market. The consumers would 

also be affected in its favour because of sheer size, sheer resources, its economies of 

scale, its brand value, which is far superior to any other existing real estate developer 

as on date and also due to its superior economic power over its competitors. 

5.44 Summing up his findings on the question of dominance, DG has concluded 

that it is due to its sheer size and resources, market share and economic advantage 

over its competitors that OP-1 is not sufficiently constrained by other players operating 

on the market and has got a significant position of strength by virtue of which it can 

operate independently of competitive forces (restraints) and can also influence 

consumers in its favour in the relevant market in terms of explanation to Section 4 of 

the Act. Based upon all the above factors, DG has concluded that it may be said that 

OP-1 is enjoying a position of dominance in terms of Section 4 of the Act. 

6. Abuse of Dominance 

6.1 The DG has examined the alleged abusive behavior of OP-1 by taking into account 

various allegations mentioned in the information and four representative cases of 

apartment Allottees of the association apart from the cases mentioned in the 

information. 

6.2 DG after examining the allegations in the information has concluded the 

following: 

(A) Commencement of project without Sanction/Approval of the projects 

(i) DG has stated that it is a fact that OP-1 announced a Group Housing 

Complex, named as “The Belaire” to be constructed on the land earmarked 

in Zone 8, Phase-V in DLF City, Gurgaon, Haryana. Certain customers 

booked an apartment unit in Belaire by paying initial amount of 

Rs. 20,00,000 in August-November 2006. However, application for 

approval of building plans was submitted only in December 2006 by 

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OP-1. Against the application dated 20 th December, 2006 and subsequent 

letter dated 3 rd April, 2007 of OP-1, Director, Town and Country Planning, 

Government of Haryana accorded approval for the project only in 

April 2007 vide letter dated 18 th April, 2007. 

(ii) Permission was granted for the construction of the project - subject to the 

provisions of Punjab Scheduled Roads and Controlled Areas Restriction 

of Unregulated Development Act, 1963 with certain other stipulations. 

From the details of approvals and building plans dated 30 th November, 2006, 

it is noted that while in each of the Blocks A to C, total number of floors were 

to be 19, in Blocks D to E, the number of floors were to be 18 each. Total 

number of apartments to be built therein was to be 368. The Allotment 

letters were issued in the year 2006 and apartment buyers’ agreements 

were signed even before the approval for the plan was accorded by 

Town Planner. 

(iii) The Apartment Buyer’s agreements were signed much after the allotment 

letter and before that amounts were collected from the Allottees. In the 

application for allotment which was made in the year 2006 in the above 

cases also it was mentioned that, “I/we are making this application 

with the full knowledge that the building plan for the building in which 

the apartment applied for is located are not yet sanctioned by the 

Competent Authority.” 

Thus, the apartment buyers agreement also bring out that even hen the 

agreements were executed the approvals were not in place. Page 3 of the 

Representations “B” and “C” shows that OP-1 neither on the date of 

announcing the Scheme “The Belaire”, nor while executing the Apartment 

Buyer’s Agreement had approved Layout Plan of Phase-V by the Director, 

Town & Country Planning, Haryana, Chandigarh. 

(iv) Clearance from Airport Authority of India for the original project was 

also given only on 31 st January, 2007 for the project. 

(v) Based upon above, DG has concluded that there is no dispute on this 

score that the applications for allotment were invited, agreements were 

signed and considerable amount of consideration was collected even 

when the plans were not approved by the Competent Authority and 

clearances were not obtained from other authorities. In October 2007, 

OP-1 intimated to the Allottees that there was delay in approvals and 

that even the construction could not take off in time. By that time, the 

buyers had already paid almost one-third of the total consideration. DG 

has concluded that facts on record also reveal that a revised plan was 

submitted vide letter dated 30 th December, 2008 enhancing the number of 

floors from 19 to 29 and number of apartments from 368 to 544. The revised 

plan for 29 th floor was approved only on 6 th August, 2009. 

(vi) Thus, DG has established that before the approval was obtained, DLF 

had already commenced the structural work for all 29 th floors. According 

to DG, it is a moot question when the Competent Authority had clearly in 

sanction letter dated 18 th April, 2007 stipulated that any further 

construction without approval or deviation would not be permissible 

and that sanction will be void ab-initio, if any of the condition mentioned 

in the sanction letter were not complied with, how OP-1 proceeded with 

the construction of 29 th floor. Further, it is also noted that OP-1 had started 


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construction activities as early in December 2006 and they also 

intimated the Allottees about the same as is clear from the letter dated 

26 th December, 2006 issued to Amit Jain, one of the Allottees. However, 

the approval even for 19 floors (initial approval) was accorded only on 

18 th of April 2007. 

(B) Increase in number of floors mid-way 

(i) DG has brought out that it is not disputed that the originally the project 

was conceived with 19 floors. This is clear from the red herring prosecutes 

of May 2007, filed with the SEBI which states: 

The Belaire is expected to be completed in fiscal 2010 and consisting of 

364 residential units with approximately 1.3 million square feet of saleable 

space in five blocks of 19 to 20 floors each. 

It was revised mid-way and the consumers were not told about this till 

October-December 2007 and when this issue was raised, only a hint of 

possible increase in floors was given as is clear from the correspondence 

with Akhil Sambhar, one of the Allottees. It could be because the approval 

from Airport authority was obtained on 21 st January, 2009 and revised 

plan for 29 th floor was approved only on 6 th August, 2009 by the Competent 

Authority. 

(ii) According to DG, the consumers who had applied in the year 2006 

thinking that the project is of 19 floors were told in October 2007 that the 

project was being revised, even when the application for approval was 

moved in December 2008 and the approval for the revised plan was 

given in August 2009. 

(C) Issue of Floor Area Ratio and Density Per Acre 

(i) DG has also submitted that while booking the apartment units, the 

Allottees were not told about the fact that there will be revision in the 

number of floors from 19 to 29. This has the effect of increasing the FAR 

and density of population occupying the apartments. While the number 

of floors has increased, the area remains the same. It is not that new 

floors are being constructed on additional space. In fact the number of 

floors has gone up from 19 to 29 utilising the same area space. The 

increase in floors certainly acts against the interest of the Applicants- 

Allottees since the Allottees will now have to contend with additional 

floors than what they might have thought while making applications for 

allotment. According to DG, once there has been change in density per 

acre and FAR, the buildings complex is bound to suffer from some other 

infirmities in terms of structural strength, other amenities, facilities 

including common area than conceived originally. 

(D) Time Schedule for completion and possession 

(i) According to DG, it is an admitted position of OP-1 that there has been 

delay in construction. As per apartment Buyers agreement, the construction 

was contemplated to be completed within three years of the agreement. 

The word “contemplation” leaves wide scope for the deliveries. However, 

from the letter dated 22 nd October, 2007 to the Allottees it had been confirmed 

that the deliveries will be affected within the stipulated time. The letter 

gives impression that the brickwork would be completed by 15 th of May 2009 

and the rest of the work would be completed very soon thereafter. In letter 

dated 19 th February, 2007 to Mr. Pankaj Mohindroo, one of the Allottees it 

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was mentioned that the project was to be completed within 3 years of the 

date of agreement. A letter written to RKG Hospitalities Limited, one of the 

allotees, on 7 th July, 2009 by OP-1 states that the date of delivery has been 

indicated as March 2010. However, on 24 th November, 2009 OP-1 wrote a 

letter to Mr. Sanjay Bhasin, President of the informant association 

intimating that the final possession will be given in first quarter of 2011 

Further, in September 2010 advertisement have come in newspapers 

stated that possession would be given in 12 months and one can still book 

an apartment in the scheme. Thus, expected possession is by 

September-October 2011 now. This shows that the project have been delayed 

badly. According to DG, the whole sequence of events gives an impression 

of misrepresentation. 

(E) Forfeiture of Amounts 

(i) DG has noted that the Allottees of the Belaire project raised several issues 

with OP-1 and there were exchange of letters and finally during the year 

2009-2010, allotments in case of certain Allotees stand cancelled after 

forfeiting amounts on account of Earnest Money, Brokerage charges and 

delayed payments. The project was conceived for 19 floors and now a 

project of 29 floor is put in place. When the Allottees raised issues seeking 

clarifications, OP-1 kept on reminding them of the Clauses of the 

agreement, asking them to pay the installments and finally cancelled the 

allotment of the apartments. At the time of cancellation, huge amounts 

which were paid by the Allottees all through have been forfeited as has 

been brought out above. In turn, OP-1 has gained; once by forfeiting 

keeping the amount of earnest money, by charging interest on delayed 

payments and brokerage, etc. For example, in case of Mr. Amit Jain, an 

amount of about Rs. 50 lac has been forfeited out of his total payment of 

Rs. 95 lac. Thus, while Allottees have lost money and paid for interest 

and brokerage, OP-1 has gained. 

6.3 DG has also stated that OP-1 has taken shelter of the agreements executed with 

the allotees, terms and conditions of which are loaded heavily in favour of OP-1 and 

by virtue of which it has been able to impose unfair conditions by abusing its 

dominant position. These agreements, according to DG, are unfair on many counts 

as under: 

(i) After analysing Representation J and Representation K of the agreement, 

DG has submitted that through the above Clauses the right of the 

apartment Allottee to carry out any investigation regarding legality of 

land, construction, etc. has been taken away. The Allottee is not even 

entitled to raise any objection to the competency of OP-1 and documents 

relating to its title and the representation. 

(ii) The representation E of the agreement gives entire discretion to OP-1 to 

change the zoning plans, usage patterns, etc. Thus, the Allottees will not 

come to know about the plans till OP-1 chooses to inform the Allottees 

about the same. 

(iii) Representation F gives OP-1 rights to reduce the land unilaterally 

pursuant to the approval/sanction of the Layout Plan. 

(iv) Based on analysis of Clause 1.1, 1.5, 1.6, 1.7 of the agreement, DG has 

concluded that the consumers are not made known the final carpet area, 

built-up area and super area of the apartment units and final price which 


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he is expected to pay which gives rise to complete information asymmetry. 

As regards, payment of Preferential Location Charges, the Allottees are 

completely dependent upon OP-1. In case, there is change in location, 

the PLC would be refunded/adjusted but only at the time of last 

installment. No interest is payable by OP-1 on such refund of PLC even 

when the money will be utilised by the company. These Clauses also give 

OP-1 sole discretion to alter the structure. 

(v) Clause 3 and Clause 4 of the agreement have given enough discretion to 

OP-1 to retain earnest money in case a person wants to come out of the 

agreement. Thus, the agreement provides for a costly exit option. 

(vi) DG has noted from Clause 9.1 of the agreement that even the payment 

plans, alterations, are subject to change at the sole option and discretion 

of OP-1 and apartment Allottee would have no say on this. Under 

Clause 9.2, no right has been given to the Applicants-Allottees to raise 

any objection towards alterations/modifications. 

(vii) DG has concluded that there is no firm commitment for handing over 

possession of apartment since the Clause 10.1 only mentions that OP-1 

contemplates to complete construction of the said Building/said 

apartment within a period of three years from the date of execution of 

this agreement. This has given OP-1 ample scope to modify the time 

schedule in accordance with its own discretion and this is the reason 

that the project has got delayed considerably. 

(viii) DG has noted that through Clause 11.3 the consumer has been deprived 

the right of claiming any refund of his amount. Rather OP-1 reserves all 

the rights and only after the property is sold that the allotees are expected 

to get their money back. This makes the agreement completely in favour 

of OP-1. Further, under Clause 20 of the agreement, OP-1 is free to make 

any alterations in buildings even when the apartment Allottees might 

object and under Clause 22 of the agreement, absolute right has been to 

OP-1 to make any addition or alteration not making clear as to what 

extent such addition or alteration can be made. A person seeking an 

allotment, therefore, is not aware as to what kind of structure finally is 

going to be there in place finally at the site. 

(ix) Clause 23 and 24 provides for right of OP-1 to raise finance and agreement 

subordinate to mortgage by it. These Clauses are unfair to the extent that 

even if the entire payment is made by the consumers they are subject to 

mortgages at the will of the company for the finances raised by it for its 

own purpose. Further, under Clause 32 of the agreement OP-1 has 

reserved for itself all the right to correct, modify, amend or change all the 

annexure attached to the agreement at its sole discretion. 

(x) DG has submitted that along with favourable Clause in respect of delivery, 

OP-1 has covered delay on account of conditions like inability to procure 

labour, equipment, facilities, materials or supplies also under the force 

majeure Clause under Clause 11.3 so that the delays in deliveries may be 

adequately covered taking these pleas. 

(xi) DG has stated that while agreement was executed, there was an 

apprehension that there could be delay (or even abandonment of the 

project) on account of some adverse order by the Government (since there 

was no approval for construction of higher floor although was already 

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under consideration of the company), and therefore, OP-1 has covered 

itself adequately through Clause 11.2 of the agreement which shifts all 

the liability on the consumer as if it was their fault if the approval from 

the Government are not received. DG has stated that if this Clause is read 

with the other Clauses of the agreement, it gives an impression that fully 

aware of the fact that there was no approval from the Competent 

Authority, the scheme was launched, the money was collected toward 

services of developing and selling an apartment unit and in eventuality 

of not getting approval shifting the entire burden on to the consumer to 

the extent of utilising their money for fighting cases in the Court. 

(xii) According to DG, in case there is a delay, the agreement is again heavily 

loaded in favour of OP-1. While as per Clause 11.4 the liability is limited 

to payment of compensation @ Rs. 5 per sq.ft. of the super area per month 

for the period of delay beyond three years; the apartment Allottee have 

been subjected to payment of interest @ 15 per cent per annum for the 

first 90 days and additional penal interest @ 3 per cent per annum for a 

period exceeding 90 days as per Clause 35 of the agreement. The interest 

chargeable to the Allottees in case of delay in making payments is much 

more than delay on account of construction and handing over the 

possession to the Allottees. Since, OP-1 has covered itself on many 

accounts to save itself from liability in case of delay on delivery, there are 

possibilities of not paying anything to the consumer, while in case of 

delay in making payment by the consumer there is no escape from making 

payment of 18 per cent interest per annum. 

(xiii) DG has further brought out that the dispute resolution by arbitration as 

per Clause 51 of the agreement shows that the arbitration proceedings 

are supposed to be held within DLF city and even employees or advocate 

of OP-1 can be Arbitrator to which the Allottees would not have any 

disagreement at a later stage and all decisions of such Arbitrator decision 

shall be final and binding upon the Parties. 

6.4 DG has concluded that the unfair conditions as mentioned above have been 

imposed on account of the market power/dominance which OP-1 enjoys in the 

market. As per scheme of the Competition Act, 2002, once determination of dominance 

in relevant market is done, then the acts mentioned in Section 4(2) are to be looked 

into. In case, the enterprises are found to be acting in violations of the acts mentioned 

in Section 4(2), the abuse of dominance is established. According to DG, here, the 

actions are to be proved and not that the actions also caused AAEC, since once 

violations mentioned in Section 4 are established; the abuse is also established not 

requiring further determination of AAEC (appreciable adverse effect on competition) 

in the market. 

6.5 DG has concluded that OP-1 in exercise of its market power and dominance has 

imposed unfair conditions of sale on consumers in violation of Section 4(2)(a) of the Act. 

6.6 DG based upon analysis of the factors as mentioned in Section 19(4) of the Act has 

stated that in addition to large market share, significant size and resources and 

superlative high economic power in the relevant market, OP-1 in the case has also 

derived market power from imperfect or asymmetric information. Relying upon the 

judgment in the case of Kodak, DG has concluded that market power can also arise 

from information that is imperfect or overly complicated which may change the choices 

that would be offered to consumers by way of functioning of the free market competition. 


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6.7 According to DG, the covert promise of handing over possession within a given 

time acted as barriers to the customers to go to any other developer given the brand 

name and brand value of OP-1. A costly exit scheme as in this case restricted 

competition in the market since the customers could not opt to exit for some other 

schemes looking at the costly proposition, it involved. Switching costs in the case 

have also created a barrier for consumers to act efficiently since in case the consumers 

wanted to exit from the scheme of OP-1, the fear of forfeiture of huge amounts already 

paid have acted as significant barriers, impacting the overall competition in the 

market. Further, the misdeclaration about the project not only affected consumers in 

the favour of the project and OP-1 but also acted as impediment towards free and 

fair competition; because many consumers who might have opted for other projects 

ultimately opted for booking in “Belaire”. 

6.8 DG has submitted that if the consumers regard a branded product as unqiue; it 

is likely that they will not shift to other products. This explains the behaviour of the 

Applicants in this case in opting for OP-1 as “brand”. Even if other players in the 

market are and were present, OP-1 as brand had great impacting influence on the 

Applicants-Allottees in the case. As regards question of relatively low barriers and 

ease of entry in the market raised by OP-1, DG has stated that even in markets with 

little entry barriers; sometimes irrational factors do dissuade entry. This is so because 

a potential entrant will prefer to secure gains, on its existing market, rather than to 

enter a new market, where gains may be potentially higher, but unknown and 

irregular. 

6.9 The DG has submitted that the exploitation of dominance and market power by 

OP-1 could be because of asymmetry in the information available not only for the 

buyers but also for the sellers in the relevant market. OP-1 has more information 

than other sellers giving it an edge and significant market power in the relevant 

market because of the historical factors and due to the fact that it has been in this 

market for decades. 

6.10 According to DG, pricing of the apartment, charges for preferential location, 

other charges hidden in the agreement are not easily discernable. Thus, by making 

pricing strategies complicated and by making the deliverables unknown beforehand, 

OP-1 may be said to have engaged in shrouding practices creating a bias in its 

favour. 

6.11 DG has brought out that to make markets work well, consumers must be able to 

assess, access and act on information. Simply providing more information (as OP-1 

has argued in course of proceedings that the agreements have been made so elaborate 

and the Applicants should have known about all Clauses beforehand) may not be a 

good solution when consumers have problems assessing and interpreting such 

information. 

6.12 According to DG, markets work well when there are efficient interface on both 

the demand (consumer) side and the supply (firm) side. On the demand side, informed 

consumers help in inducing competition by rewarding those firms which best satisfy 

their needs. On the supply side, competition provides firms with incentives to deliver 

what consumers want as efficiently as possible. While active and rational consumers 

and vigorous competition work together to deliver consumer benefits, the failure of 

the either side can harm the markets. 

6.13 DG has submitted that if competition among firms is diminished then consumers 

do not get what they want. However, apart from supply side, demand side is also 

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crucial since if consumers are less engaged in the buying process, then there would 

be lesser incentive among firms to deliver better quality products through innovation. 

As a result, overall competition at the market place will be reduced and consequently, 

lesser consumer welfare will be delivered by the market. 

6.14 DG has pointed out that in this case, along with market power and asymmetries 

in information between consumers and firms, behavioural biases have also played 

a role in market failure. According to DG, in order for consumers to drive competition, 

they ideally need to access information about the various offers available in the 

market, assess these offers in a well-reasoned way and act on the information by 

purchasing the good or service that offers the best value to the customer. In this case, 

according to DG, existence of thick apartment buyers’ agreement and complicated 

set of conditions therein, worked as significant barrier in optimal accessing, 

assessing and acting on information causing market failure and giving rise to market 

power to OP-1. 

6.15 According to DG, the key role of search costs in obstructing consumers’ ability 

to access information, and the impact this has on competition, has been shown by 

various scholars like P. Diamond in his famous paradox in which one finds many 

firms charging monopoly prices. Thus, according to DG, the argument that there are 

a number of players in the market and this has prevented OP-1 from exercising any 

market power does not hold good. 

6.16 According to DG, consumer biases had a bearing on behavior of OP-1. In the 

instant case, OP-1 made it difficult for consumers to perform optimal search by 

providing them inadequate information. The pricings conditions mentioned in the 

applications/agreements in the case are complex making it difficult for the consumers 

to perform optimal search impacting competition. According to DG, while OP-1 

made it more difficult for consumers to act to get the best deals, consumers also have 

displayed inertia due to overconfidence in their capacity to assess deals. OP-1 

knowing this inertia, has increased switching costs. 

6.17 DG has stated that the static competition has got affected in the case due to the 

failure of consumers to access, assess, and act on information because of complicated 

sets of agreement set in by OP-1, since such types of inaction provide little constraints 

on firms. Further, reductions in substitutability have the propensity to reduction in 

the intensity of competition resulting into poor delivery, higher prices and little 

choice for the consumers. Along with static competition, it has been stated by the 

DG that dynamic competition has also been affected within the market. One of the 

key benefits of competition is the role it has in ensuring that those firms that provide 

the best value continue in the market, while other perish. This role of competition 

gets considerably reduced when consumers reward only those that best play on 

their biases. The fact of product and process innovation also has got affected since 

OP-1 has not found enough incentive to come out with efficient and innovative 

products to win customers. 

6.18 DG has concluded that in the case of OP-1, not only the market share, size and 

resources of the company, its economic power but also its practices which have 

given it a superlative market power over all its competitors. This has helped it in 

affecting consumers in its favour and act without being restrained or constrained by 

the competitors. Exploitation of consumer biases, asymmetry of information, costly 

exit option, one sided agreement and unfair conditions imposed on the consumers 

affected the consumers as well as competition (both static and dynamic) at the 

market place. 

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6.19 In response to the notice of DG, response from OP-2 and OP-3 was not submitted. 

However, later on when investigation report was submitted, OP-3 (DTCP) submitted 

their response which was forwarded to the Commission by DG separately. The 

response of OP-2 and OP-3 on the allegations filed by the informant is discussed 

later in the Order. 

7. Forwarding of Investigation Report 

7.1 The Commission considered the investigation report submitted by the DG and 

passed an order, dated 2 nd December, 2010 to send a copy of the report to the opposite 

parties for filing their reply/objections. 

7.2 After the submission of investigation report, informants filed another application 

under Section 33 of the Act for interim Orders of the Commission on the following: 

(i) to freeze 20.87 acres of land based upon calculation of FAR and restrain OP-1 

from alienating or utilising the said land for the purpose other than for “the 

Belaire” 

(ii) to constitute an “Overseeing Committee” for supervising the completion of the 

project within a strict time frame 

(iii) to restrain OP-1 from collecting any amount on account of service tax 

(iv) to restrain OP-1 from levying and collecting the parking charges 

(v) to recalculate the consideration amount taking the super area maximum of 

18 per cent. 

7.2 It is pertinent to bring out here that OP-1 had filed an appeal under Section 53B 

of the Act before Competition Appellate Tribunal against the interim Order of the 

Commission dated 20 th September, 2010 in which various issues including the issues 

of jurisdiction were again raised. The Tribunal vide order, dated 17 th February, 2010 

disposed of the appeal by stating that they are not interfering in the matter since the 

matter has been fixed for the final disposal shortly by the Commission. 

7.3 In course of hearings before the Commission, the parties concerned were given 

several opportunities to make oral and written submissions. The parties were 

represented by their advocates. Mr. M.L.Lahoty and Mr. Paban Kumar Sharma 

represented the informant, while Mr. R. Narain along with Ashok Desai represented 

OP-1. Ms. Poonam, ATP (E&P) represented OP-2 while OP-3 was represented by 

Mr. Shivendra Dwivedi and Mr. Rajat Bhardawaj. OP-1 filed their submissions dated 

14 th February, 2011, 4 th March, 2011, 15 th March, 2011, 6 th April, 2011, 7 th April, 2011, 

27 th April, 2011, 12 th May, 2011, 19 th May, 2011, 6 th June, 2011, OP-2 and OP-3 filed 

their submissions on 8 th November, 2011 and 18 th October, 2010 respectively. 

The informant filed written submissions dated 27 th April, 2011, 11 th May, 2011, 

12 th May, 2011, 20 th May, 2011 and 6 th June, 2011. Parties were heard on various 

dates viz. 6 th January, 2011, 17 th February, 2011, 4 th March, 2011, 15 th March, 2011, 

24 th March, 2011, 6 th April, 2011, 7 th April, 2011, 27 th April, 2011, 11 th May, 2011, 

12 th May, 2011, 23 rd May, 2011 and 6 th June, 2011. 

8. Submissions of DLF Limited (OP-1) 

8.1 OP-1 upon receipt of DG’s report initially raised a point that all materials relied 

upon in the report of DG have not been supplied and till inspection of investigation 

records is granted, it may not be in a position to file its objections on the report of DG. 

It was also contended that the investigation report is incomplete in terms of Regulation 

20(4) and Regulation 21(1) of General Regulations of the Commission which 

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stipulate that DG shall submit complete records of investigation to the Commission. 

To this end, a writ petition was also filed in Hon’ble Delhi High Court with a 

request to quash the investigation report and also to issue directions to grant 

inspections. The writ petition was decided by Hon’ble High Court in which plea of 

quashing of investigation report was not allowed although upon the assurance 

given to the Court by the advocates of Commission and DG, directions were given to 

the effect that inspection be granted of the investigation records. Accordingly, OP-I 

on various dates, inspected the investigation records of the DG. 

8.2 The Commission passed an order, dated 9 th February, 2011 on the applications 

dated 6 th January, 2011 and 7 th January, 2011 of OP-1, rejecting its contention that 

since report of DG is incomplete, it cannot be acted upon. While passing this order, 

the Commission took cognisance of the fact that OP-1 had inspected the records of 

the Commission on various dates and also taken copies thereof after paying fees as 

per regulations. 

8.3 OP-1 in its replies on various dates denying all allegations have submitted the 

following contentions, many of which were submitted before the DG and have also 

been brought out in the preceding paras of this order. 

Issue of Jurisdiction 

8.4 That the basic terms and conditions agreed to between the company; and Allottees, 

were set out initially as terms and conditions of the booking application, submitted 

by the Allottes in the year 2006 and subsequently, in the Apartment Buyers’ 

Agreement executed in the year December 2006/2007. All these terms and conditions 

were agreed to, prior to the coming in to force of Section 4 of the Competition Act 

(20 th May, 2009). The said Act is prospective and not retrospective. It cannot be even 

suggested that any condition was “imposed” by the company after 20 th May, 2009, 

so as to attract Section 4 of the Act. Further, prior to 20 th May, 2009, there was no 

legally recognised concept of a company having a “dominant position”. This concept 

is introduced by Section 4 as defined in Explanation (a) thereof. As such, even if a 

company can be said to have a dominant position, such position would only be on 

or after 20 th May, 2009. 

8.5 The conditions included in the agreement are “usual conditions” as per industry 

practice and thus cannot be said to have been imposed by abuse of dominant position. 

Since, the Clauses of the agreement objected to are usual Clauses as per industry 

practice and adopted by other competitors also in their respective agreements to meet 

competition, it is necessary to incorporate such Clauses in order to remain competitive. 

Such agreement is fully protected under the explanation to Sub-section 2(a) of Section 4 

of the Act. 

Determination of Relevant Market 

8.6 As regards, determination of relevant product market and relevant geographic 

market, OP-1 has stated that it has been done by DG on assumptions. The OP-1 has 

stated that alleged relevant market is not confined to purchase for “own residence” 

but also for investment for value appreciation and earning rental. OP-1 has contended 

that while making a decision to purchase residential properties including apartments, 

most purchasers who are “investors” consider different locations for investment 

where they estimate the appreciation in value to be higher and accordingly, the 

customers decide whether they should invest in Delhi or NCR or in any part of NCR 

including Gurgaon, NOIDA, Greater NOIDA, Faridabad, Ghaziabad, etc. DG has 


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ignored that the major consideration for a customer is to consider the alternative 

locations to compare which location would give him best appreciation in value and 

on that basis the location is decided. In this regard to support its contention, OP-1 

has also submitted an affidavit from a broker to buttress its arguments. 

8.7 OP-1 have also re-iterated its submissions before DG that there can be abuse 

within the meaning of provisions of Section 4(2)(a) of the Act only when an enterprise 

or group directly or indirectly imposes, unfair or discriminatory condition in purchase 

or sale of goods or service. It has been contended that the present agreement relates 

to “sale of an apartment” and not for “purchase of service”. It has also been stated 

that no apartment owner can be described as “Consumer” under Section 2(f)(ii) of 

the Act as the present agreement does not relate to hiring or availing of any service. 

8.8 As regards applicability of service tax as mentioned by DG, OP-1 has stated that 

service tax is levied with effect from 1 st July, 2010 on account of deeming provision 

brought out by Finance Act, 2010, and there is no deeming provision in relation to 

“service” under the Competition Act. 

Determination of Dominance 

8.9 OP-1 has stated that for determination of dominance, the term “Enterprise” 

alone is used and the term “group” is irrelevant. Further, mere mention in reports 

that a company is a leading company or that it enjoys a “Dominant Position” does 

not by itself prove that the enterprise enjoys a dominant position in the alleged 

relevant market. 

8.10 OP-1 has further stated that since there are a large number of players in Gurgaon, 

there is intense competition in the market, and therefore, no one enterprise can be 

said to enjoy a dominant position within the meaning of Explanation (a) to Section 4. 

8.11 Relying upon the reports submitted by Jones Lange Lassie, a research body, 

OP-1 has submitted that the market share determined therein based upon number of 

apartments as well as on the basis of the values thereof offered by the respective 

developers in NCR and Gurgaon is correct basis for determining the market share. 

OP-1 has also stated that sales figure of different developers is not available and 

also might not be relevant for determining the market share. According to OP-1, 

determination of market share by DG for Gurgaon by deriving market share based 

upon the All India Sales Figure is not correct. 

8.12 OP-1 has also pointed out that in determination of market share for All India as 

well for Gurgaon, DG has not considered a large number of companies. Further, 

data of CMIE based upon which DG has computed market share is unreliable as a 

number of companies have been omitted, it is based upon annual reports which 

contain sales figures of not only residential properties but also sales from other 

businesses also. Further, in several cases, only the “stand alone” sales figures have 

been considered ignoring sales figure of the group companies. Moreover, sales figure 

can be misleading because they are not reflected usually in the account books in the 

same year in which the properties are booked for sale. The sales figure recorded in 

the books of various developers would not represent the sales figure in the relevant 

year when bookings are done. As such, no reliable analysis of market share can be 

made on the basis of sales figure. 

8.13 OP-1 has also argued that market share determined by DG based upon a research 

report of E.Partibhan taking into consideration market capitalisation is not 

permissible. OP-1 has refuted that it has more than the double the market share of 

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Unitech and has also submitted that the comparison does not relate to the alleged 

relevant market of Gurgaon. It has been stated that in presence of a large number of 

other competing developers who have a market share in NCR as well as in Gurgaon, 

there can be no case to consider OP-1 to be in dominant position so as to act 

independently of competition. To buttress its arguments, OP-1 has also submitted 

that a look at licences given to various developers between 2002 and 2010, 

would show that the licences granted to OP-1 is only about 8 per cent of the Group 

Housing Projects. 

8.14 As regards, factors other than the market share mentioned in 19(4) of the 

Competition Act, 2002, OP-1 has also contended they need not be discussed since 

the assumption that the market share of DLF is the highest itself has no basis and 

thereafter consideration of the further factor becomes irrelevant. It has also been 

argued that the data based upon which factors mentioned in 19(4) of the Act have 

been analysed are incomplete and incorrect. 

8.15 OP-1 has stated that in the CMIE report relied upon by DG, Herfindahl Index 

indicated therein shows that the market is less concentrated and in such a market 

there can be no case for monopoly or dominant position. 

8.16 OP-1 has submitted that in order to determine the alleged contravention of 

Section 4, it is necessary to establish with evidence that it enjoys “Dominant Position” 

within the meaning of Explanation (a) to Section 4. It is not alleged in the 

“Information” as to which part of Explanation (a) to Section 4, which defines 

“Dominant Position”, is sought to be invoked. There is not even an allegation as to 

whether Clause (i) or (ii), or which part thereof is sought to be invoked to allege that 

OP-1 has a “Dominant Position” in the relevant market within the meaning of 

Explanation (a). Further, even with regard to “abuse of dominant position” it is not 

even alleged in the “Information” as to which part of Clause (a) of Sub-section (2) of 

Section 4, is sought to be invoked. No specific allegation or material is placed in 

support thereof and such “Information” cannot be acted upon. 

8.17 It has been stated by OP-1 that it does not enjoy “dominant position” within the 

meaning of explanation (a). In order to find out whether OP-1 has a “Dominant 

Position as defined in Explanation (a) to Section 4, it is to be established that it 

enjoys a position of strength, in the relevant market, in India, which enables it to act 

in a manner as provided in Clauses (i) and (ii) thereof. Even though in a general 

sense, in the context of describing the status of a leading company, it may be referred 

to as having a “Dominant Position”, in various statements/Annual Reports, etc., 

such description would have no relevance, unless there is sufficient material to 

establish that the enterprise enjoys a “Dominant Position” in terms of the exhaustive 

definition thereof as set out in Explanation (a). 

8.18 OP-1 has further submitted that in a case like the present one, where no 

particulars are given in the “Information” as to how the OP-1 has a “Dominant 

Position as defined in Explanation (a) to Section 4”, no “satisfaction” can be arrived 

at to hold that the OP-1 has a “Dominant Position”. The burden of proof in this 

behalf is on the “Informant”, which has not been discharged. 

8.19 According to OP-1, there are many large real estate companies and builders in 

India, particularly in Northern India as well as in NCR and Gurgaon who offer stiff 

competition and give competitive offers to give a wide choice to the consumers. 

In such a situation the condition prescribed in Explanation (a) to Section 4, cannot 

be satisfied, by a mere bald statement made in the Information. 


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8.20 OP-1 has stated that since the allegations in the present case relate to purchase 

of residential apartments, the relevant property market would be the market relating 

to purchase and sale of “Residential Properties”. In that sense, the factual data and 

material placed on record establishes that OP-1 does not have a dominant position 

in respect of Residential property in Northern India or any other market. 

8.21 It has been contended by OP-1 that there are a large number of competitors and 

market is highly competitive. Even though OP-1 is a large builder, there are hundreds 

of other builders all over India as well as in Northern India including NCR, who 

offer residential apartments to prospective investors. This is so as competing products 

are available in abundance at different locations even in Northern India. 

8.22 According to OP-1, the conditions of offer of each builder are considered by the 

intending investor and then he makes up his mind as to which offer suits him. 

An intending investor may either buy a readymade apartment on original sale or 

resale or an apartment under construction or even a residential plot on which he 

may construct according to his own requirements. The choice of residential property 

available in the market has never been limited and apart from the residential 

properties offered by it there were a large number of other residential properties 

available in the market for the investor to choose from. 

8.23 OP-1 has submitted that one of the leading and renowned international 

property consultant Jones La Salle Meghraj (JLLM) has given data, based on the 

number of apartments launched in the last 2½ years by 150 real estate developers 

in the NCR region relating to NOIDA, Greater NOIDA, Ghaziabad, Faridabad, 

Gurgaon(NH8, Sohna Road, Golf Course Road, MG Road and Manesar) which 

shows that sales in units by it are far less as compared to total new sales in the 

years 2008, 2009 and 2010. 

8.24 It has also been submitted by OP-1 that in ICICI Direct Analyst Report dated 

5 th November, 2007, it has been mentioned that it has supplied projects worth 

6.7 million sq.ft. as against 16.8 million sq.ft. by Unitech and 10.7 million sq.ft.by 

Parsvnath. There are several other builders who had offered properties in NCR and 

other locations in Northern India. For the year ending March 2009, Parsvanath, one 

of the larger builders had a turnover of Rs. 762 crore and its stated land reserve is 

4,224 acres. Unitech has a stated land reserve of 11,179 acre. Its turnover in the year 

ending March 2009 was Rs. 3,316 crore. The stated land reserve of Ansal API is 

9,335 acres and that of Omaxe is 4,500 acres. Further, as per RBS (The Royal Bank of 

Scotland) Analyst Report dated 18 th January, 2010, produced and issued by 

ABN AMRO Bank NV India Branch, relating to Indiabulls Real Estate, which is a 

large developer, its land bank in NCR is stated to be 6.3 million sq.ft. These figures 

show that there are several competitors of a very large size and there are many more 

large size builders. 

8.25 It was also stated by OP-1 that as per the report published by Knight Frank who 

are well known reputed International real estate consultants, in Gurgaon itself, 

residential apartments available during the period 2009-2011 is estimated to be 

58.23 million sq. ft. As against the total availability of residential apartments in 

Gurgaon, OP-1 had only two existing properties being “The Belaire” and “Park 

Place,” in which apartments could be offered by it for sale. The total availability of 

residential apartments in these two projects from March 2009 onwards was only 

about 2.7 million sq.ft. Besides the sale of apartments in the aforesaid two existing 

projects, no other residential project has been launched by it in Gurgaon from 2009 

onwards. 

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8.26 OP-1 has further stated that as per Prop Equity, Goldman Sachs Research dated 

October 2009 details of new launches in Gurgaon show that there are a number of 

projects that were launched in Gurgaon during 2009. However, no new project was 

launched by OP-1. Further, a list of 83 members of CREDAI NCR obtained from their 

Website and a list of developers in NCR as per National Real Estate Development 

Council (NAREDCO) also indicates the number of Developers who are their members 

and operate in NCR, which is indicative of the fact that there are a large number of 

developers, who offer competition. 

8.27 Based upon above, it has been stated that the residential space offered by OP-1 

does not constitute any substantial portion of the total residential space offered by 

various developers. 

8.28 OP-1 has also contended when a consumer desires to buy an apartment, he has 

a free choice from various offers for investment and then to decide for himself, which 

offer is suitable to him keeping into consideration the terms offered. In such a situation, 

it cannot be said that a builder who may be large or leading, is in a position to 

operate independently of competitive forces or is in a position to affect competitors, 

consumers or the relevant market, in its favour The choice of residential property 

available in the market was never limited and apart from the Residential properties 

offered by OP-1, there were a large number of residential properties available in the 

market for the investor to choose from. This also included offers from Government 

and Public Sector Organisations like DDA, HUDA, NOIDA Development Authority, 

Ghaziabad Development Authority, etc. 

8.29 In support of the submissions that OP-1 is not a dominant player, residential 

Market Research report prepared by Jones Lang LaSalle (JLLS) was submitted by it 

based upon which it has been stated that in respect of residential properties, it 

cannot be considered to have a larger share of the market either in NCR or even in 

Gurgaon. It has further been stated that while maintaining that there is no separate 

identifiable and definable segment as luxury, and the market share is to be 

determined on the basis of the total Residential Properties, as per the criteria of 

Luxury residential segment adopted in the report prepared by Jones Lang LaSalle 

(JLLS) shows that there are other competitors who have a much larger market share 

in NCR as well as Gurgaon. 

8.30 OP-1 has contended that the above materials have not been considered and 

dealt with by the DG while arriving at his findings in the investigation report. DG 

has rejected the market share reports of JLL stating that they are not based upon 

sales figure without appreciating that in order to determine competition, it is 

significant to consider the competing offers made by various developers and for that 

purpose it is appropriate to consider the number of apartments offered by the 

competing developers. 

8.31 In course of proceedings before the Commission, OP-1 has also submitted a 

report by G:ENESIS to establish that it is not a dominant player. Further, orders of 

the Commission passed in the case of M/s BPTP and M/s Parshvnath Developers P. Ltd. 

also have been relied upon to state that it does not enjoy position of dominance. 

Besides, the Judgment of EU in case of Gottrupp-Klim (1994 ECJ CELEX LEXIS 55, 

1994 ECR I-5641) has also been relied upon to establish that it is not a dominant 

player. 

8.32 OP-1 has argued that DG has referred to the factors mentioned in Section 19(4) 

of the Act to determine dominance. However, these factors are only indicative and 


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relevance of each factor has to be considered in the light of overall facts and market 

conditions in each case. The case of OP-1 is that keeping in view features of the 

present industry and the facts of the case in respect of which overwhelming material 

has been placed on record, it cannot even be suggested that any of the factors referred 

to in Section 19(4) would even indicate much less establish, that OP-1 enjoys a 

dominant position within the meaning of Explanation (a) to Section 4. Further, the 

data relied upon belongs to a date prior to 20 th May, 2009. OP-1 has suggested that 

any data prior to 20 th May, 2009 as relied upon by DG is not relevant since the 

question of dominance could be examined taking into account events and facts that 

have occurred after that date. 

8.33 OP-I has also contended that the data relied upon by DG for determining dominance 

while analysing factors mentioned in Section 19(4) are incomplete, not authentic, and 

therefore, not reliable. No conclusion can be drawn based upon such data. 

Contentions on Abuse of Dominance 

8.34 On the issue of abuse of dominance, OP-1 has stated that merely alleging abuse 

is not relevant, unless it is established that the alleged unfair/discriminatory 

conditions are imposed by abuse of dominant position. The conditions in the 

agreement were usual Clauses introduced as per industry practice and cannot be 

said to be “imposed” by abuse of dominant position. 

8.35 OP-1 has stated that while dealing with the conduct of OP-1, DG has not 

considered the large number of benefits given voluntarily by OP-1 to the Allottees. 

OP-1 has cited Timely Payment Rebates, Advance Payment Rebates, upgradation of 

specifications of the buildings without any extra charges as some of the benefits 

extended to the Allottees. It has also been brought out that after revision of plan by 

increasing the number of floors from 19 to 29, rate of compensation was doubled 

from Rs. 5 per sq. ft. to Rs. 10 per sq. ft. Additionally, OP-1 has also brought out that 

prices agreed to with the apartment Allottees were “escalation free” and any increase 

in costs of material and labour charges, etc. on account of delay in construction was 

to be entirely borne by OP-1. 

8.36 It has also been brought out by OP-1 that cancellation of allotment was done 

only in cases of default in payments of dues and was done in accordance with the 

terms of the agreement. As regards, delay in possession, it has been submitted that 

there is no delay in handing over possession in terms of the agreement and finishing 

work is in progress and possession would be given immediately upon receipt of the 

occupation certificate. Relying upon the Judgment of Supreme Court in case of 

Bangalore Development Authority v. Syndicate Bank 1 (2007) 6 SC 711, OP-1 has submitted 

that in contract involving construction, time is not the essence of the contract unless 

specified. It has also been brought out that in terms of judgment of Supreme Court in 

case of DLF Universal Limited v. Ekta Seth 2 (2008) 7 SCC 585, no delay will accrue 

upon the Appellant due to delay in handing the possession. Having not exercised 

specific right to cancel the agreement, no grievance can be made by the Allottees on 

account of delay in handing over possession. 

1 Ed.: MANU/SC/2718/2007: AIR 2007 SC 2198: 2008 (3) BomCR 808: (2007) 3 Co MPLJ 

58 (SC): II (2007) CPJ 17 (SC): 2007 (2) CTLJ 52 (SC): (2008) 1 GLR 624 (SC): JT 2007 (8) 

SC 106: 2007 (5) KarLJ 145: (2007) 6 MLJ 975 (SC): 2007 (8) SCALE 200: [2007] 7 SCR 47: 

2007 (2) UJ 789 (SC) 

2 Ed.: MANU/SC/7830/2008: AIR 2008 SC 3066: III (2008) CPJ 44 (SC): (2009) 2 MLJ 93 

(SC): 2008 (10) SCALE 310: [2008] 86 SCL 28 (SC) 

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8.37 OP-1 has further stated that all approvals and clearances are in place for the 

project. It has also been argued that there is no impediment in law that a project 

cannot be launched without submitting the building plans/lay out plans of the 

project. OP-1 has also stated that with regard to increase in number of floors, in view 

of the specific provision contained in the terms and conditions of the application for 

booking as well as in the agreement, the Allottees not only had intimation that the 

number of floors/height may be increased but had also specifically recorded their 

consent therein. 

8.38 On the issue of violations of FAR and Density Per Acre, it has been contended 

that the conclusions drawn by DG are incorrect since correct basis for determining 

the same has not been followed. FAR and Density Per Acre needs to be calculated on 

the basis of approved Zoning Plan of Phase-V, Gurgaon and both FAR and Zoning 

Plan are within the permissible limits. It has further been contended that alleged 

violations of Section 6(2) and Section 13 of Haryana Apartment Ownership Act, 1982 

are incorrect and misconceived since declarations under the Act are yet to be filed. 

8.39 OP-1 has also submitted that since it was contemplated that number of 

floors/height may be increased in future, the structural designs and foundation 

agreement were made at the initial stages on that basis only and there is no infirmity 

in terms of structural strength. Further, OP-1 has also argued that consideration of 

these matters in the present proceedings is irrelevant for the purpose of the alleged 

contravention of Section 4 of the Act. 

8.40 OP-1 has also given replies on the different Clauses of the agreement referred to 

in the DG’s report. As regards, representation J&K, it has been argued that the 

Applicants have satisfied themselves regarding the title of the property, and therefore, 

no investigation in this behalf would be done by him. Further, there is no question of 

changing the zone plan, usage pattern, etc., when the land use of the building has 

been declared as residential. 

8.41 As regards representation F of the agreement, it has been contended that there 

is no issue of reduction in the land area since the construction of the building has 

already been put up. As regards charges like PLC, it has been contended that the 

Allottees were fully aware of all the charges at the time of making payments of 

instalments. Similarly, as regards super area, it has been stated that it is tentative 

and as per agreement it is to be decided at the time of completion of the project. 

8.42 On the issue of exit option, OP-1 has contended that DG has proceeded on 

assumption that whenever an apartment is booked, an exit option must be provided, 

although there is neither any such requirement of law nor is it the industry practice. 

8.43 OP-1 has also stated that findings on different Clauses of agreement mentioned 

in the report of DG as unfair and discriminatory are erroneous. It has been stated 

that the basic terms and conditions in the agreement are similar to the terms and 

conditions contained in the agreements of other competitors and they are as per 

industry practice. Further, the terms and conditions agreed to between the parties 

are binding as held in the case of Bharathi Knitting v. DHL Courier World Wide Express 

Courier 3 1996 4 SCC 704. Such terms of agreement could not have been described as 

incorporated by “abuse of dominant position”. 

i 

3 Ed.: MANU/SC/0628/1996: 1996 VIII AD (SC) 312: AIR 1996 SC 2508: [1996] 87 

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Reply filed by Department of Town Country and Planning, Government of 

Haryana-OP-2 

8.44 OP-2 has stated vide response dated 8 th November, 2010 that the permissions to 

OP-1 in the case have been granted as per the statutes applicable. The issues involved 

in the case are generally bilateral between the two parties. It has also been stated 

that no violation of Haryana Apartment Ownership Act, 1983 has come to the notice 

of the Department. It has also been submitted that under Punjab Schedule Roads 

and Controlled Areas Restriction of Unregulated Development Act, 1963 only 

compoundable violations are considered. 

8.45 Regarding common areas, it has been stated that the proportionate share in the 

ownership of the property is governed by the provisions of the Haryana Apartment 

Ownership Act, 1983 and is not the sole discretion of the colonizer. Further, the 

licensee is bound by any conditions imposed by Department of Town Country and 

Planning. OP-2 has also denied that any building plans have been approved in 

violation of permissible FAR and density per acre. 

Reply filed by Haryana Urban Development Authority - OP-3 

8.46 OP-3 filed its replies on 18 th October, 2010 to the Commission. According to 

OP-3, it is neither a necessary party nor a proper party to the present proceedings. It 

has been stated that in case of residential colonies and group housing complexes 

developed by private colonizers, land is purchased by the colonizer itself from the 

land owners and then request for grant of License is made to Director, Town & 

Country Planning Department, Haryana, which is granted on fulfilling all the terms 

and conditions of the Town & Country Planning Department. It has no role to play 

in this whole process. OP-3 only provides master services like, water supply, 

sewerage system, drainage system and master roads for which external development 

charges are charged from the colonizer at the time of issuance of license and the 

same are deposited in HUDA account. It is not involved in any decision making 

process towards the grant of sanction/approval of the Building Plans/Layouts of 

OP-1 as alleged by the informant. 

8.47 All sanctions of building plans and other related approvals are obtained by the 

colonizer directly from OP-2 as per the provisions of The Punjab Scheduled Roads 

and Controlled Areas Restriction of Unregulated Development Act, 1963, its rules 

and zoning plan framed there under and not as per HUDA (Erection of Buildings) 

Regulations, 1979. 

9. Arguments of the informant 

9.1 The Informant submitted a detailed response on 12 th May, 2011 with reference to 

DLF’s note submitted to Commission on 4 th March, 2011 and Jones Lang Lasalle 

(JLL) Report and Genesis Report submitted by DLF. The informant also submitted a 

report from QuBREX in support of its contentions. The gist of the informant’s 

contentions is given below: 

Comments on submission of DLF 

9.2 The informant contended that sales figures are the best way to calculate market 

share. It was pointed out that the DG as well as the Genesis Report submitted by 

DLF admits this assertion. The informant argued that what is important in the case 

is to establish how DLF compares to its nearest competitors. It was contended that it 

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is quite clear from various data sources that there is no developer that comes close to 

DLF particularly in the geographic market of Gurgaon and in product market of 

high-end residential units. 

9.3 It was submitted that the DG has done a detailed analysis to establish DLF’s 

market share using publically available sources. DLF was given ample opportunity 

to provide their view of the market share. They declined to submit market share 

based on sales figures and instead provided JLL report estimating market share 

based on non-standard metric of active stock. 

Comments on JLL report 

9.4 The informant contended that the Genesis and JLL model use a proxy called 

“active stock” for calculating market share. It was argued that this questionable 

artefact from the JLL model based on active projects is a flawed parameter. The 

informant pointed out that active stock has been given at least 3 different definitions 

between the JLL and Genesis Report and in some cases this definition may actually 

be contradictory to what it is purporting to measure. 

9.5 It was further argued that not only the calculations by JLL in its reports do not 

represent reality; they are based on data unavailable for further discussions or 

scrutiny. It is simply not possible for the Commission to accept these numbers as 

sacrosanct when the source of data and the analysis is not open to scrutiny. 

Comments on Genesis Report 

9.6 It was submitted that the Genesis Report is a paid study commissioned by DLF. 

It was averred that Genesis is no expert in real estate business, and hence, is relying 

on data provided to it by DLF and JLL and it, therefore, a biased report. 

9.7 The informant claimed that there is a general theme of non-cooperation 

throughout the report. It was contended that DLF has made several public statements 

in statutory documents such as Red Herring Prospectus, its annual reports, quarterly 

presentations to financial analysts, etc. These public statements are completely 

contrary to what has been said in the Genesis Report. It was argued that DLF is 

trying to change its publicly stated position in legal documents. It was strongly 

argued that based on DLF’s public statements in its Red Herring Prospectus and 

annual reports, DLF is a dominant player in the relevant market. Moreover, DLF’s 

market share estimates based on active stock concept need to be rejected as it is not 

a standard metric for calculating market share. 

9.8 According to the informant, DLF’s track record, brand and preferential locations 

make it the most attractive builder in the relevant market segment. New builders 

that are just entering the market are no substitute for DLF’s offerings in the market. 

DLF’s combined strength in both commercial as well as residential segments gives 

it added advantage. 

9.10 The informant stated that leveraging its dominant market position and its 

control over the marketing channels, DLF traps the customers into buying what 

appears to be an excellent product. It then forces them to pay money without securing 

any government approval. Under the protective cover of a completely one-sided 

contract, locked customers who have already invested a lot of money and have no 

way out, it then manipulates the entire process to its own advantage. This hurts 

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9.11 It was also argued that DLF is certainly operating independent of its competitors 

when it claims that it does not know or care about its competitor’s market share. 

Also, DLF sets the agenda for rest of the market. It has established the practice of 

offering contracts with several abusive Clauses to the customers and of marketing 

and collecting money without having all the Government approvals. 

9.12 The informant claimed that instead of leading the industry to more balanced, 

customer-supplier relationship because of its market leader position, DLF has chosen 

to establish a number of abusive industry practices which it now claims it is forced 

to comply with. 

9.13 Further, the informant alleged that if anyone dares to challenge its abusive 

ways in any of the Court, DLF fights aggressively and frustrates the buyer who 

either runs out of money, time (he dies) or patience. 

9.14 It was contended that rest of the industry merely treads the trail blazed by DLF 

while the consumers have largely given up and have come to accept that “that all 

the developers are the same”. 

Gist of the report of QuBREX-QuBit Real Estate exchange dated 8 th May, 2011 

submitted by the informant: 

9.15 The Genesis and JLL model use a proxy called “active stock” for calculating 

market share. This questionable artifact from the JLL model based on active projects 

is a flawed parameter. The active stock has at least three different definitions between 

the JLL and Genesis Report and in some cases this definition may actually be 

contradictory to what it is purporting to measure. 

9.16 The approaches taken by JLL and Genesis in their reports of March 2011 are 

erroneous and misleading. Neither the data of JLL nor the methodology of JLL and 

Genesis can be relied upon. 

9.17 The reports of JLL and Genesis present a completely wrong and misleading 

concept of market share by basing their analysis on the “Active Project” and 

“Active Stock” notion. 

9.18 The data on which “Active Stock” calculations are done for market share is 

suspicious, and is presented with a facade of accuracy that is not possible because 

of the very opaque nature of the property market, and the inherent difficulty of 

collecting the “Active Stock” data accurately. The fact that the underlying data 

provided by JLL has not been audited or verified, nor shared by JLL with anyone, 

even Genesis, gives the impression that the data has been fabricated and contrived. 

9.19 The model of taking arbitrary “market share” snapshots on a yearly basis 

without regard to the long and multi-year process by which apartments are marketed, 

booked, constructed, completed, and possession handed over, is erroneous. Also, 

the arbitrary snapshots in time are limited views, without context of the past and 

future of the market place. Further, by narrowly defining “market share” as newly 

“launched projects” from year-to-year, and ignoring the “completed projects” market 

share over the years, JLL & Genesis give a partisan picture of the market share. 

9.20 Most importantly, the models of JLL and Genesis bias the study by ignoring the 

importance commercial property has in influencing the purchase decision of a 

residential property. This is done by asking the wrong rhetorical question about 

“substitutability” of commercial versus residential properties and then summarily 

ignoring the commercial market by glibly concluding that commercial property is 

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not substitutable with residential property. This wrong way of looking at the 

commercial property and residential property relationship leads both JLL and 

Genesis to conveniently ignore the role commercial property plays in the decision of 

buying residential property, and consequently leads them to underplay the 

importance of Gurgaon being the Relevant Geographic Market. 

9.21 A large part success of DLF in the residential market is due to its almost absolute 

dominance in the commercial sector. This is an outcome of DLF’s “walk to work” 

concept which, as DLF says on its website, it pioneered. By building world class 

office spaces that it does not sell but leases to top companies, it creates a magnet in 

its land banks, in and around which people desire to own a residential property - 

whether for self or for investment. The proximity of over 3,000 acres of its lands to 

the Delhi boarder is a plus. Combined with office spaces on that land that draw 

companies out of Delhi into Gurgaon, it creates a chain effect of drawing the 

employees of the companies to DLF houses in Gurgaon. This is of relevance under 

Section 19(6)(b) of the Act that requires looking at local specification requirements. 

9.22 The location, the proximity to the commercial offices and retail spaces, social 

infrastructure like the DLF Golf course, and with its own rapid Metros, own flyovers, 

even its own roads, DLF is heading to solidify its hold on Gurgaon. 

9.23 DLF has pioneered many aspects of the real estate business in Gurgaon which 

indicate its strength and ability to almost act independently of what the competitor 

may or may not do. Some of business practices pioneered by DLF that can be 

considered by the Commission under Section 19(4)(m) are delay penalty, early 

payment discount, timely payment discount, investor locking in terms of buyers 

agreements, one PAN one FLAT, selling by invitation only, etc. 

9.24 The Informant’s have further filed a clarification dated 6 th June, 2011 on factual 

errors in submission of DLF regarding violation of FAR, super area, charges for 

parking lot, alleged delay of 24 months for 19 floor plan, extra floors, cancellation 

and forfeiture of money and service tax. 

10. Oral arguments of Informants 

10.1 Shri M.L. Lahoty, Advocate appeared for the informants before the Commission 

on 10 th May, 2011 and made oral submissions. Shri Lahoty argued that after the 

admission, proclamation and declaration of DLF in its annual general meetings, red 

herring prospectus read with Section 62 of the Companies Act, 1956, there is nothing 

left to prove about dominant position of DLF. He submitted that in terms of Section 18 

read with preamble of the Act, it is the duty of the Commission to protect the interest 

of consumers as the interest of consumers is being affected adversely by the acts of 

DLF. He drew the attention of the Commission towards the Judgment of Hon’ble 

Supreme Court in the matter of Competition Commission of India v. Steel Authority of 

India Limited and Anr. 4 (specifically, Para 9 and 29 of the judgment). He submitted 

that the DLF cannot take excuse regarding its unfair practices on the ground that the 

same are prevalent in the entire market. He also submitted that if such practices are 

prevalent across the market, the Commission may take action against other players 

also, but it does not lessen the liability of DLF with respect to its own unfair practices. 

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10.2 With respect to factors given in Section 19(4) of the Act, Shri Lahoty submitted 

that the factors given in the Section are not a limitation on the powers of the 

Commission for determining dominant position of an enterprise. He invited the 

attention of the Commission towards the phrase “have due regard to” and submitted 

that the phrase has been used by the law makers intentionally to empower the 

Commission to take into consideration other factors also. With the same intention, 

Clause (m) has been provided empowering the Commission to consider any other 

factor considered relevant for the enquiry. He emphasised that a combined reading 

of the statement of objects and reasons on Competition Bill, 2002, Section 18 and 

preamble of the Act shows that the Commission has been given ample powers to 

protect the interests of the consumers. He gave further emphasis to Para 9 and 25 of 

the Judgment of Hon’ble Supreme Court in Jindal v. SAIL wherein the Hon’ble 

Supreme Court has mentioned the vast and wide powers of the Commission. 

10.3 He invited the attention of the Commission towards the Judgment of Hon’ble 

Supreme Court in Shri Sitaram Sugar Company Ltd. and Anr. v. Union of India and Ors. 5 

(1990) 3 SCC 223 wherein, in Para 29 Justice Sabyasachi Mukherjee has explained 

the phrase “having regard to” and held that the Government can consider any other 

matter/factor as there is a difference between “having regard to” and “having regard 

only to”. “Having regard to” empowers and does not restrict the authorities concerned 

from taking into consideration any other relevant factor. He submitted that the 

five-Judges Bench of Hon’ble Supreme Court headed by Hon’ble Chief Justice Shri 

Sabyasachi Mukherjee at Para 77 in the PTC India Ltd. v. Central Electricity Regulatory 

Commission 6 (2010) 4 SCC 603 case has affirmed and confirmed the position of Sitaram 

Sugar case by holding that the authorities can take other matters in consideration. 

He submitted that the mention of words “or otherwise” in Section 4(g) of the Act 

clearly intends that anything left can be covered by the residue. On the basis of the 

foregoing arguments he emphasised that factor mentioned in Section 19(4)(a) of the 

act is not the sole repository for determining the dominant position. 

10.4 He further submitted that clauses of the agreement with the apartment buyers 

reveal the dominant position of the DLF. He argued that if a party to the agreement 

in a signed document excludes itself from the obligations and liabilities and puts it 

heavily on the apartment Allottees, as is the case with DLF, it is only because of its 

dominant position. He submitted that DLF in its own declaration and proclamation 

in red herring prospectus, etc. claims itself to be largest in terms of Revenue, earnings 

and market capitalisation. It further claims to have leadership position in India, 

being one of the top five companies of the world and the largest real estate developer 

in the world. He also submitted that the DLF in its letters to the informants also 

mentions that it is developing the largest township of the Asia. 

10.5 With regard to the obligation of those who issue prospectuses inviting 

application for shares he referred to Palmer to mention that: 

Those who issue a prospectus, holding out to the public the great advantages 

which will accrue to persons who will take shares in a proposed undertaking, 

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BomCR 762: 2010 ELR (SC) 269: JT 2010 (3) SC 1: 2010 (3) SCALE 55: [2010] 3 SCR 609: 

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and inviting them to take shares on the faith of the representations therein 

contained, are bound to state everything with strict and scrupulous accuracy, 

and............ (Palmer’s Company Law 24 th Edition, Page 332). 

10.6 To establish the dominant position of DLF, Shri Lahoty further relied upon 

observations of the Court of Justice of the European Communities in the matter of 

AKZO Chemie BV v. E.C. Commission wherein, the Court has observed that once 

AKZO itself admitted that it has the most highly developed marketing organisation, 

both commercially and technically, and wider knowledge than that of its competitors 

the pleas put forward by AKZO in order to deny that it had a dominant position 

within the organic peroxides market as a whole must be rejected. He contended that 

after its own admission, proclamation and declaration the DLF now cannot argue 

that the statements made by it were general in nature. He, on the basis of various 

annual reports of the DLF, red herring prospectus and statement of DLF’s Chairman 

in its Annual General Meetings, emphasized that the same are sufficient to prove 

the dominant position of DLF. 

10.7 He further submitted that the DLF has committed a fraud on Allottees as after 

entering into agreement with the apartment Allottees the entire structure of the 

building was changed. He claimed that the apartment Allottees are still not aware 

as to when the project is to be completed and after investing huge money they are 

suffering for no fault of their own. He submitted that the clauses of the apartment 

buyer’s agreement regarding abandonment of project, tripartite agreement regarding 

maintenance, arbitration Clauses, etc. deprive the rights of the apartment buyers. 

He further submitted that any alteration in the agreement is not allowed and the 

Allottees have to sign their agreement as a “captured customer”. 

10.8 He further submitted that for imposing such unfair conditions upon apartment 

Allottees the DLF cannot take the plea that the Allottees have signed the agreement 

and that the practices adopted by DLF are the general industry practices. He invited 

the attention of the Commission towards the Judgment of Hon’ble Supreme Court in 

Central Inland Water Transport Corporation Ltd. and Anr. v. Brojo Nath Ganguly and 

Anr. 7 (1986) 3 SCC 156 and argued that parties to the agreement should be on equal 

footing and with same bargaining power. He submitted that the Hon’ble Supreme 

Court at Para 79 of its judgment has quoted Chitty that freedom of contract is a 

reasonable social ideal only to the extent that equality of bargaining power between 

contracting parties can be assumed. He argued that if one party to the agreement has 

no choice the other party cannot take advantage only because there is a signed 

agreement between the parties. 

10.9 He further contended that even if the practices adopted by DLF are industry 

practices then it should be taken into consideration as to who is following whom. In 

view of the facts admitted, proclaimed and declared by DLF itself, it is the DLF 

which, being the market leader is responsible for such practices. He submitted that 

the DLF has been the first mover and market leader and it is an observed phenomenon 

that the market players follow what the leader does. He further submitted that if the 

practices are prevalent throughout the industry the Commission is empowered to 

take action against all of them but that never absolves DLF from its liabilities. 

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10.10 He further dealt with the contentions of DLF regarding the agreements having 

been executed prior to 20 th May, 2009, i.e. the date of enforcement of the Act and that 

the DLF is not providing any service to the apartment buyers. He submitted that on 

the date of enforcement of the provisions of Section 3 and 4 of the Act the project was 

under process, the payments were incomplete and thus the DLF’s contention 

regarding the enforceability of the provisions of the Act in the matter does not 

hold good. 

10.11 With respect to the question of “service” he invited the attention of the 

Commission towards Para 5.4.13 of the DG’s investigation report and emphasised 

that DLF Ltd. and its group entities are providing service to the consumers while 

developing and selling apartments to them. He also invited the attention of the 

Commission towards the wrong statement of DLF regarding sanction of the projects 

and argued that DLF has committed a fraud on the apartment buyers. 

10.12 With regard to the concept of “active stock” as coined by DLF Shri Lahoty 

submitted that the basis of “active stock” taken by DLF is erroneous as the 

“active stock” cannot be the inventory. As per him the “active stock” should always 

be finished goods and not inventory. He further submitted that the definition of 

“active stock” is different in the three reports submitted by DLF. He further attacked 

the Genesis Report and submitted that DLF’s income is not comparable with Unitech 

(as given in Genesis Report) and that the DLF’s size and resources give it advantage 

over its competitors. With respect to dependence of consumers upon DLF, he 

submitted that even in a situation where all the developers are adopting abusive 

clauses, one would go to DLF and not to some small developer, in view of its monopoly 

in the real estate market. 

10.13 In conclusion, Shri Lahoty forcefully contended that DLF Ltd. was dominant 

in terms of Section 4 of the Act and had abused its dominant position in contravention 

of the provisions of the Act. 

11. Oral arguments of DLF 

11.1 Shri Ravinder Narayan, Advocate appeared for DLF and submitted a written 

argument dated 23 rd May, 2011. He also made submissions during his oral argument 

before the Commission as under. 

11.2 The data adopted in the QuBREX report is incorrect and the authenticity of the 

data is doubtful and not acceptable. Further, the methodology adopted for 

determining the market share of the respective developers is untenable and is liable 

to be rejected. 

11.3 The market share can only be determined with reference to a particular point in 

time and as such it is determined on an annual basis. This is so, as market share 

may fluctuate. A particular developer may have a larger market share in one year 

and may not have the same market share in the other years. As such, market share is 

required to be determined on an annual basis. 

11.4 The methodology adopted in the QuBREX report is not to determine market 

share on annual basis for each year under consideration, but to determine market 

share on a cumulative basis by including all projects from the very beginning for 

15 to 20 years. If such a methodology is adopted, then a developer, who may be 

commanding a large market share in the last say 3 years, would have a very 

insignificantly low market share since he had no project in the years prior to say 

2007. Another developer who had a large market share 15 years earlier but does not 

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have any significant market share in the last three years or so, would still be 

considered as having a large market share. This methodology of determining market 

share for a period ranging from 15 to 20 years completely distorts the market share 

relevant for any particular year. 

11.5 The fallacy in adopting the above methodology is apparent from taking a 

hypothetical situation where a developer may have launched a number of projects 

over a period of several years, say from 1991 up to 2006, but did not launch any 

project in the year 2007 and may even exit from the business. On the basis of the 

methodology of cumulative determination of market share based on all the past 

years, such a developer who has launched no project or has exited from the business, 

may still be considered to have a high market share in the year 2007 based on the 

launches of the earlier years. Such a developer may launch a few projects in 

subsequent years while there are other developers who enter the market and on any 

yearly basis, launch a much larger number of projects. Since, such new developers 

would have no launches for the earlier 15 to 20 years, their market share for the 

relevant year would be insignificant as compared to the developer who has been in 

the market for a number of years but has not launched substantial projects in the 

subsequent years. 

11.6 Apart from the above fallacy, for the purpose of categorising the apartments, on 

the basis of capital value thereof, as well as for the purpose of determining the 

market share on the basis of such capital value (again on cumulative basis for the 

entire past years), the value of all apartments is taken as in March 2011, even though 

the apartments may have been launched 15 to 20 years ago. Any calculation or 

share determined on the basis of the alleged capital value of March 2011, would 

necessarily lead to absurd results. 

11.7 When a customer invests in residential apartment, he not only looks at the new 

launches which are offered, but also the comparable apartments which are available 

in the secondary market, which are substitutable properties. 

11.8 The apartments in the secondary market may be those which are still under 

construction (since many apartments are sold while still at booking stage) or those 

which are completed. In fact, if a completed apartment is available for sale in the 

secondary market, a customer may prefer that to avoid the risk involved in booking 

an apartment which may take a few years for completion, though the price of the 

completed apartment may be higher than the apartment which is yet to be 

constructed. 

11.9 The most important factor to show that no enterprise enjoys a “Dominant Position” 

in the relevant market is to consider whether there is a barrier to new entrants on 

account of the alleged “Dominant Position” of the enterprise. Where several new 

entrants have in fact entered the market and as a new entrant IREO has captured the 

largest share of the market, there can be no case whatsoever for alleging any developer 

as enjoying a “Dominant Position”. This important aspect which has been considered 

in the JLL and Genesis reports has been totally ignored by QuBREX. 

11.10 It was argued that reference has been made to certain statements made in the 

Annual Reports, draft red herring prospectus and speech of the Chairman of DLF, 

etc. on the basis of which it is alleged that DLF had admitted that it enjoyed a 

“Dominant Position” and that, on the basis of these admissions it should be held 

that DLF enjoyed “Dominant Position” within the meaning of explanation (a) to 

Section 4 of the Act. In support of this argument reference was made to Clause (g) of 


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Section 19(4) of the Act, which provides that one of the factors for determining the 

“Dominant Position” under explanation (a) to Section 4 is that the enterprise has 

acquired a “Dominant Position” “otherwise”. 

11.11 It is significant that a special meaning is assigned to the term “Dominant 

Position”, only for the purpose of Section 4, which is defined in explanation (a) to 

Section 4. This is so as the Explanation itself states that the definition set out therein, 

is only “for the purpose of this Section”. As such, unless the conditions specified 

under Explanation (a) to Section 4 are satisfied, the enterprise would not be treated 

as enjoying a “Dominant Position” so as to invoke Section 4. This definition does 

not apply to the term “Dominant Position” appearing in other parts of the Act. As 

such, the term “Dominant Position” as used in Clause (g) of Section 19(4) does not 

have the same meaning as in Section 4. 

11.12 The aforesaid statements allegedly admitting the “Dominant Position” of DLF 

cannot be considered as an admission of “Dominant Position” as defined in 

Explanation (a) to Section 4. In order to hold that an enterprise enjoys a “Dominant 

Position” within the meaning of Section 4, the conditions as set out in Explanation (a) 

to Section 4 must be satisfied. 

11.13 Moreover, “Dominant Position” within the meaning of Explanation (a) to 

Section 4 is to be determined specifically with reference to the “relevant market,” 

which in the present case is alleged to be luxury apartments in Gurgaon. The so 

called admission on the basis of which dominance is sought to be proved, relates to 

statements made in respect of the all India operations of DLF and not with reference 

to the aforesaid relevant market. Moreover, it cannot be said that these general 

statements relate to residential properties being the “relevant product market”. 

As such, on the basis of the alleged statements it cannot be said that DLF enjoys a 

position of strength in the “relevant market” of “High end luxury apartments in 

Gurgaon”. 

11.14 Oral arguments were made in continuation of the submission dated 

6 th April, 2011 regarding jurisdictional objection. It was, inter alia, contended that 

there is a distinction between the transaction of sale of an apartment, wherein as per 

the agreement for sale/purchase of apartment, the right, title and interest in the 

apartment is transferred only after the completion of construction and obtaining 

occupation certificate. Till then, the ownership and title in the property is retained 

by DLF. The construction is not done for and on behalf of the Allottee, but for DLF 

itself. Even if the agreement for sale/purchase of the apartment is executed prior to 

or during construction, the title and ownership of the property is retained by DLF. 

In such a case there is no “Service” rendered. 

11.15 The distinction between an agreement for “sale apartment” and for rendering 

“service” is clearly brought out by case law. Reference may be made to one such 

judgment of the Gauhati High Court in the case of Magus Constructions Pvt. Ltd. v. 

UOI 8 (200*) 15 VST 17. It was argued that the facts of the present case are identical to 

the facts dealt within the above judgment. 

11.16 In order to contend that certain conditions of the contract were unfair, reliance 

was placed by the informant on the decision in the case of Central Inland Water 

Transport Corporation Ltd. and Anr. v. Brojo Nath Ganguli and Anr. (1986) 3 SCC 15. 

8 Ed.: MANU/GH/0115/2008: (2008) 217 CTR (Gau) 442: (2009) 3 GLR 514: 2008 (11) 

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11.17 The said decision related to imposition of a condition by a Rule in respect of 

the terms relating to termination of services of an employee. The principles laid 

down in the aforesaid case has no relevance to the present case which relates to an 

agreement between two private parties in a commercial transaction. 

11.18 The aforesaid decision was considered by the Delhi High Court in the case of 

Classic Motors Ltd. v. Maruti Udyog Ltd. MANU/DE/0586/1996: 65 (1997) DLT 166). 

The aforesaid decision of the Delhi High Court distinguished the decision in the 

case of Central Inland Water v. Brojo Nath Ganguli and after dealing with the relevant 

principles applicable to commercial contracts between private parties upheld the 

agreement. 

11.19 The same principles in relation to a commercial contract between private 

parties are also laid down by the Delhi High Court in the case of M/s. Unikol Bottlers 

Ltd. v. M/s. Dhillon Kool Drinks and Anr. (MANU/DE/0008/1995: 1994 28 DRJ 483). 

In Para 31, it is held that when a plea of duress/ coercion and unequal bargaining 

power is raised, the question of “free will” arises. In such cases, it is significant to 

consider the following factors: 

(i) Did the Plaintiff protest before or soon after the agreement? 

(ii) Did the Plaintiff take any steps to avoid the contract? 

(iii) Did the Plaintiff have any alternative course of action or remedy? If so, did the 

Plaintiff pursue or attempt to pursue the same? 

(iv) Did the Plaintiff convey benefit of independent advise? 

11.20 Applying the above principle, it may be seen that in the present case the 

agreements were executed in the year 2007, containing the terms and conditions, in 

respect of which objections are now sought to be taken by “Information” filed in 

May 2010. If such a contract could be considered as a contract of coercion, containing 

unfair terms, it was open to the Allottees to challenge the agreement soon after they 

were executed. However, the Allottees advisedly continued with the agreement since 

they were aware that the value of the apartment would appreciably increase, 

notwithstanding the conditions of the agreement which are now sought to be termed 

as “unfair”. The Plaintiff could challenge the validity of the agreement on the same 

grounds in a Court of law, but chose not to do so. This alternative course of action or 

remedy was not taken and no attempt was made in that behalf. The Allottees are 

well placed persons with adequate means who could invest amounts in excess of 

Rs. 1.5 to 2.5 crores. Some Allottees have booked more than one apartment and one 

such Allottee has booked seven apartments. Such Allottees had benefit of independent 

advise, but chose not to contest the agreement keeping in view the likely high 

appreciation in value. It is evident that on account of the unforeseen recession in 

2008-09 that some of the Allottees faced difficulty in making timely payment and 

committed default, resulting in cancellation of the agreement. In these circumstances, 

after a lapse of about 2½ to 3 years, attempt is being made to challenge the agreement. 

It is also significant that a large majority of Allottees have not contested the agreements 

and are satisfied with the appreciation in value, which is further likely to increase 

in due course. These factors are important to consider the objections relating to such 

agreements so belatedly. 

11.21 In respect of agreements executed long before the enforcement on Section 4, it 

cannot be said that the conditions contained therein were “imposed” by “abuse of 

dominant position,” prior to 20 th May, 2009. In the alternative and without prejudice 

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to be applied on the ground that the agreements executed in 2007 continue to be in 

force after 20 th May, 2009, only such conditions can be looked into, if at all, on the 

basis of which action is taken after 20 th May, 2009. Conditions like increase in the 

number of floors are already acted upon earlier. The objections regarding approval, 

etc. also relate to prior period. The defaults in making payments by defaulting 

Allottees have also taken place earlier. The structure of the building having been 

completed earlier, objections relating to change into specification for construction 

can also not be considered. Various other objections which are now sought to be 

taken relate to the earlier period. Even though termination of agreement may have 

taken place subsequently, the ground for termination, i.e. defaults in payment, had 

already arisen earlier. 

11.22 Under these circumstances, in any event no action can be taken in respect of 

the agreements executed prior to 20 th May, 2009. 

11.23 No developer can be said to have a “Dominant Position” in terms of 

Explanation (a) to Section 4, unless his market share in the relevant market is 

established to be very high in the range of 50 per cent or above. In this context, 

Gottrup-Klim judgment of the European Court was referred to. No reliable proof is 

given to suggest high market share of DLF. 

11.24 The particulars placed on record show that about 85-90 per cent transactions 

for sale of apartments is done through brokers. When customers approach brokers, 

various alternative properties are offered to them and the brokers apprise the 

customers of the pros and cons of the respective investments. Moreover, the customers 

also approach more than one broker to obtain information for proposed investment. 

As such, the customers obtain adequate information and knowledge before making 

investments. In these circumstances, the customer is not affected by any alleged 

position of strength enjoyed by a developer, in its favour, in the relevant market. The 

customers have ample choice of apartments offered by respective developers and 

the competition is intense. 

11.25 For determining market share, apart from the primary market, it is important 

to consider “substitutable properties” like resales in the secondary market and other 

properties. This would substantially bring down the market share of DLF to less 

than half of what has been determined in JLL and Genesis Reports. 

11.26 In the DG’s report it is admitted at Pages 67 and 74 that no data of sales figures 

in the relevant market is available in public domain. This is also stated in JLL Report 

as well as in the report of Genesis. This position is also affirmed in the report of 

QuBREX filed by the Informant. Since, QuBREX had no sales data, the figures of 

cumulative value of all the completed apartments for the entire past period are taken 

at the value of March 2011. The fallacy in the methodology adopted by QuBBREX is 

already pointed out. The fallacy in the methodology adopted by DG in determining 

the market share for Gurgaon is already set out in the written submissions. In the 

absence of any reliable proof of high market share of DLF, there can be no finding of 

“Dominant Position” within the meaning of Explanation (a) to Section 4. 

11.27 In the absence of sales figures, the alternative method adopted in JLL reports 

and the Genesis report, relating to “apartments offered” to the customers (active 

stock) clearly show that DLF’s market share was low and there were other developers 

whose marker share was higher. Further, there were several developers having 

market share in similar range as DLF. There was no barrier to new entrants. Even 

new entrants like IREO ad acquired a market share higher than DLF. 

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11.28 Further, there was intense competition in the relevant market and there were a 

large number of properties offered by competitors in the relevant market. 

11.29 For these and other reasons already placed on record, DLF cannot be said to 

have a “Dominant Position” in the relevant market as per Explanation (a) to 

Section 4. 

11.30 DLF submitted its response dated 11 th May, 2011 regarding land stock available 

with DLF in Gurgaon in terms of direction of the Commission dated 24 th March, 2011. 

The gist of submission of DLF is as under. 

11.31 Information regarding the area of land stock of DLF in Gurgaon is of no 

relevance unless the information regarding land stock of other developers in 

Gurgaon is also obtained and made available. In the absence of the information 

regarding the land stock in Gurgaon of other competing developers, no comparison 

can be made to determine the alleged dominant position of any particular enterprise. 

It may however be stated that the land stock of DLF in Gurgaon is insignificant 

considering the total land stock covered by the master plan of Gurgaon. It submitted 

that the total area of land covered by the Gurgaon Master Plan excluding town and 

village Abadi is about 36,000 hectares, i.e. 8,93,000 acres. Out of the above land the 

total land already developed as noted in the master plan is about 9,000 hectares, 

i.e. 24,400 acres. As such, the balance land is approximately 26,300 hectares, 

i.e. 64,900 acres. Out of the available land, certain areas are earmarked for transport, 

public utilities, open spaces and defence land, etc. The total land under these 

categories which is not developable is 8,000 hectares, i.e. 19,900 acres. As such after 

excluding above area the balance developable area under the Gurgaon master plan 

is 18,200 hectares, i.e. 45,000 acres. As the land stock held by the DLF is 

about 1,650 acres, DLF constitutes only about 3.67 per cent of the developable land 

in Gurgaon as per the Master Plan. 

11.32 DLF also filed its response dated 3 rd June, 2011 to the compilation of documents 

filed by the Informant on 19 th May, 2011 and also further response to the report of 

QuBREX filed by the Informant. 

12. Issues 

12.1 The Commission has given due consideration to the allegations made in the 

Information dated 6 th June, 2010, the investigation report of the DG dated 

13 th October, 2010, all the written and oral submissions made by the parties 

concerned along with opinions and analysis of experts relied upon by the 

Informant and the OPs. The relevant material available on record and the facts 

and circumstances of the case throw up the following issues for determination in 

this case: 

Issue 1: Do the provisions of Competition Act, 2002 apply to the facts and 

circumstances of the instant case? 

Issue 2: What is the relevant market, in the context of Section 4 read with 

Section 2(r), Section 19(5), Section 19(6) and Section 19(7) of the Competition Act, 

2002? 

Issue 3: Is DLF Ltd. dominant in the above relevant market, in the context of 

Section 4 read with Section 19(4) of the Competition Act? 

Issue 4: In case DLF Ltd. is found to be dominant, is there any abuse of its dominant 

position in the relevant market by the above party? 


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Issue 1 – Do the provisions of Competition Act, 2002 apply to the facts and 


12.2 It has been contended by the DLF that as “sale of an apartment” can neither be 

termed as sale of goods nor sale of service, Section 4(2)(a)(ii) is not relevant and 

applicable in the present case because it can be invoked only when there is purchase 

or sale of either goods or service. In support of this contention reliance has been 

placed by DLF on the Judgment of Hon’ble Supreme Court in Bangalore Development 

Authority v. Syndicate Bank (2007) 6 SCC 711 in Para 20. 

12.3 It has also been contended by the DLF that the terms and conditions of the 

agreement mentioned in the information related to agreements executed in December 

2006/2007. None of the impugned conditions can be said to have been imposed 

after 20 th May, 2009 when Section 4 came into force. Therefore, it cannot be held that 

any condition which was agreed to earlier is imposed by the DLF after 20 th May, 2009, 

so as to attract Section 4 of the Act. It has been further contended that the action of 

DLF in cancelling the allotment in pursuance of the terms and conditions of a validly 

executed and binding agreement on account of defaults committed prior to 

20 th May, 2009 cannot be examined under Section 4 of the Act. 

12.4 It has been also urged that prior to 20 th May, 2009, there was no legally recognised 

concept of an enterprise having a dominant position. Therefore, the dominance of 

an enterprise can be seen only on or after 20 th May, 2009 in terms of Section 4 of the 

Act and it is only thereafter, the question of contravention of Section 4 would arise, 

if any unfair or discriminatory condition is imposed. 

12.5 DLF has also taken a stand that the alleged conditions which have been taken 

as abusive are in fact usual conditions included in the agreements in accordance 

with “industry practice” and therefore, it cannot be said that such conditions are 

imposed by abuse of dominant position. Further, since the impugned Clauses of the 

agreement are adopted by other competitors also it became necessary for the DLF to 

incorporate such Clauses in order to meet competition and remain competitive. 

On the basis of this contention it has been submitted that such practice is exempted 

under the explanation to Section 4(2)(a) of the Act. 

12.6 In Bhim Sen v. Delhi Development Authority MANU/MR/0012/2003 while dealing 

with the allegation of unfair trade practice on part of DDA, the MRTP Commission held 

that a misrepresentation or false representation to the Complainant that a flat would be 

allotted to him followed by failure to offer the allotment was a failure on the part of DDA 

that was tantamount to deficiency in service. It was also held that the definition of 

service under Section 2(r) of the MRTP Act envisages dealings in real estate. 

12.7 Similarly, in Jaina Properties Pvt. Ltd. MANU/MR/0003/1991, the Jaina 

Properties issued an advertisement to the effect that shops of an area of 16 sq. ft. 

were available for Rs. 32,800 but later on the area of shop was enhanced from 16 sq. 

ft. to 23 sq. ft. and Complainant was required to pay Rs. 15,000 more for the extra 

space. The allegation of the Complainant was that in spite of his paying full amount 

he was allotted a space measuring 12 sq. ft. only. The Jaina Properties raised a 

preliminary objection that MRTP Act does not extend to matters involving immovable 

property as the company does not render any service within the meaning of MRTP 

Act. That contention was rejected by the MRTP Commission in view of the 

explanation added in Section 2(r) of the MRTP Act which declared that any dealings 

in real estate shall be included and shall be deemed always to have been included 

within the definition of service. 

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12.8 In a catena of cases, the Supreme Court has time and again held that housing 

activities undertaken by development authorities are service and are covered within 

the definition of service given in Section 2(o) of the Consumer Protection Act. It has 

been further held that the purchaser of flats or houses or plots are covered under the 

definition of consumer. 

12.9 In Lucknow Development Authority v. M.K. Gupta MANU/SC/0178/1994 the 

Apex Court while dealing with the issue whether Statutory Authorities such as 

Lucknow Development Authority or Delhi Development Authority or Bangalore 

Development Authority are amenable to Consumer Protection Act, 1986 for any act 

or omission relating to housing activity such as delay in delivery of possession of 

the houses to the Allottees, non-completion of the flats within the stipulated time, or 

defective or faulty construction, etc. also elaborately and succinctly construed the 

meaning of “service” and “consumer” as provided in the Consumer Protection Act. 

12.10 The Supreme Court negated the contention raised on behalf of development 

authorities that the housing activities undertaken by them are not covered under the 

ambit of term “service’. The Supreme Court emphatically held that: 

Construction of a house or flat is for the benefit of person for whom it is constructed. 

He may do it himself or hire services of a builder or a contractor. The latter being 

for consideration is service as defined in the Act. Similarly, when a Statutory 

Authority develops land or allots a site or constructs a house for the benefit of 

common man it is as much service as by a builder or a contractor. The one is 

contractual service and other is statutory service. If the service is defective or it is 

not what was represented then it would be unfair trade practice as defined in the 

Act. Any defect in construction activity would be denial of comfort and service to 

a consumer. When possession of property is not delivered within stipulated 

period the delay so caused is denial of service. Such disputes or claims are not in 

respect of Immovable property as argued but deficiency in rendering of service of 

particular standard, quality or grade. 

12.11 The Apex Court further held that a person who applies for a allotment of a 

building site or for a flat constructed by a development authority or enters into an 

agreement with a builder or a contractor is a potential user and nature of transaction 

is covered under the definition of “service of any description”. Housing activity is a 

service covered in the definition of term “service”. 

12.12 The case law cited by the DLF has not overruled the decision of the Apex Court 

in M.K. Gupta case (supra) and on the other hand the ratio propounded by the 

Supreme Court in the above case was followed by the Supreme Court in Chandigarh 

Housing Board v. Avtar Singh and Ors. MANU/SC/0749/2010. 

12.13 The rationale given be the Supreme Court in the above referred cases applies 

with full force in the present matter, more so when considering the fact that the 

definitions of “consumer” given in Section 2(f) and “service” in Section 2(u) of the 

Competition Act, 2002 are wider than the definition of these terms provided in the 

Consumer Protection Act, 1986. It is thus seen that dealings in real estate or housing 

construction has always been taken as service whether, it be MRTP Act or Consumer 

Protection Act or Finance Act. 

12.14 Even without taking the support of the decisions of Supreme Court in the 

cases referred above, a plain reading of Section 2(u) of the Act makes it abundantly 

clear that the activities of DLF in context of the present matter squarely fall within 

the ambit of term “service”. The relevant Clause (u) reads as under: 


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service means service of any description which is made available to potential 

users and includes the provision of services in connection with business of any 

industrial or commercial matters such as banking, communication, education, 

financing, insurance, chit funds, real estate, transport, storage, material treatment, 

processing, supply of electrical or other energy, boarding, lodging, entertainment, 

amusement, construction, repair, conveying of news or information and 

advertising. 

12.15 It is clear that the meaning of “service” as envisaged under the Act is of very 

wide magnitude and is not exhaustive in application. It is not disputed that DLF 

undertakes to construct apartment intended for sale to the potential consumers after 

developing the land. Therefore, it is explicit that this kind of activity is a provision of 

service in connection with business of commercial matters such as real estate or 

construction. Hence, the contention raised on behalf of the DLF that sale of an 

apartment is not covered under the definition of service is wholly misplaced and is 

devoid of any substance. 

12.16 The other contention of the DLF that since the apartment buyers” agreements 

were executed before Section 4 of the Act came into force, i.e. on 20 th May, 2009, 

therefore, its provisions were not attracted in the present matter has also no merit 

and deserves to be rejected. Though it is true that all acts done in pursuance of any 

agreement executed before the Section 4 of the Act came into being cannot be 

examined after the date of enforcement but if any enterprise invokes the provisions 

of such agreement after the date of enforcement and that action is now prohibited by 

the Act then that action could certainly be seen through the lens of Competition Act. 

12.17 In the present case the agreements, although entered between DLF and the 

Allottees before 20 th May, 2009 when Section 4 of the Act came into being, remained 

in operation even after the said date and DLF proceeded with the cancellation of 

various allotments under the Clauses of the agreement. Therefore, if the DLF acts 

under the Clauses of the agreement, which are now prohibited by the Act, such 

action can certainly be examined under the relevant provisions of the Act. 

12.18 This position has been clarified by the Bombay High Court in the case of 

Kingfisher Airline Ltd. and Anr. v. CCI and Ors. It has been held that: 

The question here is whether this agreement, which was valid until coming into 

force of the Act, would continue to be so valid even after the operation of the law. 

The parties as on today certainly propose to act upon that agreement. All acts 

done in pursuance of the agreement before the Act came into force would be valid 

and cannot be questioned. But if the parties went to perform certain things in 

pursuance of the agreement, which are now prohibited by law, would certainly 

be an illegality and such an agreement by its nature, therefore, would, from that 

time, be opposed to the public policy. We would say that the Act could have been 

treated as operating retrospectively, had the act rendered the agreement void ab 

initio and would render anything done pursuant to it as invalid. The Act does not 

say so. It is because the parties still want to act upon the agreement even after 

coming into force of the Act that difficulty arises. If the parties treat the agreement 

as still continuing and subsisting even after coming into force of the Act, which 

prohibits an agreement of such nature, such an agreement cannot be said to be 

valid from the date of the coming into force of the Act. If the law cannot be applied 

to the existing agreement, the very purpose of the implementation of the public 

policy would be defeated. Any and every person may set up an agreement said to 

be entered into prior to the coming into force of the Act and then claim immunity 

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from the application of the Act, such thing would be absurd, illogical and illegal. 

The moment the Act comes into force, it brings into its sweep all existing 

agreements. 

12.19 In view of this decision, it is clear that the Act applies to all the existing 

agreements and covers those also which though entered into prior to the coming 

into force of Section 4 but sought to be acted upon now. In addition to that, in the 

present matter, the documents filed by the informant show that indeed in some 

cases the agreement was entered into between DLF and the Allottees after the date of 

commencement of Section 4 of the Act. 

12.20 The contention of the DLF that the impugned Clauses existing in the agreement 

entered between DLF and the Allottees are usual conditions as per industry practice 

and they cannot be termed abuse is liable to be rejected because in terms of the 

Section 4 the responsibility of the dominant player has been made more onerous 

and if such practices are also adopted by a non-dominant player it may not fall 

within the ambit of Section 4. On same ground the contention that DLF has 

incorporated impugned conditions to meet the competition is also not acceptable. 

Issue 2 

What is the relevant market, in the context of Section 4 read with Section 2(r), 

Section 19(5), Section 19(6) and Section 19(7) of the Competition Act, 2002? 

12.21 A “relevant market” is delineated on the basis of a distinct product or service 

market and a distinct geographic market. These terms have been defined in Section 2(r) 

of the Act read with Sub-sections (s) and (t) of Section 2. Furthermore, while examining 

facts of a particular case, the Commission must give due regard to all or any factors 

mentioned in Section 19(6) with respect to “relevant geographic market” and 

Section 19(7) with respect to “relevant product market”. The Commission has, 

therefore, kept the above provisions of the Act in mind in the ensuing discussion on 

delineation of the relevant market in this case. 

12.22 It is observed that the instant information involves dynamics in a market 

where the informant and the Opposite Parties are participants either in capacity of 

a consumer, a seller or as regulatory bodies that influence the market environment. 

The informant, Belaire Owner’s Association obviously represents the consumers in 

this market, while DLF Ltd. is selling or supplying some product or service. 

12.23 Haryana Urban Development Authority (HUDA) is a Statutory Authority and 

Department of Town and Country Planning (DTCP), State of Haryana is a government 

department, both of which provide the regulatory or policy environment in the 

market under consideration. 

12.24 It has been established earlier that DLF Ltd. is providing services of a developer/ 

builder within the meaning of “service” given under Section 2(u) of the Act. 

Consequently, the informant is the “consumer” of this service, within the definition 

given under Section 2(f). The next point to be determined is whether these services, 

provided by DLF Ltd. to the informant, are of a distinct nature “by reason of 

characteristics...their prices and intended use” as stipulated in Section 2(t) of the Act. 

While examining the characteristics, this Commission also relies on factors of 

determination given in Section 19(7), such as end-use, price and consumer preferences. 

12.25 The Commission notes that the DG, in his report has described the nature of 

service being provided by DLF Ltd. in the context of the instant case as services of 


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developer/builder in respect of “high-end” residential building in Gurgaon. Thus, 

there are two important components of service definition made by the DG with 

regard to characteristics of the underlying physical asset that require interpretation, 

viz. “high-end” and “residential”. The third component, viz. “Gurgaon” relates to 

“geographic market” and shall be discussed at an appropriate place later. 

12.26 Broadly speaking, services of development or building can be provided in 

relation to residential properties and nonresidential properties. “Non-residential” 

properties may include a wide array of properties such as office space, retail shops, 

commercial space, hotels, storage space, industrial space, infrastructure, sports or 

amusement spaces, etc. Residential properties are buildings where people live, such 

as stand-alone houses, builder-floors, apartments, row-houses, condominiums or 

studio-apartments. Despite some element of consumer preferences, these categories 

may be interchangeable or substitutable to some extent, within a certain price range. 

Therefore, the most important determinant is the price of the dwelling unit within a 

specific geographical area. It is in this context that it becomes important to ascertain 

whether a “high-end” residential unit constitutes a distinct category. 

12.27 Terms like “high-end” or “affordable” are relatively subjective and would 

need to be determined in any case. At the same time, it can be safely concluded that 

a palace cannot be a substitute for a studio apartment or even a row-house and vice 

versa. Therefore, in this case, it is felt necessary to establish a clear and logical 

interpretation of the term “high-end”. 

12.28 Relying on the JLLS report DLF Ltd. has raised a question mark on the term 

“high-end” used by the DG and argued: 

There is no justification or basis and no evidence is placed on record to show that 

an apartment having a value of Rs. 2 - 2.5 crores would be relevant to determine 

a category to be described as Gurgaon (high-end)... There is no such criteria or 

bench mark. The said JLLS report further states, “While some claim luxury on the 

basis of size of apartments, other claim it on basis of location or even as a 

marketing aid”. 

12.29 This Commission agrees that there can be no hard and fast criteria for 

determining concepts like “luxury” or “high-end” but believes that just because no 

specific distinguishing criteria exist, it does not mean that there is no distinction 

between “high-end” and “economy” or “low-end” residential units. This distinction 

has to be made in the context of facts of a case. Further, “high-end” is not a function 

of size alone. It is a complex mix of factors such as size, reputation of the location, 

characteristics of neighbours, quality of construction, etc. that go into considering a 

dwelling unit as “high-end” or otherwise. However, the most significant 

characteristic of a “high-end” has to be the characteristics of its actual customers 

and amongst all objective differentiators of a customer’s characteristics is his or her 

capacity to pay because in economics, demand is desire backed by the ability to pay. 

12.30 Residential accommodation for Lower Income Group (LIG), Middle Income 

Group (MIG) and Higher Income Group (HIG) are standard descriptions adopted 

by several public sector builders such as Delhi Development Authority (DDA), 

Ghaziabad Development Authority (GDA), etc. Apart from the physical attributes, 

these categorisations also take into account the income or expenditure levels of the 

customer base. Together, these factors create a distinctly identifiable residential unit 

that is not substitutable in an economic sense. In other words, a small but significant 

non-transitional increase in price of a unit in one category [termed SSNIP test often 

applied in abuse of dominance cases] would not make the customer shift to another 

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category. A 5 per cent increase in the price of a villa would not make the intending 

customer choose a multi-storey apartment. The purchase may be deferred briefly or 

the choice may shift to a slightly less comfortable villa but a person who has made a 

final consumer choice of preferring a villa for the reasons of family size, need for 

privacy, demonstration effect, etc. would not switch to an apartment for a small 

increase in price. 

12.31 It is a well accepted fact that residential accommodation constructed by public 

sector builders like DDA, GDA, etc. is neither meant to be, nor is treated as a 

“high end” or “luxury” accommodation. This fact is in keeping with the charter 

and mandate of such authorities. Users/buyers of “high-end” accommodation 

demand quality and ambience of a distinctly higher level, and are willing to pay 

significantly higher prices to meet their requirements. Taking into account the current 

prices of HIG accommodation provided by these development authorities, as also 

the “demands and paying capacity of the growing upper middle and rich classes in 

the society, from the cost perspective it is quite logical to accept an apartment costing 

Rs. 2-2.5 crores (20-25 million) as “high-end” in the Indian socio-economic reality. 

If “luxury” is something that the majority of population cannot afford, then 

apartments like Belaire are “high-end” apartments. Residential units that do not 

have similar attributes will not be substitutes because the buyers are looking for 

“luxury” and not just a roof on their heads. That is why they are willing to pay a 

high-end price. 

12.32 Coming to the features of properties such as DLF’s Belaire, it is noted that the 

promotional brochures of the property talked about innumerable additional facilities, 

like, schools, shops and commercial spaces within the complex, club, dispensary, 

health centre, sports and recreational facilities,, etc. There is ample information in 

public domain in terms of newspaper ads, websites of property dealers, etc. that 

indicate that such an array of facilities is not a common feature for residential 

properties in general. These features, along with the cost-range mentioned earlier, 

may be broadly considered to define the characteristics of “high-end” residential 

accommodation. 

12.33 This Commission has given due consideration to the JLLS and GENESIS 

reports submitted by DLF Ltd. and to the QuBREX report submitted by the informant. 

The former two suggested taking Rs. 4000 per square feet as the floor price for 

“luxury” apartments whereas, the latter favoured Rs. 7,000 per square feet. We do 

not think any such quantification is necessary, particularly when DLF itself 

advertised the said apartments as “Luxury Homes at DLF Golf Links”. 

12.34 An attempt has been made to raise a point of distinction between a purchase 

for “own residence” as against for “investment”. We find that such a distinction is 

not applicable in the present case. 

A working person may buy a residence with a view to “invest” in a property that 

would give him or her good returns for purchasing a property post retirement at 

some other place. On the other hand, circumstances may force a person to move into 

a property originally intended as just an “investment”. Similarly, a person may 

“invest” in a property to be used as residence by his or her children. The decision to 

purchase a residential property is always from the point of view of a resident - 

regardless of whether the person immediately or actually lives in it. Therefore, the 

demand for a “high-end” or “luxury” apartment would be based on the same set of 

criteria and backed by the same ability and willingness to pay, whether it is being 

purchased for self-residence or for “investment”. 

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12.35 Similarly, the argument that apartments are also sold by initial Allottees 

and that there is a thriving “secondary” market, also does not carry weight in 

the relevant market under consideration. Every asset, including real estate, has 

a value which either erodes or appreciates with time. Depending upon the 

preference and the circumstances, the owner may like to retain it or dispose of at 

an opportune time. While “secondary market” may have some bearing on the 

demand and supply variables, it certainly cannot form a part of the relevant 

market for the simple reason that the primary market is a market for “service” 

while the secondary market is a market for immoveable property. Moreover, while 

building an apartment, a builder performs numerous development activities like 

landscaping, providing common facilities, apart from obtaining statutory licenses 

while a sale in secondary market merely transfers the ownership rights. An 

individual who is selling an apartment he or she has purchased cannot be 

considered as a competitor of DLF Ltd. or any other builder/developer. Nor is he 

or she providing the service of building/developing. The dynamics of such sale 

or purchase are completely different from those existing in the relevant market 

under consideration. The value added or the value reduced due to usage or 

otherwise does not even leave the apartment as the same one as had been built or 

developed by the builder/developer. Therefore, this argument also deserves to 

be rejected. 

12.36 Having settled the question on categorisation of “high-end” residential 

buildings, we would now examine the relevant geographic market. In terms of 

Section 2(s) of the Act, “condition of competition” for the services provided by 

competitors should be “distinctly homogeneous and can be distinguished from the 

conditions prevailing in neighbouring areas”. The Commission also takes into 

consideration factors such as local specification requirements and consumer 

preferences given as determining factors in Section 19(6) of the Act. Based on the 

facts of the case, Gurgaon is seen to be the relevant geographic market. A decision to 

purchase a high-end apartment in Gurgaon is not easily substitutable by a decision 

to purchase a similar apartment in any other geographical location. Gurgaon is 

known to posses certain unique geographical characteristics such as its proximity 

to Delhi, proximity to Airports and a distinct brand image as a destination for 

upwardly mobile families. 

12.37 The decision to take residence, however temporarily or permanently, depends 

on several factors such as occupation, children’s education or location, family, 

friends, surroundings, amenities, quality of life and affordability, amongst others. 

Since, a residential property is by nature immovable, its geographical location is 

amongst the foremost factors for consideration. A person working in Chennai, 

belonging to Tamil Nadu, with children living or studying in Chennai or aged 

parents living in a nearby village is most unlikely to even look at a property in 

Gurgaon in Haryana, let alone purchase it. Almost equally unlikely is for someone 

working in Greater NOIDA to buy a luxury apartment in Haryana if he or she never 

intends to settle there. There are sufficient “investment” opportunities available in 

Greater NOIDA of similar apartments. 

12.38 In the end, the “investment” or “own residence” decision centres on locational 

preference of the purchaser and this preference is not interchangeable or substitutable. 

A better apartment for lesser price may be available in, say, Surat in Gujarat but that 

apartment would have no value for the average purchaser who has decided to buy 

a house in Gurgaon for whatever reason. 

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12.39 In the instant case, we are not looking at concerns of speculators considering 

various places in the country in search of good deals that would be profitable, but of 

average citizens buying a residential property out of their hard earned money or by 

taking housing loans. A small, 5 per cent increase in the price of an apartment in 

Gurgaon would not make the person shift his preference to Ghaziabad, Bahadurgarh 

or Faridabad on the peripheries of Delhi or even to Delhi in a vast majority of cases. 

12.40 In conclusion, on this issue, this Commission is of the view that the relevant 

market is the market for services of developer/builder in respect of high-end 

residential accommodation in Gurgaon. 

Issue 3 

Is DLF Ltd. dominant in the above relevant market, in the context of Section 4 read 

with Section 19(4) of the Competition Act? 

12.41 Having delineated the relevant market above, it is now to be examined whether 

DLF Ltd. is in a “dominant position” in the relevant market in the context of Section 4 


12.42 The Explanation (a) to Section 4 very clearly defines “dominant position” as 

“a position of strength”. This strength should enable the enterprise to “operate 

independently of competitive forces prevailing in the relevant market” or to “affect 

its competitors or consumers or the relevant market in its favour.” 

12.43 The evaluation of this “strength” is to be done not merely on the basis of the 

market share of the enterprise in the relevant market but on the basis of a host of 

stipulated factors such as size and importance of competitors, economic power of 

the enterprise, entry barriers, etc. as mentioned in Section 19(4) of the Act. This wide 

spectrum of factors provided in the Section indicates that the Commission is required 

to take a very holistic and pragmatic approach while inquiring whether an enterprise 

enjoys a dominant position before arriving at a conclusion based upon such inquiry. 

It is conceivable that the “dominant position” may be acquired due to several factors 

even outside the “relevant market” but, “for the purpose of” Section 4, this “position 

of strength” must give the enterprise ability to operate independently of competitive 

forces” in the relevant market or ability to “affect its competitors or consumers or the 

relevant market in its favour”. Thus, strengths derived from even other markets, if 

they give an enterprise such abilities as mentioned above, would render the enterprise 

as “dominant” in the relevant market. 

12.44 It is important to understand each of the terms that together constitute the 

framework for determining dominant position. Therefore, first we look at the phrase, 

“operate independently of competitive forces prevailing in the relevant market”. 

12.45 Characteristic of a market is defined by the interplay of market forces of demand 

and supply, which in turn are affected by several forces including government 

policy or regulations, demographic factors and natural conditions of land 

availability, etc. 

12.46 The preamble of the Competition Act and Section 18 mandates the Commission 

to “protect the interest of consumers” and it is important to ensure that consumers” 

surplus is not adversely impacted. The competitive forces that a seller may face are 

challenges from existing competitors, entry of newer competitors, or from newer 

rival products. Healthy competition among the sellers promotes productive and 

allocative efficiencies and optimises consumer surplus. However, there is cause for 

concern when the measures taken by a seller include conscious actions intended to 


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create entry barriers, drive out existing rivals, control output or price, impose 

restrictive and supplementary obligations on captive consumers, impose unfair or 

discriminatory conditions or prices to the disadvantage of consumers or rival firms 

or leverage strengths in one market to enter or protect another market. To avoid the 

challenges from newer, more efficient and innovative products, sellers may also 

take measures to thwart technical or scientific development in a market. Such conduct 

is considered anti-competitive and comes under the scanner of competition laws. 

Therefore, for the purpose of Explanation (a)(i) to Section 4, it is important to examine 

the ability of an enterprise to operate independently of competitive forces generated 

by its rivals. 

12.47 Another aspect of dominance given in Explanation (a)(ii) to Section 4 relates 

to the ability of an enterprise to “affect its competitors or consumers or the relevant 

market in its favour.” For example, an enterprise may have the capability to not only 

operate independently of competitive forces but may actually be in a position to 

influence its competitors or consumers in the relevant market or the relevant market 

in its favour. In a sense, this is a higher degree of strength where an enterprise may 

be freely able to adopt price or non-price strategy to overcome downward pressures 

on its profit from its competitors, or to capture or bind consumers or to create a 

market environment that would deter newer competition, both in terms of competing 

enterprises or rival products. 

12.48 The facts of this case have been examined keeping in view the provisions 

relating to dominant position given in the Act. While doing so, the Commission has 

given due consideration to the findings of the DG and submissions made by the 

parties concerned including various reports relied upon by them such as analysis 

reports from Jones La Salle Meghraj (JLLM), ICICI Direct Analyst, RBS (The Royal 

Bank of Scotland) Analyst, Knight Frank, Goldman Sachs, Prop Equity and QuBREX. 

The essential assertions or contentions have been mentioned in great detail in these 

reports and hence are only briefly referred to in this Section of the order, where 

required. 

12.49 The facts that have emerged during the proceedings before the Commission 

have to be examined to ascertain whether DLF Limited has the position of strength 

in the relevant market in the light of the discussion on this concept in the previous 

paras. Each of the main contentions of the OP-1 is discussed below. 

12.50 The DLF Ltd. has firstly contended that there are many large real estate 

companies and builders in India, particularly in Northern India as well as in NCR 

and Gurgaon who offer stiff competition and give competitive offers in the relevant 

market of residential apartments to give a wide choice to the consumers. The 

Commission feels that the relevant point here is whether DLF Ltd. along with its 

subsidiaries has a position of strength in comparison to its competitors. The Act 

lays down factors for determining this position of strength under Section 19(4). 

These are discussed later in the order. 

12.51 OP-1 has argued that the market share determined by JLLM report based upon 

number of apartments as well as on the basis of the values thereof offered by the 

respective developers in NCR and Gurgaon is the correct basis for determining 

market share. OP-1 has also stated that sales figure of different developers is not 

available and also might not be relevant for determining the market share. Moreover, 

determination of market share for Gurgaon derived from market shares based on the 

all India sales figure is not appropriate. As regards factors other than the market 

share mentioned in Section 19(4) of the Competition Act, 2002, OP-1 has also 

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contended they need not be discussed since the assumption that the market share of 

DLF is the highest itself has no basis and thereafter consideration of the further 

factors becomes irrelevant. 

12.52 Furthermore, it was contended that factors mentioned in Section 19(4) are 

only indicative and relevance of each factor has to be considered in the light of 

overall facts and market conditions in each case. Nevertheless, DLF Ltd. has 

contested several findings of the DG. With specific reference to Clauses (b) and (c) of 

Section 19(4), it was argued that its total size and turnover considered by the DG is 

based on figures that relates to commercial as well as retail business, which is 

admittedly larger. Moreover, the figures are not confined only to the aforesaid relevant 

market. With reference to Clause (f) of Section 19(4), it has been brought out by OP-1 

that it cannot be said that any customer is in any way dependent on it when he 

desires to purchase a residential property. With reference to the factor mentioned in 

Clause (h) of 19(4), it has been stated that during the period from 2007 onwards, a 

large number of new developers have entered the market to offer residential 

apartments including luxury apartments. Such new developers are also creating 

intense competition in the market and the old existing developers have to meet this 

intense competition. As regards, factor in Clause (j) of Section 19(4), it has been 

stated by OP-1 that the size of market, even for residential properties is very large in 

Northern India, NCR and even in Gurgaon. Further, Herfindahl Index indicated 

therein, shows that the market is less concentrated and in such a market there can be 

no case for monopoly or dominant position. 

12.53 In this context, the foremost and basic question is deciding whether the data 

and comments made in Jones La Salle Meghraj (JLLM) report and other market 

reports relied upon by DLF are more authentic/reliable than the CMIE and other 

market reports relied upon by the DG w.r.t. establishing market power (and hence 

dominance) of DLF. The biggest weakness of the data used by DLF is that it is based 

on current turnover and “active stock”. Active stock signifies current trading stock 

and reveals nothing about volumes already sold in recent past. There is nothing to 

indicate why DLF should be given more weightage over the objective and unbiased 

data used by DG. DLF Ltd. primarily relies on JLLM report that it commissioned 

while DG relies on CMIE data (and others) that are objective and taken from 

public domain. CMIE is an independent economic research and analysis 

organisation considerable part of whose database and analysis is available in public 

domain. CMIE data is extensively used by many corporate and some Government 

agencies for analytical purposes. The Commission is disinclined to accept the data 

of JLL. It is also noteworthy that despite being asked by the Commission, OP-1 did 

not submit sales data in relation to relevant market. Consequently, any claim that 

DLF Ltd. does not have a position of strength in terms of market share remained 

unsubstantiated. 

12.54 The Commission has considered the issues relating to market share, which is 

one of the important parameters for determining dominance. However, as is evident 

from the provisions of Section 19(4), it need not necessarily be the single predominant 

factor and often a host of other factors have to be considered. Further, if sufficient 

and undisputed data is not available to determine market share in a credible manner, 

it becomes even more important to draw on other corroborating data and analyse 

the other factors in even greater depth to off-set the difficulties in working out sharply 

specified market shares on account of data constraints, and/or to complement the 

market share when margins between competitors are not wide enough in determining 


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the strength of the enterprise in terms of affecting market forces as set out in the 

explanation (a) to Section 4. 

12.55 Within the above constraint, market share can be used as the initial starting 

point for establishing dominance of an enterprise. Two commonly used measures for 

defining market share in the real estate business are a) sales figures (value terms) and 

b) active stock (volume terms), although, both are sensitive to the quality of data. Data 

available in the public domain pertaining to this sector is constrained by limited 

coverage both in space and time dimensions. DG has used sales figures for measuring 

dominance while OP-1 prefers to rely on active stock. The Commission has given due 

consideration to the conclusions of the DG in this regard, the contentions of the OP-1 

regarding those findings as well as submissions of the informant on the contentions 

of OP-1. These have been mentioned in detail earlier in this order. 

12.56 Despite the data constraint, it may be appropriate to recollect the evidences of 

market power of DLF estimated by DG who has brought out that the market share 

calculated on the basis of data from CMIE applies to all companies operating all 

over India and the data establishes that OP-1 has the highest share (considerably 

higher than the nearest competitor) among all the housing construction companies 

in India. On basis of very rational and reasonable logic, the DG report shows that 

even after granting a margin of 5 per cent - 10 per cent on account of other, minor 

players not covered in CMIE data, data and sampling error, etc. the market share of 

OP-1 among the companies operating in Gurgaon exceeds 55 per cent. DG has 

analysed total sales figure of 82 companies from CMIE database, who are engaged 

in real estate residential business and who are not only operating in Gurgaon but 

also in other places in India. On basis of this analysis, the DG report establishes the 

superior market share of OP-1 at about 44 per cent. For the year 2009-10 also, DG 

has shown the market share of OP-1 in relevant market to be about 50 per cent. 

12.57 DG has also stated that it cannot be said that any other player enjoys similar 

or near to similar market share than that of OP-1. In their annual reports and various 

literature, OP-1 have repeatedly stated that Unitech is one of their close competitors, 

however, it is observed that the market share of OP-1 is more than double of the 

market share of Unitech, its nearest competitor, as on date. In conclusion, the DG 

has clearly shown that the market share of the nearest competitor is much less than 

OP-1, and, therefore, there is limited competitive constraint. In totality, it can be said 

that market share of OP-1 as determined by DG on basis of very detailed analysis is 

indicative of its dominance in the relevant market. 

12.58 On the other hand, DLF, citing JLL study using active stock concept as against 

sales figures from annual accounts, has preferred the use of the concept of active 

stock in a broader product and geographic market. The Commission has noted that 

the sales data used by DLF in this context is unauthenticated, and that DLF’s 

approach does not provide a robust alternative measure, which could enable the 

Commission to take this into account meaningfully for determination of the issue. 

12.59 In their response DLF have also argued that there are errors in the data collated 

by Centre for Monitoring Indian Economy (CMIE). They have contended that the 

CMIE data used by DG, in regard to sales figures suffers from certain deficiencies in 

terms of coverage and accuracy. The Commission finds that market shares worked 

out with reference to sales can be different, depending on whether the sales of a 

company are computed in volume terms or value terms. Further, the use of different 

systems of accounting could also lead to different results. These issues actually 

arise from the data limitations, which are inevitable in the real estate business, as 

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there exist no official sectoral statistical estimates applicable for the entire country. 

In view of CMIE data being the most reliable available data, the Commission finds 

no reason to reject the analysis of DG regarding the dominant position of DLF Ltd. 

in the relevant market. Thus, in terms of Section 19(4)(a) Commission finds force in 

the conclusion of dominance arrived at by DG. 

12.60 The argument advanced by OP-1 that other factors of dominance given in 

Section 19(4) are only indicative is contrary to the legal position as seen from the 

provisions of the Act. Section 19(4) says in no ambiguous terms that “The Commission 

shall, while inquiring whether an enterprise enjoys a dominant position or not 

under Section 4, have due regard to all or any of the following factors...” Thus, it is 

clear that the Act does not envisage that market share alone should be considered by 

the Commission while determining dominant position of the enterprise. To do so 

would be to go against the wording and intent of the Act. In fact, a proper reading of 

Section 19(4) clearly show that the law makers intended to assess dominant position 

in a very holistic manner, by triangulating several aspects of the relevant market as 

well as of the overall wider market where an enterprise operates and comparing 

relative cumulative strengths and weaknesses of the players within the relevant 

market. At the same time, several other factors like overall economic development, 

social obligations and regulatory environment also need to be considered. Most 

importantly, Clause (m) of Section 19(4) also explicitly empowers the Commission 

to consider “any other factor” relevant for assessment of dominance. Therefore, to 

argue that only market share in the relevant market is a valid determinant of 

dominance is against the very spirit of the Act. 

12.61 It is important to note that to evaluate the relative position of strength in terms 

of the parameters of size and resources of the enterprise and size and importance of 

the competitors given under Section 19(4)(b) and (c) of the Act, it is not necessary to 

confine the evaluation only to the relevant market. Indeed, to do that would defeat 

the very purpose of these parameters. It is the overall size and resources of an 

enterprise or the overall importance of a competitor that has to be compared to see 

comparative position of strength and not the limited manifestation of that strength 

in a particular product or geographic market. 

12.62 In this context, it is noted that DLF Limited also has 82.7 per cent stake in DLF 

Home Developers Limited and 100 per cent stake in DLF New Gurgaon Home 

Developers Private Ltd. as per their annual report. While examining the dominant 

position of enterprise under Section 4, it is pertinent to refer to the definition of 

“enterprise” given in Section 2(h) of the Act wherein the activity of the enterprise in 

the relevant market includes direct or indirect activity through “one or more of its 

units or divisions or subsidiaries...” Similar assessment of combined strength is 

inferred from the use of the term “group” in Section 4. 

12.63 The investigation report analysed CMIE Data Base in respect of about 118 real 

estate companies across India and has found that DLF Ltd. group has about 

69 per cent of gross fixed assets and 45 per cent of capital employed. As per the draft 

Red Hearing Prospectus filed by DLF Ltd. In 2007, the group had a total land bank 

of 10,225 acres out of which 49 per cent was located in Gurgaon alone. 

12.64 The Forbes’ list of global 2,000 companies published for the year 2010 includes 

DLF Ltd. which is the only Indian real estate company to feature amongst the top 2000 

at a significant position of 923. Business Today in its May, 2009 issue ranked DLF Ltd. 

at 14 th position among top 100 companies of India and there was no other real estate 

company in the list. 

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12.65 In terms of income and profit after tax, also DLF has distinct advantage over 

other real estate players. DG after analyzing Net Income and PAT of 113 companies 

for 2008-09 has shown that OP-1 has about 41 per cent share as far as net income is 

concerned and about 78 per cent as far as PAT is concerned. In terms of market 

capitalisation, the investigation report has examined data in public domain which 

shows DLF Ltd. holds 23 rd position as against its nearest competitor in the relevant 

market viz. Unitech which holds 68 th position. A similar differential exists in terms 

of net income, Profit After Tax (PAT), gross fixed assets, cash profits, net worth and 

capital employed. 

12.66 The DG report shows, with the help of cogent reasoning and supporting data 

that if the position of OP-1 is compared with that of Unitech, its nearest competitor, it 

emerges as clear front runner in terms of sales, Net Income, PAT, Gross Fixed Assets 

and Capital Employed. Similarly, OP-1 also emerges leader when financial position 

of other big players like Emmar, Parshvanath and Omaxe group are compared. 

12.67 On the other hand, it has been submitted by OP-1 that in 2007, it has supplied 

projects worth 6.7 million sq. ft. as against 16.8 million sq. ft. by Unitech and 

10.7 million sq.ft.by Parshvanath. For the year ending March 2009, Parshvanath, 

one of the larger builders had a turnover of Rs. 762 crore and its stated land reserve 

is 4,224 acres. Unitech has a stated land reserve of 11,179 acre. Its turnover in the 

year ending March 2009 was Rs. 3,316 crore. The stated land reserve of Ansal API is 

9,335 acres and that of Omaxe is 4,500 acres. Further, as per RBS (The Royal Bank of 

Scotland) Analyst Report dated 18 th January, 2010, its land bank in NCR is stated to 

be 6.3 million sq. ft. These figures show that there are several competitors of a very 

large size and there are many more large size builders. As an argument, OP-1 has 

also stated that it has not launched any new project in the recent past and it has 

been stated that the residential space offered by OP-1 does not constitute any 

substantial portion of the total residential space offered by various developers. 

12.68 The Commission notes some incontrovertible facts that have been given in the 

investigation report of the DG. These have not been contradicted by the OP-1. These 

include facts such as OP-1 has more than 13,000 acres of prime land. As per draft 

herring prospectus filed by OP-1 Limited in the year 2007, the group had the total 

land bank of 10,225 acres. This far exceeds the land bank of Unitech, the nearest 

competitor of OP-1. The turnover of OP-1 for 2009 was Rs. 10,035.39 crores. This is 

almost 300 per cent higher than that of Unitech and nearly 700 per cent higher than 

that of Parshvanath. The “supply” of projects in a snapshot of a single year would 

give a completely erroneous picture of the comparative strengths of OP-1 and its 

competitors. A straight look at the undisputed comparative figures given here takes 

all the force out of the arguments of the OP-1. 

12.69 The report of the DG creates a very lucid picture of relative strengths of OP-1 as 

compared to its nearest competitors. The OP-1 has not brought on record any 

substantive fact that may besmirch that picture. Therefore, this Commission is of the 

view that DLF Ltd. has significant advantages over competitors in size and resources. 

Thus, the dominant position of the OP-1 in terms of Clauses (b) and (c) of Section 19(4) 

is amply established. 

12.70 In addition to the discussion above in respect of Clauses (a), (b) and (c) to 

Section 19(4) other relevant facts are also discussed below to arrive at the finding in 

respect of the position of strength of OP-1 in this case. These facts are relatable to 

factors given under Clauses (d) to (m) of Section 19(4). 

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12.71 The investigation report states that DLF Ltd. has a clear early mover’s advantage 

since it has been in the business since 1946 and apart from residential sector; it has 

leadership position in commercial, retail and office space sectors. This position has 

been propagated by DLF itself and is evident from the wordings of the draft Red 

Hearing prospectus filed before SEBI and public statements of its Executive Chairman 

that, “DLF’s dominant position in Indian Homes segment is established...” 

12.72 DLF has developed more than 22 urban colonies spread across over 32 cities 

and has about 300 subsidiaries. These constitute a redoubtable sales net work and 

provide incomparable services of integrated township in Gurgaon with a wide 

array of commercial properties, retail space, recreation facilities, etc. This level of 

vertical integration of sale or service network has not been achieved by other 

competitors particularly in Gurgaon. 

12.73 A consumer looking for residential accommodation is influenced by several 

factors such as proximity of work place, schools, recreation centres, shopping centres, 

etc. Due to the high level of vertical integration of services in the integrated township 

of DLF in Gurgaon, there is very high dependence of consumers on DLF in that area. 

A person working in one of the offices situated within the DLF township or doing 

business from one of the commercial properties is bound to be heavily inclined to 

buying a residential property in the DLF township and would have more than 

normal resistance to shifting to another area outside township. 

12.74 Real estate is a high cost sector with natural entry barriers due to high cost of 

land and brand value of incumbent market leaders such as DLF. 

12.75 In a market such as the instant relevant market, the consumers have very little 

or no countervailing buying powers. There are few developers/builders of luxury, 

high-end apartments and thousands of prospective buyers. These conditions would 

ensure that consumers will be the price takers and would have little option but to 

accept any conditions that may be laid down by the seller. In such a market, any 

seller in a position of strength would have no need to sacrifice its producer’s surplus 

to meet competition. In fact, the market followers would find it advantageous to 

adopt similar price and non-price strategies as the market leader since in such a 

market the consumer does not possess much market power. 

12.76 As can be seen from the discussion above from every logical angle, DLF Ltd. 

and its subsidiaries have a considerably higher position of strength in the relevant 

market in comparison with its competitors due to several factors which have been 

elaborated upon. Its competitors may be large but do not compare to the strength of 

DLF. In context of the historical presence of DLF in the market, its superior level of 

vertical integration, its presence in nonresidential segment of real estate, its financial 

strength, etc., there can be no doubt that DLF Ltd. is way ahead of its competitors in 

terms of its ability to operate independently of competitive forces or affect its 

competitors or consumers or the relevant market in its favour. 

12.77 On the contrary, it can be seen that though over the past few years several new 

developers/builders have entered the relevant market, despite this development 

there has been little dilution of the position of strength of DLF Ltd. in the market. The 

fact that there has been no move to improve the framework of buyers’ agreement to 

make it more attractive to consumers, also supports this conclusion. DLF Ltd. is 

impervious to the level of competition currently being provided by other players and 

there is no perception of threat from any quarter. Under a more competitive scenario, 

where there are increased numbers of players capable of supplying equally good 


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rival products or services, the incumbent player would display a strong tendency to 

meet the competition and this would be reflected in improved customer interface, 

amongst other things. There is no evidence to show this has happened. 

12.78 The market structure in this case is such that there is low level of concentration. 

However, in such a market firms which are market leaders and possess around 

50 per cent market share have far greater dominance than in a relatively concentrated 

but more equally divided market. In the relevant market, DLF Ltd. faces negligible 

threat from its rivals, including the new ones, particularly, since it has a strong 

presence in almost all related real estate sectors. All these factors indicate that DLF 

Ltd. is fully capable of operating independently of competitive forces in the relevant 

market. Thus, conditions laid down in Explanation (a)(i) to Section 4 are satisfied. 

12.79 DLF Ltd. has at one stage argued that the clauses in its agreement with buyers 

are normal industry practices. We have already observed that industry practices 

emanate from market leaders and are followed by the rest. Such a market leader is 

not constrained to adopt practices initiated by minor players. Under the facts and 

circumstances of the case, if DLF Ltd. were to modify the format of its agreement and 

make it more buyer friendly, it would be able to assert sufficient pressure on its 

competitors to follow suit. 

12.80 Similarly, by offering a few value added services, DLF would be able to exert a 

multiplier effect on non-price competition, which would sway the consumers in its 

favour. A live example of such market power is the project of Belaire itself where 

bookings were made despite the awareness that all necessary clearances were not in 

place. Due to the real and perceived position of strength that DLF Ltd. enjoys in the 

eyes of the consumers, it was able to attract buyers despite the uncertainty regarding 

the project. 

12.81 If an enterprise has the ability to influence its competitors or the consumers in 

a relevant market, as demonstrated above, there could be little doubt in its ability to 

influence the market itself in its favour. An announcement of several large projects 

by DLF Ltd. at one go could make its competitors react by holding some of their own 

projects to avoid market saturation. Similarly, prospective consumers may defer 

their demand in expectation of availability of projects to be offered by the market 

leader. Thus, DLF Ltd. would be able to influence both the supply and demand of 

projects in the relevant market. These possibilities indicate that DLF Ltd. has a 

position of strength as envisaged in Explanation (a)(ii) to Section 4 of the Act. 

12.82 It should be noted that dominance is neither acquired nor asserted in a transient 

moment in time. It takes years for an enterprise to acquire a position of strength and 

its conduct has to be examined over a period of time in most cases to ascertain 

whether it constituted abuse. Use of snapshot data of market shares or market 

presence based on current active stock figures would give a false picture that, if 

applied in the context of the Act, may even cause avoidable harm to the market. 

Therefore, our assessment of dominant position is by looking at the profile, presence 

and achievements of DLF Ltd. over the years as well as its conduct, particularly in 

relation to consumers, over a period of time. 

12.83 In this context, and having earlier examined the facts of the case in the light of 

many other factors mentioned in Section 19(4), the Commission thought it appropriate 

to consider whether DLF Can be said to be a market leader in real estate sector, and 

whether this would also be a relevant factor under Section 19(4)(m) for determination 

regarding “dominance” of DLF. 

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12.84 In the context, apart from the earlier information regarding DLF, the following 

statements of DLF may be quoted from its website: 

We and our predecessors have been steadily building our real estate business 

since 1946. Historically, our business has had a particular focus on real estate 

development in the NCR, which includes Delhi and adjacent areas such as 

Gurgaon...... we developed some of the first residential colonies in Delhi such as 

Krishna Nagar in East Delhi, which was completed in 1949. Since, then we have 

been responsible for the development of many of Delhi’s other well-known urban 

colonies, including South Extension, Greater Kailash, Kailash Colony and 

Hauz Khas. 

Following the passage of the Delhi Development Act in 1957, the State assumed 

control of real estate development activities in Delhi, which resulted in restrictions 

on private real estate colony development. We, therefore, commenced acquiring 

land at relatively low cost outside the area controlled by the DDA, particularly in 

the district of Gurgaon in the adjacent State of Haryana. This led to our first 

development, DLF Qutab Enclave, which has evolved into DLF City, our landmark 

project. DLF City is spread over 3,000 acres in Gurgaon and is an integrated 

township which includes residential, commercial and retail properties in a 

modern city infrastructure with schools, hospitals, hotels, shopping malls and a 

leading gold and country club. DLF City incorporates Cybercity, our leading 

commercial development which when completed is expected to have developed 

area of approximately 20 million square feet. 

12.85 The following statement of Chairman of DLF may also be quoted from the 

website. “I am acutely aware that. ...my company DLF is today regarded as the 

largest real estate developer in the world and has a pan-Indian presence with 

over 50 million sq. feet under construction.....” 

12.86 The Commission has noted that this provides a historical perspective of the 

activities, growth and stature of DLF in the real estate sector. This information, 

though mostly relating to the period before the Act come into force, is still relevant 

since present day market leadership in any product/service is the consequence of 

historical development of that sector and firms operating therein. In conformity 

with information dealt with earlier, this makes it evident that as of today DLF is a 

market leader in real estate sector. 

12.87 A market leader, by definition, enjoys a unique position in the market. A unique 

interplay of, and casual relationships between, the various factors which give the 

firm a leadership position also give it the ability to act independently of its competitor. 

It has the ability to influence many of the factors which determine the market and its 

characteristics themselves. It can often lay down the rules of the game, which 

power/strength it could naturally tend to exercise in its favour to the potential 

detriment of the competitors and consumers’ interests. A market leader would, 

therefore, normally have dominance in the market, and could be considered on this 

basis itself, to be a dominant firm in the relevant market in terms of provisions of 

Section 4 of the Act. The Commission is of the view that DLF enjoys the position of 

market leader in the real estate sector in general, and in the relevant market in 

particular, and this is a relevant factor under Section 19(4)(m) for holding that it has 

a dominant position in the relevant market. 

12.88 The reference to orders of this Commission passed in the case of BPTP and 

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a prima facie assessment of dominant position and neither of the two enterprises 

enjoyed the wide spectrum of strengths as do DLF Ltd. and its subsidiaries in the 

relevant market. Moreover, the relevant market under consideration in both the 

cases was different from the relevant market in this, case and therefore, the cases are 

differentiated on facts. 

12.89 In view of the above, this Commission concludes that DLF Ltd. is in a dominant 

position in the relevant market in the context of Section 4 read with Section 19(4) of 

the Act. 

Issue 4 

In case DLF Ltd. is found to be dominant, is there any abuse of its dominant position 

in the relevant market by the above party? 

12.90 The Commission has gone through the entire Apartment Buyers Agreement 

(referred to as Agreement hereinafter) very carefully for the purpose of determination 

of this issue, considered the impact of conditions imposed and specifically noted a 

number of terms therein, including the following: 

(i) Unilateral changes in agreement and supersession of terms by DLF without 

any right to the Allottees: 

...the Company has acquired some lands........such lands as and when 

licensed and approved by the Competent Authority (IES), shall be deemed 

to be a part of the approved layout plan of Phase-V.....this Agreement shall 

automatically stand superseded and be substituted by such subsequently 

approved layout plan(s) of Phase-V and shall be deemed to form a part of 

this Agreement. (Ref.: representation B of the Agreement). 

(ii) DLF’s right to change the layout plan without consent of Allottees: 

...the apartment Allottee hereby agrees that it shall not be necessary on the 

part of the Company to seek consent of the Apartment Allottee for the purpose 

of making any changes in order to comply with such directions/conditions/ 

changes and that the layout plan of Phase-V as may be amended and 

approved form time to time (Ref. representation C of the Agreement) 

(iii) Discretion of DLF to change inter se areas for different uses like residential, 

commercial, etc. without even informing Allottees: 

...with each zone as may be earmarked for residential, commercial or other 

uses, provided however, the total number of zones and their earmarked uses 

may be changed as per the directions of the Competent Authority(ies) or at the 

sole discretion of the Company (Ref.: representation E of the Agreement) 

(iv) Preferential location charges paid up-front, but when the Allottee does not get 

the location, he only gets the refund/adjustment of amount at the time of last 

instalment, that too without any interest: 

The Apartment Allottee hereby agrees to pay additionally as preferential 

location charges... the apartment Allottee has specifically agreed that due to 

any change in layout/building plan, the said apartment ceases to be in 

preferential location, the Company shall be liable to refund only the amount 

of preferential location charges without any interest...in the last installment 

as stated in schedule of payment... (Ref.: Clause 1.5 of the Agreement) 

(v) DLF enjoys unilateral right to increase/decrease super area at its sole discretion 

without consulting Allottees who nevertheless are bound to pay additional 

amount or accept reduction in area: 

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...the Apartment Allottee agrees and undertakes to pay for the increase in 

super area immediately on demand by the Company as and when such 

demand is intimated to the Apartment Allottee by the Company irrespective 

of receipt of the Occupation Certificate and if there shall be a reduction in 

the super area, then the refundable amount due to the Apartment Allottee 

shall be adjusted by the Company from the final installment as set forth in 

the Schedule of Payments in Annexure III (Ref.: Clause 1.6 of the Agreement) 

(vi) Proportion of land on which apartment is situated on which Allottees would 

have ownership rights shall be decided by DLF at its sole discretion (evidently 

with no commitment to follow the established principles in this regard). 

It is made clear by the Company and specifically understood by the Apartment 

Allottee that the Company may at its sole discretion and for the purpose of 

complying with the provisions of Haryana Apartment Ownership Act, 1983 

or any other applicable laws substitute the method of calculating the 

proportionate share in the ownership of the land beneath the building and/ 

or common areas and facilities as may be described by the Company in its 

sole discretion in any declaration by calculating the same in the ratio of his/ 

her apartment’s value to the total value of the said building (s)/project/ 

scheme, as the case may be, and that the Apartment Allottee agrees not to 

raise any objections in this regard (Ref.: Clause 1.7(iii) of the Agreement) 

(vii) DLF continues to enjoy full rights on the community buildings/sites/ 

recreational and sporting activities including maintenance, with the Allottees 

having no rights in this regard: 

...the Company has made it specifically clear to the apartment Allottee... 

that the Company is free to deal with community buildings/sites/ 

recreational and sporting activities. ..in any manner as the Company may 

deem fit. (Ref.: Clause 1.7(viii) of the Agreement). 

(viii) DLF has sole discretion to link one project to other projects, with consequent 

impact on ambience and quality of living, with the Allottees having no right 

to object: 

It is further clarified by the Company and agreed to by the Apartment Allottee 

that the Company may at its sole discretion make The Belaire project a part 

of any other adjacent project that has already come into existence or may be 

constructed in future at any time or keep it separate as an independent 

estate and the Apartment Allottee shall not raise may objection for such 

formation (Ref.: Clause 1.9 of the Agreement) 

(ix) Allottees liable to pay external development charges, without there being 

disclosed in advance and even if these are enhanced: 

It is made clear by the Company and agreed by Apartment Allottee that the 

payment of External Development Charges shall always be solely to the 

account of Apartment Allottee to be borne and paid by all the Apartment 

Allottees... In the event of such charges remaining unpaid, the Apartment 

Allottee shall have no right, title and interest left in the apartment thereafter. 

The Apartment Allottee further agrees that he/she would not be competent to 

challenge such action of resumption of the said apartment by the Company 

due to default of non-payment of such enhanced external development charges 

on the part of the Apartment Allottee. (Ref.: Clause 1.11(a) of the Agreement) 

(x) Total discretion of DLF regarding arrangement for power supply and rates 

levied for the same: 


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...the Company or its agents may at their sole discretion...enter into the 

arrangement of generating and/or supplying power...... Allottee.......gives 

complete consent to such an arrangement including it being an exclusive 

source of power supply...... and has noted the possibility of its being to the 

exclusion of power supply from DHBVN/State Electricity Boards..... It is 

further agreed and confirmed by the Apartment Allottee that the Company 

or its agents shall have the right to charge tariff for providing/supplying 

the power at the rate as may be fixed from time to time by the Company 

which may or may not be limited to the rate then charged by the DHBVN/ 

State Electricity Boards... (Ref.: see Clause 1.14 of the Agreement) 

(xi) Arbitrary forfeiture of amounts paid by the Allottees in many situations: 

The Apartment Allottee hereby authorises the Company to forfeit out of the 

amounts paid/ payable by him/her, the earnest money as aforementioned 

together with any interest paid, due or payable along with and any other 

amount of a non-refundable nature including brokerage paid by the Company 

to the brokers in case of booking is done through a broker......in the event of the 

failure of the Apartment Allottee to perform his/her obligations or fulfill all 

the terms and conditions set out in the application and/or this Agreement 

executed by the Apartment or in the event or failure of the Apartment Allottee 

to sign and return this Agreement in its original form to the Company within 

30 days of its dispatch by the Company. (Ref.: Clause 4 of the Agreement) 

(xii) Allottees have no exit option except when DLF fails to deliver possession 

within agreed time, but even in that event he gets his money refunded without 

interest only after sale of said apartment by DLF to someone else: 

...the Company shall be unable to or fails to deliver possession of the said 

Apartment to the Apartment Allottee within three years...the Apartment 

Allottee shall be entitled to give notice to the Company...in that event the 

Company shall be at liberty to sell and/or dispose of the said Apartment 

and the allotted parking space to any other party...without accounting for 

the sale proceeds thereof to the Apartment Allottee....the Company shall 

within 90 days from the date of full realisation of the sale price after sale of 

said apartment and the parking space refund to the Apartment Allottee, 

without any interest, the amount paid by him/her in respect of the said 

Apartment and the parking space... (Ref.: Clause 11.3 of the Agreement) 

(xiii) DLF’s exit Clause gives them full discretion, including abandoning the project, 

without any penalty: 

The Apartment Allottee agrees that in consequence of the Company 

abandoning the Scheme or becoming unable to give possession within three 

(03) years from the date of execution of this Agreement...the Company shall 

be entitled to terminate this Agreement whereupon the Company’s liability 

shall be limited to refund of the amounts paid by the Apartment Allottee 

with a simple interest @9 per cent per annum for the period such amounts 

were lying with the Company and to pay no other compensation 

whatsoever.... the Company may, at its sole option and discretion... agrees 

to pay... compensation @ Rs. 5 per sq. ft. of the super area of the said 

Apartment per month for the period of such delay beyond three (03) years or 

such extended periods... (Ref.: Clause 11.4 of the Agreement) 

(xiv) DLF has sole authority to make additions/alterations in the buildings, with 

all the benefits flowing to DLF, with the Allottees having no say in this regard: 

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The Company shall have right, without any approval from any Apartment 

Allottee in the said Building to make any alterations, additions, improvements 

or repairs whether structural or nonstructural, interior or exterior, ordinary 

or extra ordinary in relation to any unsold apartment(s) within the said 

Building and the Apartment Allottee agrees not to raise objections or make 

any claims on this account..... The Apartment Allottee agrees and authorises 

the Company to make additions to or put up additional structures in/upon 

the said Building or Additional Apartment Building(s) and/or structures 

anywhere in the said Complex/Said Portion of Land as may be permitted by 

Competent Authorities and such additional Apartment Building(s) structures 

shall be the sole property of the Company which the Company will be entitled 

to dispose of in any way it choose without any interference on the part of the 

Apartment Allottee(s). (Ref.: Clauses 20 and 22 of the Agreement) 

(xv) Third party rights created without Allottees consent, to the detriment of 

Allottees” interests: 

The Apartment Allottee hereby authorises and permits the Company to raise 

finance/loan from any Financial Institution/Bank by way of mortgage/Charge/ 

securitisation of receivables or in any other mode or manner by charge/mortgage 

of the said Apartment/said Building/said Complex/said Portion of Land subject 

to the condition that the said Apartment shall be free from all encumbrances at 

the time of execution of conveyance deed. The Company/Financial Institution/ 

Bank shall always have the first lien/charge on the said Apartment for all their 

dues and other sums payable by the Apartment Allottee or in in respect of any 

loan granted to the Company for the purpose of the construction of the said 

Building/ said Complex. (Ref.: Clause 23 of the Agreement) 

(xvi) Punitive penalty for default by Allottees, insignificant penalty for DLF’s default: 

The Company may, at its sole option and discretion... waive the breach by the 

Apartment Allottee in not making payments as per the Schedule of Payments 

given in Annexure III but on the condition that the Apartment Allottee shall pay 

the Company interest which shall be charged for the first 90 days after the due 

date @ 15 per cent per annum and for all periods of delay exceeding the first 

90 days after the due date an additional penal interest @ 3 per cent per annum 

(total interest 18 per cent per annum only)... (Ref.: Clause 35 of the Agreement) 

12.91 It is further evident that the conditions of the Agreement are imposed on the 

buyers/Allottee through “important instructions to intending Allotees” printed on 

the Agreement. The said instructions read: 

If the intending Allotee(s)... to execute and deliver to the Company the Apartment 

Buyer’s Agreement in its original form duly signed within thirty (30) days from 

the date of dispatch.... The Company shall reject and refuse to execute any 

Apartment Buyer’s Agreement wherein the Intending Allottee has made any 

corrections/cancellations/alterations/modifications. The Company reserves the 

right to reject to reject any Apartment Buyer’s Agreement executed by any 

Intending Allottee without any cause or explanation or without assigning any 

reasons therefore, and to refuse to execute the Apartment Buyer’s Agreement... 

the decision of the company shall be final and binding. 

12.92 Thus even when DLF sent the said agreement for signing by the Allottees, they 

had absolutely no right to suggest/make any alteration/modification whatsoever 

in the said agreement; and if they refuse to sign the agreement at that point of time 

the money deposited earlier stood forfeited. In other words even before the Agreement, 


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including the above illustrative Clauses, was signed by the apartment Allottees, 

once they had deposited the earnest money, had no option to exit except at a 

considerable financial loss. In other words, having deposited the earnest money, the 

Allottees options to change his choice for any reason, including not agreeing with 

the terms of the Agreement, stood foreclosed, even without having entered into any 

Agreement till that stage. 

12.93 It may be noted that the informant had alleged that earnest money and certain 

other payments had to be made even before signing of the Apartment Buyer 

Agreement with DLF. It has been brought to the notice of the Commission that the 

extent of abuse is so gross that the buyer/Allottee has to pay almost 95 per cent of 

the consideration amount within 27 months of booking, and a bulk of this is often 

paid to DLF even before entering into the Agreement. It is also noted that though 

DLF provides a stringent time-line for payment of agreed amount, there is no time-line 

specified for delivery of possession by DLF. Further, Agreement is often sent by DLF 

for signing much after initial payment by the buyer. In such cases, the buyer who 

could have made a choice to go to other real estate service providers, gets locked in 

with DLF having paid a substantial amount, with no free exit option, without even 

being aware of the sweeping terms and conditions being imposed through the 

Agreement. The high switching cost not only destroys the choice, it also reduces 

mobility in the market. Information asymmetry created by such lock-in, in absence of 

the knowledge of terms and conditions of the Agreement is having distortionary 

effect not only on the competition in the market but also on consumer welfare. 

12.94 Thus, the Allottees become captured consumers who are subject to abuse by 

DLF through imposition of unfair conditions contained in the Agreement. Such abuse 

is not a one-time abuse by DLF, rather it continues throughout the span of the period 

of construction, and Allottees are subjected, or there is a scope to subject them time and 

again, to newer conditions aggravating the existing abusive conduct of DLF. 

12.95 The investigation report of the DG has comprehensively examined various 

aspects of the conduct of DLF Ltd. in the case in context of the information filed. 

Briefly, these are recapitulated below: 

(i) Commencement of project without sanction/approval of the projects 

(ii) Increase in number of floors mid-way 

(iii) Increasing of Floor Area Ratio (FAR) and Density Per Acre (DPA) 

(iv) Inordinate delay in completion and possession 

(v) Forfeiture of amounts 

(vi) Clauses of agreement are heavily biased in favour of DLF Ltd. and against the 

consumers 

12.96 DLF Ltd. challenged the above conclusions of abusive conduct cited by the DG 

in its submissions before the Commission. Apart from arguments in respect of the 

above conduct, DLF Ltd. also contended that they had voluntarily given a large 

number of benefits to the Allottees. In this regard, the view of the Commission is that 

one unfair condition cannot be counter balanced and wiped out by another seemingly 

fair or propitiating act. 

12.97 DLF Ltd. has given justifications for cancellation of allotment and stated that 

it was done only in cases of defaults and was in terms of the Buyers’ Agreement. It 

has also contended that there was no delay in possession in terms of the said 

agreement. It has also contended that all approvals and clearances are in place and 

that there has been no violation of FAR or DPA norms. It was also argued that 

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Applicants had the opportunity to read the Clauses of the agreement, and therefore, 

DLF Ltd. cannot be faulted if the Applicants later found any issues in the Clauses. 

12.98 The Commission has given due consideration to the detailed submissions 

made by DLF Ltd. in this regard. There are a few facts that reveal a certain picture of 

the way the bookings and allotments took place that is relevant to at this point. 

Certain bookings were made as far back as August 2006 and substantial amounts 

running in several hundred thousands was taken by DLF Ltd. At that point in time 

necessary approvals from agencies like the Airport Authority of India, HUDA and 

DTCP had not been obtained by the developer. Moreover, the building was to be of 

19 floors only. The application for approval was moved in December 2008 and the 

approval for the revised plan came only in August 2009 - full three years after the 

first bookings were made. The revised plan did not increase the number of floors by 

a couple of stories but by 10 floors, that is almost by 50 per cent more. The buyers’ 

agreement gave an impression that the project would be completed in 3 years however, 

the dates of possession kept shifting forward and even as on date, the possession is 

supposed to be given around October 2011. 

12.99 Furthermore, it is only understandable that Applicants who had paid substantial 

sums of advance deposits for the booking would get concerned due to inordinate 

project delays as was the case here. But their genuine anxiety was met with utter 

disregard and insensitivity by DLF Ltd. When out of sheer desperation some Allottees 

stopped payment to create pressure on DLF Ltd. their allotments were cancelled and 

huge deposits were forfeited. For those who succumbed to these unilateral and 

retaliatory conduct, DLF Ltd. charged heavy interests on delayed payments. 

12.100 Another feature of this far from healthy relationship between the service 

provider and its clients is the draconian and one-sided Clauses in the buyers’ 

agreement. The DG’s report has mentioned these in detail and some extracts have 

been given earlier in this order also, therefore, it is not necessary to repeat all of them 

here. However, reference of just a few of those Clauses would reveal the texture of 

relationship DLF Ltd. has sought to develop with its consumers. 

12.101 There are Clauses that give DLF Ltd. sole discretion in respect of change of 

zoning plans, usage patterns, carpet area, alteration of structure, etc. In case of change in 

location of the apartment, PLC is determined at the discretion of the builder and if a 

refund is due, no interest is paid. No rights have been given to the buyers for raising any 

objections. Further, even if the buyer has paid the full amount, the builder can raise 

subordinate mortgage on the property for finances raised for its own purpose and the 

consumers are subjected to this mortgage. Despite knowing that necessary approvals 

were pending at the time of collection of deposits, DLF Ltd. inserted Clauses that made 

exit next to impossible for the buyers. Similarly, in event of delay, the builder would pay 

compensation at Rs. 5 per square foot per month for delays beyond three years. In sharp 

contrast, if there is a delay on part of the buyer, the interest charged is 15 per cent 

per annum for the first 90 days, increasing by another 3 per cent after that. 

12.102 These are some of the Clauses that show how heavily loaded the buyers” 

agreement is in favour of DLF Ltd. and against the buyer. Under normal market 

scenario, a seller would be wary of including such one-sided and biased Clauses in 

its agreements with consumers. The impunity with which these Clauses have been 

imposed, the brutal disregard to consumer right that has been displayed in its action 

of cancelling allotments and forfeiting deposits and the deliberate strategy of 

obfuscating the terms and keeping buyers in the dark about the eventual shape, size, 

location, etc. of the apartment cannot be termed as fair. The course the progress of 

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the project has taken again indicate that DLF Ltd. beguiled and entrapped buyers 

through false solicitations and promises. 

12.103 The point under contention is not whether such one-sided Clauses favouring 

DLF Ltd. and putting the Allottees in a position of distinct disadvantage were part 

of an “agreement” and hence contractual obligation, as argued by the OP-1. The 

moot point in this case and indeed the competition concern is that a dominant 

builder/developer is in a position to impose such blatantly unfair conditions in its 

“agreement” with its customers and bind them in such one-sided contractual 

obligation. In a competitive scenario, where the enterprise indulges in such 

anti-consumer conduct, there is sufficient competition in the market to provide easy 

alternatives for the consumer. The competitive forces would ensure that the builder/ 

developer would soon face loss of customers, which would force it to become more 

consumer-friendly. However, only when a dominant enterprise indulges in such 

conduct is there little hope for the consumers because not only that enterprise 

indulges in such behaviour with impunity but smaller competitors would want to 

enjoy as much advantage by following the leader. Since, a weaker competitor is not 

in a position to take on the competitive might of the dominant enterprise, it would 

rather emulate the dominant enterprise and take similar advantage of the consumers. 

12.104 It is noted that the Competition Act only requires this Commission to ascertain 

if some conduct is “unfair” in terms of Section 4 of the Act and is being carried on by 

a dominant enterprise. This Commission has no doubt that the nature of Clauses 

and conduct as indicated in earlier paras are blatantly unfair, even exploitative. The 

dominant position of DLF Ltd. has already been established. Therefore, we find no 

force in the arguments of the OP-1 in this regard. 

12.105 As regards, legality of actions like violations of FAR or increasing density 

per acre are concerned, per se, these are not competition issues and have to be looked 

into by the Competent Authorities. However, this Commission is of the view that 

both these factors have gone against the interests of the consumers. The person who 

chooses a particular apartment does so after considering factors such as FAR, 

availability of bigger common areas, common facilities, etc. If the number of 

apartments in a project is substantially increased, as in this case, there is considerable 

reduction of consumer welfare. For example, if a hundred residents are supposed to 

share one swimming pool, their satisfaction from that common pool would be far 

less if suddenly the builder tells them they have to share the pool with 200 residents. 

In economics, “value” is based on the perceived utility of any product or service. 

Consumers pay according to this perception. If something is done that drastically or 

substantially reduces that perceived value, it can only be termed as an unfair conduct 

by the seller. Under Competition Act, such unfair conduct by a dominant enterprise 

is contravention of the provisions of the Act. 

12.106 An argument has been extended that in the agreement, the Clauses which 

allegedly amount to abuse of dominance are as per “industry practice.” DLF has 

also given certain comparative tabular statements in support of this argument. The 

material available on record in regard to the comparative picture of such Clauses has 

been considered by the Commission. It has been noted that the agreements of other 

service providers and competitors submitted by DLF, though not identical, have 

certain similarities and common points. The question arises whether this can be 

treated as an industry practice and, if so, whether this can be a defence for DLF in 

this case keeping in view the provisions of the Act, including the reference to 

“practices” in Section 3(3). 

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12.107 It is evident from material on record that DLF is by far the oldest real estate 

service provider in the country. The extracts from DLF websites quoted in paras 

earlier substantiate this conclusion. 

The information/data considered in this order earlier in regard to size and resources 

of DLF while determining Issue No. 3, and the speech of Chairman, DLF Group 

quoted earlier also clearly highlight the dominant position of DLF in the country as 

a whole, as also in Gurgaon. 

12.108 It is evident that a company of this size, which has been operating at a big 

scale much before any competitor came on the scene, would automatically be a 

trendsetter in the sector in which it operates. All the material and evidence on record 

confirms that DLF has been, and continues to be, a market leader as a real estate 

service provider. As such, it is DLF which would have initiated and developed the 

practices which would have been followed by the later entrants, and over a period of 

time could be considered as “industry practices”. Therefore, even without taking 

into account the fact that being an industry practice cannot be a defence for 

anti-competitive practices/conduct, DLF for one certainly cannot claim the defence 

of having adopted an industry practice for practices which are found to be 

anti-competitive and/or abusive. 

12.109 In view of the foregoing discussion, this Commission finds DLF Ltd. in 

contravention of Section 4(2)(a)(i) of the Act. 

Other Concerns 

12.110 During the course of dealing with this case, the Commission has come across 

a number of facts which could impinge adversely on the consumers’ interests, and 

indicate some aspects of the modus operandi of DLF which may need to be looked into 

by the Appropriate Authorities. Even though these are not issues which fall within 

the ambit of anti-competitive conduct, keeping in view the mandate in the Preamble 

and Section 18 of the Act “to protect the interests of consumers” the Commission 

considers it appropriate to note/illustrate some of these facts in the order. 

12.111 The examination of this case has brought forth several areas of concern 

pertaining to the housing sector in India. The Commission feels that although there 

is a plethora of laws, there is no proper regulation of the real estate sector, particularly 

the housing sector. In order to promote overall consumer welfare, to ensure free and 

fair competition in real estate residential market and to set standards of conduct of 

enterprises engaged in similar nature of trade, the Commission, therefore, makes a 

strong recommendation to the Central Government and all State Governments to 

come out with real estate regulations at the earliest for ensuring overall consumer 

welfare and to discourage unfair trade practices that seem prevalent in the sector. 

12.112 The Commission has, inter alia, noted the following facts about the 

conduct of DLF, which apparently is followed by other service providers also: 

(i) They issue advertisements for launching projects without the land in question 

being actually purchased, registered in their name and possession taken and 

without taking prior approval of Competent Authorities. 

(ii) They do not specify the total area of the plot/flat/house indicating clearly the 

carpet area and utility area. 

(iii) They do not specify the date of delivery and consequential remedies available 

to the consumer in case of delay. 


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(iv) The amount collected from the Allottees against a particular project is not 

deposited in a designated escrow account and utilised only for the construction 

of the concerned building. 

(v) The information relating to the progress of works and status of account of each 

Allottee is not made available to buyers in a transparent manner. 

(vi) They build in hidden costs other than the initial set price. 

(vii) They do not post all the relevant information on internet and make them 

available in public domain. There is no transparent and participatory 

mechanism put in place to deal with escalation in price, if any. 

(viii) There is often inordinate delay in execution of the project and if the project is 

delayed without previously agreed valid reasons, there is no provision that 

would entail pre-determined amount of penalties on total project to be paid to 

the consumers. 

(ix) There is no fair, participatory and transparent mechanism to tackle any 

substantive and major changes in the project mid-way, before taking approval 

of the authorities for the revised scheme and commencing construction thereon. 

Changes in FAR or density per acre, exclusion of some common facilities or 

substantive changes in design and layout are not included in the category of 

substantive or major changes. The description of substantive or major changes 

as well as the mechanism for decision making is not clearly given in the Buyers’ 

Agreement. 

12.113 It appears from the above and other facts that DLF, at times, goes ahead with 

planning and execution of projects without first obtaining the necessary regulatory 

approvals from development and other authorities. Further, the deployment and use 

of funds, as also pricing of these products, also does not seem to be based on transparent 

principles or basis. Money deposited by Allottees of one project may well be being 

used for other projects/purposes, since there is no system of keeping separate accounts 

or keeping the money in escrow accounts. Indeed, it appears that various deposits by 

Allottees become part of a large pool of funds, which may be deployed for any purpose 

at the discretion of DLF, without necessarily having a linkage with the purpose for 

which the money was deposited. This fact assumes much greater significance in view 

of the huge land bank with DLF, and the large number of projects it takes across the 

country. The ability of DLF to launch projects without prior approvals, and make 

major changes midway through the projects, also raises a host of issues. It is not clear 

as to what is the basis of DLF’s confidence, and what gives them the risk-taking 

ability, to go ahead at will in anticipation of necessary approvals, and it would not be 

correct for the Commission to speculate on the reasons for this or take into account any 

unverified explanations in this regard. But it is appropriate that the concerned 

authorities give due consideration to these issues. 

12.114 Be as it may, the Commission hopes that all these, and similar/related other 

factors impinging adversely on the consumers’ interests, would be taken note of by 

concerned authorities for effective remedial action. The responsibility of such 

authorities assumes even greater importance in view of the fact that these consumers 

are normally not in a position to organise or act meaningfully for redressal of their 

grievances, or the protection of their interests, even though often their life-savings 

may be at stake. The absence of any single sectoral regulator to regulate the real estate 

sector in totality, so as to ensure adoption of transparent and ethical business 

practices and protect the consumers, has only made the situation in the real estate 

sector worse. 

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13. Decision under Section 27 of the Competition Act, 2002 

0321 

13.1 In the preceding discussion, this Commission has concluded that the instant 

case is within the jurisdiction of the Competition Act, 2002. Therefore, in accordance 

with provisions of the Act, it has delineated the relevant market as the market for 

services of developer/builder in respect of high-end residential properties in 

Gurgaon. In the relevant market, OP-1, DLF Ltd. has a dominant position within the 

meaning of the term as per Explanation (a) to Section 4, read with Section 19(4). 

Finally, the Commission has concluded that DLF Ltd. is in contravention of 

Section 4(2)(a)(i) by imposing unfair conditions on the sale of its services 

to consumers. 

13.2 In the facts and circumstances of the case, the Commission has examined the 

role of Opposite Parties 2 and 3, viz. HUDA and DTCP of Government of Haryana. 

It is seen that these are agencies or authorities of the State Government whose role is 

limited to granting various approvals to builders/developers. They are not providing 

any services of a commercial nature of the kind provided by the DLF group or its 

competitors. Thus, their conduct does not come within the ambit of Section 4 of 

the Act. 

13.3 In Paras 12.90 and 12.95 supra, this order lists conditions imposed by DLF Ltd. 

and its group companies on its consumers/buyers in detail. These conditions have 

been held to be unfair in terms of Section 4(2)(a)(i) of the Act and hence, in 

contravention of Section 4. In view of the above, and in exercise of powers under 

Section 27(a) of the Act, the Commission directs DLF Ltd. and its group companies 

offering services of building/developing: 

(i) to cease and desist from formulating and imposing such unfair conditions in 

its agreements with buyers in Gurgaon. 

(ii) to suitably modify unfair conditions imposed on its buyers as referred to above, 

within three months of the date of receipt of this order. 

13.4 The abuse of dominant position in this case is in respect of the basic necessity 

of housing. The earlier deliberation on the elements and extent of abuse make it clear 

that DLF has been grossly abusing its dominant position, and that too against a 

vulnerable Section of consumers, who have little ability to act or organise against 

such abuse. The penalty, therefore, has to be commensurate with the severity of the 

violation through such blatant abuse of dominance. 

13.5 There appear to be no mitigating factors for taking a lenient view as the abusive 

practices referred to above have been carried with the object of undue economic 

gains and business profits. On the other hand, the consistent practice of executing 

unfair conditions and holding out false representations and exploiting the dominant 

position has come on record which are certainly aggravating factors. In the view of 

the Commission, the conduct of the OP-1 in abusing its dominant position requires 

to be taken very seriously and thus, the Commission is required to adopt a deterrent 

approach so that recurrence of such conduct is stopped. 

13.6 The facts of this case and the conduct of the OP-1, as discussed above, 

particularly the size and resources of OP-1 and the duration during which this 

abuse has continued to the advantage of DLF Ltd. and to the disadvantage of 

consumers, warrant imposition of a heavy penalty. Keeping, in view the totality of 

the facts and circumstances of the case, the Commission considers it appropriate to 

impose penalty at the rate of 7 per cent of the average of the turnover for the last three 

preceding financial years on OP-1. Therefore, in exercise of powers under 


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Section 27(b) of the Act, the Commission imposes penalty on DLF Ltd. as 

computed below: 

Turnover for year ended 31 st March, 2009 

Rs 10,035.39 crores 





Total 


Average (Total/3) 

Rs 9006.27 crores 

7 per cent of average Rs 630.43 crores 

Penalty rounded off to nearest number 

Rs 630 crores 

(or Rs. 6.3 billion) 

14. The Secretary is directed to convey this order to the concerned parties. In view of 

the observations of the Commission at Paras 12.110 to 12.114 above, the Secretary is 

also directed to convey the same to the concerned Central Government and State 

Government authorities with a request for consideration and suitable action on 

their part. 

R. Prasad, Member (Supplementary) 

15. Orders have been passed by the Commission in this case today with which I am 

in agreement and which I have also signed. But I would like to further add the 

following: 

15.1 In this particular case when a buyer enters the market, he has the choice of 

going to a large number of builders for the purpose of purchase of a flat. There is 

large competition in the market. But when a consumer makes a choice and enters 

into an agreement with a builder he is bound by the agreement and even if he wants 

to switch to another builder he has to pay high switching costs. Further, when 

consumer enters into an agreement with the builder, an information asymmetry 

occurs as all the elements of the agreement are neither read by him nor explained by 

the builder. In the US, a concept of “aftermarket abuse” was considered by the 

Supreme Court in the case of Eastman Kadak. It is, therefore, necessary to discuss 

the issues before the US Supreme Court in the case of Eastman Kodak. 

16. In this connection it is necessary to examine the concept of “after market abuse” 

as explained by the U.S. Supreme Court in the case of Eastman Kodak Co. v. Image 

Tech. SVCS 504 U.S. 451(1992). In this case, Kodak was the seller of photocopying 

machines. In the market of photocopying machines Kodak was not a dominant 

player. As far as the services and the repair market for the photocopiers was 

concerned, Kodak was initially selling the spares to various dealers who used to 

service the photocopiers and use the spares supplied by Kodak. Kodak found that 

some of these service dealers started developing their own spares to service the 

photocopiers and some of them used to give better service than Kodak itself. Kodak, 

therefore, changed its business model and asked the equipment manufacturers to 

supply the equipment to it only. Kodak then used to sell the spares to those buyers of 

Kodak photocopiers who could service them themselves or used to service the 

photocopiers with spares in Kodak’s premises. In this manner, Kodak had control 

over 100 per cent of the spares and around 85 per cent of the service itself. Thus, 

many of the earlier Kodak dealers who used to service the Kodak photocopiers were 

driven out of business. These dealers filed an antitrust case against Kodak, The 

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(R. Prasad, Member (Supplementary)) 

0323 

District Court ruled in favour of Kodak. The dealers took the case in appeal to the 

Court of appeals for the Ninth Circuit. The Court of appeals held that Kodak’s 

approach was anticompetitive, exclusionary and involved a specific intent to 

monopolise. Aggrieved against, the judgment of the Court of appeals Kodak went to 

the Supreme Court of the USA. 

17. The Supreme Court considered the facts of the case. In the opinion of the Supreme 

Court there were two markets, i.e. a market of photocopiers where Kodak was not a 

significant player. The second market was described by the Supreme Court as an 

aftermarket and consisted of service after sales. In this after market, there was a tie in 

scenario as spares would be given with the service. The Supreme Court then relied 

on its own decisions on market power. In the case of Jefferson Parish 466 US at 14.9, 

Supreme Court had held that market power is power “to force a purchaser to do 

something that he would not do in a competitive market”. In another case U.S. v. E.I. 

du Point de Nemours & Co. 351 U.S. 377, 391(1956), the Supreme Court had defined 

market power as “the ability of a single seller to raise price and restrict output”. The 

existence of such power is ordinarily inferred from the seller’s possession of a 

predominant share in the market Jeffer Parish 466 US 17.1. The Supreme Court then 

held that in the aftermarket Kodak enjoyed monopoly power. The Supreme Court 

also held that a customer is “locked in” after the purchase of the equipment as the 

switching costs are high. The customer can then be subjected to abuse. The Supreme 

Court also held that it is a question of fact as to whether information costs and 

switching costs and switching costs foil the assumption that the equipment and 

service market act as a pure complement to each other. On these facts, the Supreme 

Court held that the behaviour of Kodak was anticompetitive. 

18. In this particular case also, there are two markets. The first market is where a 

consumer enters into an agreement with builder and the second market is the 

aftermarket after he has entered into an agreement with the builder and then the 

consumer is governed by the agreement which he has entered into with the builder. By 

the virtue of the agreement, the builder acquires a dominant position over the consumer. 

This issue is covered in Section 19(4)(g) of the Act. The word “otherwise” mentioned 

in Section 19(4)(g) is very pertinent. In this particular case, dominance is acquired 

through the agreement. Further, provisions of the Section 19(4) defines factors which 

the Commission has to consider in its order. The Section is inclusive and, therefore, 

has to be given a wide interpretation. In fact, Section 19(4)(m) talks of any other factor 

which the Commission may consider relevant for the inquiry. Therefore, while 

determining abuse of dominance the Commission is entitled to consider any other 

factor which shows that the enterprise is in a dominant position to affects its competitors 

or consumers or the relevant market in its favour. In this particular case, the informant 

became a captured consumer and he could be discriminated and abused. Therefore, 

in this case in the aftermarket as there existed high switching costs and information 

asymmetry the abuse of dominance is established. In fact, the decision of the US 

Supreme Court in the case of Eastman Kodak has been incorporated in the explanation 

to Section 4 read with Section 19(4) of the Act. 

19. Considering these facts, there is material to hold that there is contravention of 

the provisions of Section 4(2)(a)(i) of the Competition Act. The conditions of service 

given by the O.P. are no doubt unfair in accordance with conditions mentioned in 

the agreements. 

20. As the abuse of dominance is established and it is also established that the 

dominance came due to the agreements which the information providers had entered 


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into with the O.P., the question which arises is to whether the action of the O.P. 

creates an adverse effect on competition in India. In my view, whenever there is an 

abuse of dominance due to unfair conditions in the agreements, it creates an adverse 

effect on competition in India. Further in this case, the contracts entered into by the 

information providers were contracts of adhesion and the agreements entered were 

between a very big economic player and small time buyers. In fact, the agreements 

were signed in the format given by the O.P. and the consumers had paid substantial 

sums of money to the O.P. Thus, if a buyer wanted to shift to another builder, he 

would have lost substantial amount of money. Thus, there existed an information 

asymmetry and high switching costs. In such, a case where the number of buyers 

were 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 high switching 

cost would foreclose the market for a new builder. The agreements entered into by 

the O.P. and the prospective buyers, therefore, created an adverse effect on 

competition in India. The agreements, therefore, contravene Section 3(1) of the Act 


21. The majority view of the Commission is that there was no abuse of dominance by 

Haryana Development Authority and the Department of Town and Country 

Planning, Haryana. In this case, original the permission was given by these 

authorities for the construction of 19 floors. Later on, these authorities allowed 

construction of 29 floors at the instance of O.P. It is unfair to the interest of the buyers 

of flats and it may be an irregularity on the part of the authorities. This has to be 

examined by the concerned authorities in the State of Haryana. 

22. Considering the case, violation of Section 3(1) and Section 4(2)(a)(i) in this case 

is established. The levy of penalty of 7 per cent of the average turnover is justified 

and I agree with the majority view. 

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CASE NO. 12/2010 

DECIDED ON: 22.03.2011 

2011 CompLR 0324 (CCI)* 


Yashoda Hospital and Research Centre Ltd. 

v. 

Indiabulls Financial Services Limited (IFSL) 

Coram 

Dhanendra Kumar, Chairman, H.C. Gupta, P.N. Parashar, Dr. Geeta Gouri, Anurag 

Goel and M.L. Tayal and R. Prasad, (Members) 

Anti-competitive activities — Referral — Investigation — Whether the pre-payment 

penalty and foreclosure charges levied by IFSL on Informant on closure of the said 

loan account prior to the date of maturity were anti-competitive and whether by 

levying foreclosure charges and pre-payment penalty, IFSL had violated any of 

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Yashoda Hospital and Research Centre Ltd. v. Indiabulls Financial Services Ltd. 

(Dhanendra Kumar (Chairman), H.C. Gupta, P.N. Parashar, Dr. Geeta Gouri, 

Anurag Goel and M.L. Tayal (Members)) 

0325 

the provisions of Section 3 and/or Section 4 of the Competition Act, 2002 — Levy 

of pre-payment penalty and foreclosure charges is a widespread practice among 

banks — Such charges hindered free movement by borrowers — On examination 

of the internal circulars of the banks — Levy of such charges were to deter 

competition — Presence of anti-competition. 

Abuse of dominant position — Demand of foreclosure charges and pre-penalty for 

the unexpired period of loan by OP — Detrimental to competition amongst banks — 

Prevents the borrower from switching over to other banks — Act contrary to Sections 

3(1), 3(2), 3(3) (a), 3(3) (b), 4(1) and, 4(2)(a)(i) of the Competition Act, 2002 — On 

consideration of the report of DG no dominance proved — Lack of relevant evidence. 

Investigation report furnished to parties — Imposition of charges does not violate 

the Act — Investigation report does not have any evidence to suggest presence of 

any agreement with other banks or financial institutions — Company registered 

under the Companies Act, 1956 and engaged in provision of financial services — 

Activities performed were covered in the definition of “enterprise” under 

Section 2(h) of the Act — For application of Section 3(3)(b) there must be two or 

more enterprises engaged in identical or similar trade of goods — No such 

requirement proved — No concerted activities reported by DG — No violation of 

either Section 3 or Section 4 of the Act established — Proceedings closed. 

R. Prasad, (Dissenting Opinion) 

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Mortgage loan — Levy of pre payment penalty anti competitive — Cartel like 

behaviour — Contradicts provisions 3(1), (2) and (3)(a) and (b) as well as 4(1), 

(2)(a)(i) of the Competition Act, 2002 — Detrimental to competition amongst 

financial institutions — Although a single complaint, but one of class action — 

Proved to be in contravention of the Act — Practice to be stopped. 

Case Précis 

IFSL was a company engaged in provision of financial services and the Informant 

was a company engaged in the business of running Super Specialty Hospitals and 

Research Institutions in India. A loan against mortgage of property was taken by the 

Informant. Before expiry of the loan maturity date, the Informant requested the IFSL 

to foreclose the loan account citing the reason of high interest rate. IFSL agreed to 

foreclose the loan account on the condition that Informant would pay foreclosure 

and pre-payment penalty charges. 

Informant alleged abuse of dominant position by OP as was detrimental to 

competition amongst the banks in the mortgage loan market and also to the interest 

of the borrower as it prevents the borrower from switching over to other banks. 

Commission referred the matter to the DG for investigation and the DG reported that 

levying of pre-payment penalty and foreclosure charges is a widespread practice 

among banks but on examination of the internal circulars of the banks, DG had 

drawn the conclusion that the real motive behind levying prepayment penalty were 

to deter or limit competition among banks/financial institutions and to enhance 

their fee based income . Therefore, deterrence in early repayment or refinancing of 

loan was anti competitive and violated provisions of the Section 3(3)(b) read with 

Sections 19(3)(a), (c) and (d) of the Act. 



[Vol. 2 

On the report being furnished to the OP and on considering the entire materials on 

record the Commission was of the opinion that IFSL was a company registered 

under the Companies Act, 1956 and was engaged in provision of financial services 

and the activities being performed by the IFSL was covered in the definition of 

“enterprise” under Section 2(h) of the Act. 

Majority of the Members held that although the DG concluded anti competition but 

from the plain reading of the provisions of Section 3(3)(b), it was amply clear that for 

its application there must be two or more enterprises engaged in identical or similar 

trade whereas, in the present matter the impugned practice of imposing foreclosure 

charges was imputed to a single enterprise. Also taking into consideration, 

4.88 per cent market share of IFSL the DG had concluded that IFSL was not dominant 

in the relevant market and, therefore, it cannot be said to have violated any provisions 

of Section 4 of the Act. Hence, proceedings were closed. 

However one member gave dissenting view holding that the practice of levying 

pre-payment penalty by banks was anti competitive. This practice was also 

jeopardising the interest of the borrowers. The Informant did have the choice of 

shifting to any other bank other than the Respondent. But when the Informant took 

the loan from the Respondent, he entered into an agreement where he agreed to pay 

penalty for the foreclosure of the loan. The penalty became the switching cost. Due 

to the high switching costs, the Informant became a captured client which could be 

discriminated against and abused. Therefore, the OP was a monopolist and exercised 

full control over the Informant. The high switching cost was an example of the abuse 

for the purposes of Section 4(1) of the Act. 

Cases referred to 

Commission v. Bayer AG (2004) 4 CMLR 13(Discussed) [p. 0353, para 22 e] 

Eastman Kodak Co. v. Image Tech. SVCS504 U.S. 451(1992)(Relied on) [p. 0338, para 19 e] 

Jeffer Parish 466 US 17.1(Mentioned) [p. 0339, para 20 b] 

Sugar Cartel Case (1969) 3 All ER 1065(Discussed) [p. 0355, para 22 e] 

Technip S.A v. S.M.S Holding Private Ltd. MANU/SC/0385/2005: (2005) 5 SCC 465: 

III (2005) BC 56 (SC): [2005] 125 CompCas 545 (SC): (2005) 4 CompLJ 385 (SC): 

2005 (4) CTC 209: JT 2005 (5) SC 506: [2005] 60 SCL 249 (SC): [2005] Supp (2) SCR 

223(Discussed) [p. 0353, para 22 c] 

U.S. v. E.I. du Point de Nemours & Co. 351 U.S. 377, 391(1956)(Discussed) 

[p. 0339, para 20 a] 

United States v. General Motors 384 US 127 (Mentioned) [p. 0353, para 22 d] 

Legislations referred to 

Competition Act, 2002 

Section 2(h) [p. 0330, para 8.1 e] 

Section 2(m) [p. 0352, para 22 d] 

Section 3 [p. 0328, para 5.1 e] 

Section 3(1), 3(2) [p. 0351, para 22 f] 

Section 3(3) [p. 0330, para 8.3 i] 

Section 3(3)(a), 3(3)(b) [p. 0328, para 3.3 c] 

Section 3(3)(c) and (d) [p. 0341, para 22 h] 

Section 3(4) [p. 0341, para 22 i] 

Section 4 [p. 0328, para 5.1 e] 

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Section 4(1) and 4(2)(a)(i) [p. 0328, para 3.3 b] 

Section 16 [p. 0342, para 22 b] 

Section 18 [p. 0339, para 22 b] 

Section 19 [p. 0327, para 1 e] 

Section 19(3) [p. 0335, para 13 g] 

Section 19(3)(a), (c) and (d) [p. 0329, para 5.7 e] 


Section 26(1) [p. 0328, para 14 c] 

Section 26(2) [p. 0342, para 22 d] 



Section 26(5) [p. 0342, para 22 e] 


Section 26(7) [p. 0342, para 22 c] 



Section 33 [p. 0336, para 13 f] 

Companies Act, 1956 [p. 0327, para 2.1 f] 

Consumer Protection Act, 1986 [p. 0348, para 22 d] 

Indian Evidence Act, 1872 [p. 0355, para 22 g] 

ORDER 

Dhanendra Kumar (Chairman), H.C. Gupta, P.N. Parashar, Dr. Geeta Gouri, 

Anurag Goel and M.L. Tayal (Members) 

1. The information in the present case has been filed by Yashoda Hospital and 

Research Centre Ltd. (hereinafter, referred to as “Informant”) under Section 19 of the 

Competition Act, 2002 (hereinafter, referred to as “the Act”) against the Indiabulls 

Financial Services Limited (hereinafter, referred to as “IFSL”) for its alleged 

anti-competitive activities. 

2. The facts as stated in the information, in brief, are as under: 

2.1 The IFSL is a company registered under the Companies Act, 1956 engaged in 

provision of financial services like consumer finance, housing finance, commercial 

loans, life insurance, asset management and advising services, etc. The Informant 

is a company registered under Companies Act, 1956 engaged in the business of 

running Super Specialty Hospitals and Research Institutions in India. 

2.2 A loan amount of Rs. 18,30,00,000 (Rupees eighteen crores thirty lacs only) 

against mortgage of property in Supertex Rameswar Complex on Plot No. 1, 

Kaushambi, Ghaziabad was taken by the informant from the IFSL with an agreed 

rate of interest @ 16 per cent per annum. The repayment schedule of the said loan 

was fixed on the basis of Equated Monthly Installment (EMI) through Post Dated 

Cheques (PDC)/Electronics Clearance System (ECS) in 120 months. Before expiry 

of the loan maturity date, the informant requested the IFSL to foreclose the loan 

account citing the reason of high interest rate. The IFSL agreed to foreclose the 

loan account on the condition that informant will pay foreclosure charges at the 

rate of 5.52 per cent on the outstanding principal and pre-payment penalty of 

Rs. 24,729. The request of the informant to waive the foreclosure charges and 

pre-payment penalty was turned down by IFSL. 


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[Vol. 2 

3. The allegations of the Informant are: 

3.1 The IFSL is abusing its dominant position by demanding foreclosure charges 

at the rate of 5.52 per cent on the outstanding principal of the loan amount and 

pre-penalty of Rs. 24,729 for the unexpired period of loan. 

3.2 This act of IFSL is detrimental to competition amongst the banks in the mortgage 

loan market and also to the interest of the borrower as it prevents the borrower 

from switching over to other banks and other financial institutions who are offering 

lower rates of interest. 

3.3 The IFSL is not allowing the borrower to opt out without payment of foreclosure 

charges and pre-payment penalty. The above activities/practice of IFSL violates 

provisions of Sections 3(1), 3(2), 3(3) (a), 3(3) (b), 4(1) and, 4(2)(a)(i) of the Act. 

4. The Commission in its meeting held on 5 th April, 2010 considered the information 

submitted by informant and formed an opinion under Section 26(1) of the Act that, 

prima facie, there exists a case and referred the matter to the Director General 

(hereinafter referred to as “DG”) for investigation. 

Findings of the DG Report 

5. The DG submitted his investigation report to the Commission on 30 th July, 2010 in 

accordance with the provisions of Section 26(3) of the Act. The gist of the DG report 

is as follows: 

5.1 The issues identified in the DG for the purpose of investigation were as to 

whether the pre-payment penalty and foreclosure charges levied by IFSL on 

Informant on closure of the said loan account prior to the date of maturity are 

anti-competitive. If so, whether by levying foreclosure charges and pre-payment 

penalty IFSL has violated any of the provisions of Section 3 and/or Section 4 of 

the Act. 

5.2 DG has duly considered the information and reply submitted by the IFSL 

The information collected during investigation in a related Case No. 05/2009, 

from the Reserve Bank of India (RBI), various judgments of the Supreme Court of 

India, judgment of different consumer for a and prevalent international practices 

have been also taken into consideration to arrive at the conclusion in the matter. 

5.3 The DG has stated in the report that levying of pre-payment penalty and 

foreclosure charges is a widespread practice among banks and other financial 

institutions in India. These charges differ from institution to institution depending 

on their internal business policy. The DG has noted that during the course of 

investigation in Case No. 05/2009, majority of the banks and financial institutions 

had given the following rationale for levying of pre-payment penalty: 

(i) For better Asset Liability Management (hereinafter, referred to as “ALM”). 

(ii) To protect future interest earnings and to maintain interest spread. 

(iii) Recovery of the initial cost of sanction. 

(iv) Processing and maintaining the loan account. 

(v) To enhance fee based income. 

5.4 The DG has referred to guidelines issued by RBI in this respect wherein it is 

stated that banks and other housing finance companies are at liberty to impose 

pre-payment charges with the caveat that they should not be usurious. However, 

the DG has concluded that since RBI never recommended the plea of the banks 

and financial institutions that the pre-payment penalty and foreclosure charges 

are being imposed on account of ALM factor has no substance. 

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0329 

5.5 The DG has also concluded that the foreclosure charges and pre-payment 

penalty by the banks and other financial institutions hinders free movement of 

borrowers from one bank/financial institution to another and act as a barrier to 

new entrants in the mortgage/housing/home loan market who are providing 

loans at a competitive interest rates and better services to the borrowers. Thus, 

levying of the foreclosure charges and pre payment penalty makes the exit 

expensive for the borrowers and resultantly acts as a deterrent in availing the 

lower competitive interest rates offered by other and financial institutions. 

5.6 On examination of the internal circulars/operating guidelines of the banks/ 

financial institutions, DG has drawn the conclusion that the real motive behind 

levying prepayment penalty or foreclosure charges are: 

(i) To deter or limit competition among banks/financial institutions. 

(ii) To create a barrier for the existing customers who wish to switch over. 

(iii) To enhance their fee based income. 

5.7 It is submitted in the DG report that practice of levying of pre-payment penalty 

and foreclosure charges by the banks and financial institutions acts as an exit 

load which restricts or limits the borrower in availing the best market rate of 

interest which in turn impedes competition among the lending institutions, DG 

has further submitted that the existing borrowers have to incur additional cost in 

the form of pre-payment penalty and foreclosure charges which act as a deterrence 

in early repayment or refinancing of loan and thus is anti competitive and violates 

provisions of the Section 3(3)(b) read with Sections 19(3)(a), (c) and (d) of the Act. 

5.8 In order to investigate the allegations of the Informant under Section 4 of the 

Act in the matter, the DG delineated the relevant market as the market of mortgage/ 

housing/home loans in India. 

5.9 The DG has noted that in the relevant market the share of IFSL is around 

4.88 per cent which shows that IFSL is not in a dominant position in the market 

of mortgage/housing/home loans. Hence, allegation of abuse of dominant 

position by IFSL under Sections 4(1), 4(2)(a)(i) of the Act does not stand 

substantiated. 

5.10 Lastly, the DG has came to the conclusion that by imposing pre-payment 

penalty and foreclosure charges on informant, the IFSL has violated Section 3(3)(b) 

of the Act. However, since IFSL is not in a dominant position in the relevant 

market, it has not contravened the provisions of Section 4 of the Act. 

6. The Commission considered the investigation report submitted by the DG on 

9 th November, 2010 and decided to send a copy of the investigation report to both the 

parties. The Commission also afforded an opportunity of oral hearing to IFSL. 

Shri Manohar Singh Sahi, Advocate appeared on behalf of the IFSL on 

21 st December, 2010 and requested the Commission for a copy of investigation report 

submitted by the DG in the Case No. 05/2009. The Commission allowed the request 

and directed the Secretary to supply a copy of the requisite report. 

Reply of IFSL 

7. The IFSL submitted its reply to the DG report on 18 th January, 2011. The gist of 

submissions made in the reply of IFSL is as under: 

7.1 In the Case No. 05/2009, the Commission has held that imposition penalty 

for pre-closure of home loans by banks and financial companies including 

Non-Banking Financial Companies (NBFC) does not violate any provision of 


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the Act. Therefore, the findings of the DG report in the present matter should be 

dismissed. 

7.2 DG investigation report does not have any evidence which even remotely 

suggests that the IFSL imposed pre-penalty charges in pursuance of any agreement 

with other banks or financial institutions. The DG has also not produced any 

evidence to establish that the IFSL was part of any agreement with other banks 

and financial institutions or with Indian Bank Association (IBA) relating to levy 

pre-payment charges. 

7.3 The IFSL has stated that there is healthy competition in the mortgage loans 

market. The interest rate charged by the banks and other financial institutions are 

decided by competitive forces of demand and supply in the market of mortgage 

loans implying, no individual bank or financial institutions have a say in deciding 

the rates of interest. Therefore, it is not possible on the part of an individual bank 

or financial institution to possess the economic strength to be considered as a 

dominant enterprise as per Section 4 of the Act. So, the question of abuse of 

dominance on the part of IFSL does not arise. 

Decision 

8. The Commission has carefully gone through the entire material submitted by the 

Informant, the submissions made by the IFSL before the DG, the Report of the DG, 

the submissions filed by the IFSL before the Commission and all other relevant 

materials and evidence available on record. 

8.1 It is noted that the IFSL is a company registered under the Companies Act, 1956 

and is engaged in provision of financial services like, consumer finance, housing 

finance, commercial loans, life insurance, asset management and advising services, 

etc. The activities being performed by the IFSL is covered in the definition of 

“enterprise” under Section 2(h) of the Act. In the present case, the service in question 

is the service of retail mortgage loan provided by IFSL to the Informant. 

8.2 From the facts of the case the issue which emerges for consideration before the 

Commission is whether by levying foreclosure charges and pre-payment penalty 

the IFSL has violated the provisions of Section 3 and/or Section 4 of the Act. 

8.3 Although the DG has drawn the conclusion in his report that the practice of 

imposing pre-payment penalty charges on borrower is anti-competitive and is hit 

by the provisions of Section 3(3)(b) of the Act but from the plain reading of the 

provisions of Section 3(3)(b), it is amply clear that for application of this provision 

there must be two or more enterprises engaged in identical or similar trade of goods 

or provision of services whereas, in the present matter the impugned practice of 

imposing foreclosure charges has been imputed to a single enterprise, i.e. IFSL. Even 

the DG has nowhere said in his report that IFSL was carrying on such practice in 

concert with any other enterprise engaged in similar business of providing loans 

against mortgage of property. Furthermore, there is absolutely nothing on record 

which can show that IFSL has been imposing pre-payment penalty and foreclosure 

charges in pursuance of some agreement entered into by it with any enterprise 

engaged in similar trade or business. For an agreement to exist there has to be an act 

in the nature of an arrangement, understanding or action in concert including 

existence of an identifiable practice or decision taken by an association of enterprises 

or persons. In the light of foregoing analysis, the commission is of the view that as 

the provisions of Section 3(3) cannot be made applicable in the instant matter the 

conclusion drawn by the DG is erroneous and cannot be accepted. 

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(R. Prasad, (Member)—Dissenting Order) 

0331 

8.4 Even when the alleged conduct of IFSL of imposing pre-payment penalty or 

foreclosure charges is examined in the context of Section 4 of the Act it is noted 

that on taking into consideration 4.88 per cent market share of IFSL the DG has 

concluded that IFSL is not dominant in the relevant market and, therefore, it cannot 

be said to have violated any provisions of Section 4 of the Act. In the absence of 

any evidence to the contrary there is no reason to disagree with the conclusion 

drawn by the DG. 

9. Therefore, after analysing the entire material available on record the commission 

comes to the conclusion that no violation of either Section 3 or Section 4 of the Act is 

established against IFSL. In view of the above findings, the matter relating to this 

information is disposed of accordingly and the proceedings are closed forthwith. 

10. Secretary is directed to inform the parties accordingly. 

R. Prasad, (Member)—Dissenting Order 

Order under Section 27 of the Competition Act. 

11. The Informant in this case, i.e. Yashoda Hospital & Research Centre Ltd. filed a 

complaint that the recovery of the foreclosure charges on account of pre-payment of 

loan was anti-competitive and, therefore, the Commission should take action. It has 

been stated that foreclosure charges stop switching over of loans to other enterprises 

and this contravene the provisions 3(1), (2) and (3)(a) and (b) as well as 4(1), (2)(a)(i) 

of the Competition Act, 2002. 

12. The Informant is a company engaged in the business and running Hospitals & 

Research Institutions whereas the Respondent is another company engaged in 

financial activities such as consumer finance, housing finance and commercial 

loans etc. The Informant had a property in Kaushambi Ghaziabad and the said 

property was mortgaged to Syndicate Bank for the purpose of taking a loan. 

The second charge of the property was with the State Bank of India. The Informant 

switched the loan from Syndicate Bank to the Respondent Financial Company. 

The Informant mortgaged its property and took a loan of Rs. 1,83,000,000 (Eighteen 

crore and Thirty lacs only) w.e.f. 1 st April, 2008 payable in 120 installments. The 

Informant had also paid a processing fee of Rs. 3,084,282 (Rs. Thirty lacs eighty 

Four Thousand Two Hundred Eighty Two only) to the Respondent and the EMI 

was fixed at Rs. 2,997,417. The State Bank of India had given no objection certificate 

to the Respondent company for the transfer of the first charge on the property. 

The Informant found the interest rate very high and it wanted to foreclose the loan. 

A foreclosure charges Rs. 9,644,281 was levied by the Respondent company. This 

action of Respondent company in the opinion of Informant was anti-competitive as 

switching from one company to another company was not allowed and, therefore, 

in the opinion of the Informant company the provisions of Sections 3 and 4 from the 

Competition Act were contravened. 

13. Along with the facts of the case, the Informant company has submitted arguments 

why the entire transaction was anti-competitive. 

The concept of pre-payment charges (The Foreclosure Charges) 

What Does Prepayment Penalty Mean? 

A Clause in a mortgage contract that says if the mortgage is prepaid within a 

certain time period, a penalty will be levied. The penalty is usually based on 


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percentage of the remaining mortgage balance or a certain number of months 

worth of interest. 

A pre-payment penalty that applies to both the sale of a home and a refinancing 

transaction is called a “hard” pre-payment penalty. A pre-payment penalty that 

applies to refinancing only is called a “soft” pre-payment penalty. 

Investopedia explains Prepayment Penalty 

Lenders write pre-payment penalties into mortgage contracts to compensate for 

pre-payment risk. As the incentive for a borrower to refinance a subprime mortgage 

is high, many subprime mortgages have pre-payment penalties. 

A borrower should be aware of the risks associated with a pre-payment penalty. 

A pre-payment penalty can substantially increase the cost of refinancing a 

mortgage when it would otherwise be economical. 

Provision in some loan agreements under which a borrower may pay off (retire) a 

loan ahead of the schedule, without incurring pre-payment penalty. 

What is pre-payment? Why and when do people opt for it? 

It’s just what the name implies: prepaying all or part of the loan amount before it 

is actually due. However, it is more complicated than it sounds! First, you will 

have to check your retail loan documents to find out if pre-payment is allowed 

and the percentage of outstanding loan amount that you will be paying towards 

pre-payment penalty charges, if any. 

You might want to prepay your loan for simple reasons. That, you could save on 

the net interest payable as longer loan tenure means more interest paid. 

Why do banks charge penalty for pre-payment? 

Well, banks and lenders lend money in the form of loans only to make money out 

of service fees and interest. And this requires the loan to be open for a fairly longer 

duration to give profits. They cannot stop your legal right from making a 

pre-payment. But at the same time pre-payment would mean upsetting their profit 

calculations from interests. Hence, the banks and lenders impose a pre-payment 

penalty to compensate a portion of the lost profit. Usually, your loan agreement 

would have a Clause defining your obligations and interest in case of pre-payment 

in part or in full. 

RBI’s current stand on this penalty 

The Reserve Bank of India (RBI) has hinted at drafting a policy to restrict banks 

from imposing pre-payment penalty. 

The proposed move follows many such complaints from loan borrowers paying 

EMIs based on the floating rate of interest. They feel that they are missing out on 

the benefits of periodical rate cuts in interest. 

Pre-payment penalties by different banks in India 

Public sector banks charge 1 to 1.5 per cent as pre-payment penalty on outstanding 

loan amount and in the case of private banks it is between 2 and 4 per cent and in 

our case it is @ of 5.52 per cent. 

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S. No. Name of Banks Prepayment penalty 

charged by the Bank 

1. Indian Overseas Bank (IOB) 1% 

2. Punjab National Bank (PNB) 2% 

3. Corporation Bank 1%-2% 

4. ICICI Bank Ltd. 2% 

5. Allahabad Bank 2% 

6. Vijaya Bank 1% - 2% 

7. Oriental Bank of Commerce (OBC) 1% 

8. Canara Bank 2% 

9. Punjab & Sind Bank 0.5% - 2% 

10. State Bank of Hyderabad 2% 

11. State Bank of India 2% 

12. LIC Housing Finance 1% - 2% 

13. Deutsche Post Bank 3% 

14. HDFC Bank 3 - 6% 

15. Indian Bank 2.25% 

16. India Bulls 5.52% 

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How the idea was developed? 

As an illustrated example let us consider the following situation. 

The pre-payment is charged by loan institution if borrower returns the money 

borrowed before the stipulated tenure of loan. 

If “A” avails of a loan of Rs. 100 from a bank or any Financial Institution, and 

schedule of repaying the entire sum is over a period of 10 years with equated 

monthly instalments (EMIs) of Rs. 2 per month and after the schedule of EMIs 

for two years, “A” wants to close the loan account and approaches the bank to 

accept the balance amount and close the account. The bank, if accepts is allowed 

to recover the outstanding loan amount, interest and an additional amount of 

1 per cent of outstanding amount inclusive of interest as pre-payment charges. 

Therefore, a customer is allowed to migrate to a lower cost source of fund or 

return the loan before due date only after he pays this exit load created by bank or 

financial institution on borrower (Principal amount as on that date plus interest 

or loss of interest). 

Thus, with downward change in the interest rates, the borrower is not free to 

switchover to another bank or financial institution offering a lower rate of interest. 

The Bank has by this killed the competition, retained the customer and future 

profits. In other words it can be said that pre-payment and foreclosure penalties 

are the mouse traps set by the banks and financial institutions to which borrower 

is bound to fall prey by this pre-payment Clause. 

How the practice is anti-competitive violative of Section 3 and Section 4 of 

the Act? 

That the main issue is pre-payment penalty which is levied by various banks/ 

financial institutions on the borrowers on the outstanding loan amount paid 

before the maturity date/schedule of the loan practice of charging pre-payment 


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penalty on early returns of loans—home loans or other loans—is anti-competitive 

in terms of Section 3(3) of the Competition Act, 2002 and results in appreciable 

adverse effect on competition in India. 

Issues involved 

• Issues related to Asset Liability Managements. 

• Prepayment penalty and Reserve bank of India (RBI). 

• Legal status of the pre-payment penalty issue. 

What are the arguments in support of the gross concept at present and when it 

was started? 

• For a better Asset Liability Management (ALM). 

• The re-financing bank also charges the pre-payment levy. 

• Fair Practice Guidelines of Reserve Bank of India permit freedom to levy service 

charges. Annexed herewith as Annexure C/7 colly. 

• It is transparent Customer knows before signing of the agreement that he has 

to pay pre-payment penalty. 

What is the law or regulatory status? 

• Origin of this practice is traced to the home finance companies somewhere 

around 1993 or so to discourage migration of customer to other lenders. 

• The correct justification is to kill completion, prevent migration of customer to 

other banks and enhance fee based income. 

• RBI is the regulatory body. It has issued general guidelines which discourage 

such practices. 

• However, there is no enforcement of this direction and banks have been left 

free to charge different service charges within the broad parameters of regulatory 

guidelines issued by RBI. Thus, these are simply holy homilies without any 

impact. 

• In one case where pre-payment penalty was charged, it has been upheld as 

wrong in the case of State Bank of India. 

• International practice is, broadly, in favour of not having any exit load on the 

borrower whether called by early redemption charge, pre-payment penalty or 

any other name. 

• As regards the violations under the Competition Act, 2002, it may be stated 

that the origin of this practice are rooted in preventing the customer from 

trying to get better bargain, disciplining the borrower and kill competition. 

• In a way this, practice limits/controls supply of funds in the loan market and, 

therefore, falls within the provisions of Section 3(3) of Competition Act, 2002. 

What is the Legal position? 

Mrs. Usha Vaid & Ms. Shilpa Vaid v. State Bank of India 

Whether this clause is to be enforced in the present case or not is the question 

before us. In a similar case the Hon’ble State Commission has held that this 

2 per cent pre-payment charges could not be levied on the basis of a circular 

issued by the Bank. The learned Counsel for the OP. had argued that these charges 

are not imposed in the present case on the basis of the contract entered into 

between the parties and therefore, it will not be covered by the aforesaid decision 

of the Hon’ble State Commission. However, we do not find any force in this 

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contention of the OP as pre-payment charges on 10 th March, 2005 to the 

Complainant. The OP shall also pay a sum of Rs. 1,000 as compensation for the 

harassment and mental agony and also Rs. 500 as cost of litigation to the 

Complainant. 

Any consumer availing such a loan always avails service of those which charges 

lesser rate and if he is not aware of the lesser rate being charged by particular 

bank and avail the service of government bank which normally and ordinarily is 

supposed to charge not more than what the private banks are charging and if at 

later stage he finds that government banks is charging much higher rate of interest 

he would naturally make request for transfer of the loan amount and, therefore, 

such a request cannot come within the ambit of terminology of “pre-payment” as 

it has to be deemed a case of “takeover”. “No bank or for that purpose finance 

companies can be allowed to indulge in restrictive trade practice by binding the 

consumer to go on availing loan even if rate of interest charged by the said bank 

is much higher than the other banks and any such Clause which operates 

adversely to the consumer like Clause 4 has to be held as void and, therefore, not 

enforceable.” 

Jurisdiction of Competition of India 

3(3) Any agreement entered into between enterprises or associations of enterprises 

or persons or associations of persons between any person and enterprise or 

practice carried on, or decision taken by, any association of enterprises or 

association of persons, including cartels, engaged in identical or similar trade of 

goods or provision of services, which: 

(a) Directly or indirectly determines purchase or sale prices; 

(b) Limits or controls production, supply, markets, technical development, 

investment or provision of services; 

(c) Shares the market or source of production or provision of services by 

way of allocation of geographical area of market, or type of goods or 

services, or number of customers in the market or any other similar way; 

(d) Directly or indirectly results in bid rigging or collusive bidding shall be 

presumed to have an appreciable adverse effect on competition 

Provided that nothing contained in this sub-section shall apply to any 

agreement entered into by way of joint ventures if such agreement increases 

efficiency in production, supply, distribution, storage, acquisition or control 

of goods or provision of services..... 

In context to Section 19(3) of the Competition Act, 2002: 

Levying of pre-payment penalty creates a barriers to new entrants in the market 

in way that if the new entrants is providing competitive interest rates, better 

services etc. The borrower of the existing bank can only avail the services of the 

new entrant by incurring additional costs in the form of pre-payment charges. 

Levying of pre-payment penalty by banks creates an exit load thus, acts as a 

deterrent for a borrower in availing the best prevailing interest rates of other 

banks/financial institutions. 

Section 19(3) the Commission shall, while determining whether an agreement 

has an appreciable adverse effect on competition under Section 3, have due regard 

to all or any of the following factors, namely: 

(a) Creation of barriers to new entrants in the market; 

(b) Driving existing competitors out of the market; 


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(c) 

(d) 

(e) 

(f) 

Foreclosure of competition by hindering entry into the market; 

Accrual of benefits to consumers; 

Improvements in production or distribution of goods or provision of 

services; 

Promotion of technical, scientific and economic development by means 

of production or distribution of goods or provision of services. 

Conclusion on the pre-payment penalty: 

(1) Levying of pre-payment penalty is a widespread practice among banks and 

the financial institutions in India. 

(2) It is noted that some of the banks have differential policy with regard to the 

levying of pre-payment penalty i.e. 

(3) When the pre-payment was done by the borrower to the banks from its own 

account/sources no pre-payment charges/penalty is levied by the banks. 

(4) However, when the borrowers makes the pre-payment of funds by 

refinancing or take over/switch over by another banks/financial 

institutions pre-payment charges are levied by the banks. 

(5) However, some of the banks/financial institutions charge pre-payment 

penalty irrespective of the source of funds, i.e. own funds or take over/ 

switch over or refinancing by other bank/financial institution. 

(6) The option of pre-payment lies with the borrower and the banks are not 

aware in advance of the time of pre-payment. 

(7) Likewise, the borrower in most of the cases does not know the exact amount 

(only a range) which is to be levied on the outstanding loan amount and its 

computation includes several other parameters administrative cost, credit 

history, prevailing interest rates etc. 

Relief Sought: 

In the facts and circumstances mentioned above, it is, therefore, most humbly 

prayed that this Hon’ble Commission may be pleased to: 

(a) Pass an ad interim ex parte order under Section 33 of the Act, temporarily 

restraining the IFSL from recovering arbitral and prejudicial foreclosure 

charges to the tune of 5.52 per cent of the outstanding principal of the 

loan/the interest outstanding for the unexpired period of the loan and 

pre-payment penalty of INR 24,729.00 

(b) Direct the IFSL not to arbitrarily and prejudicially enter into such 

preferential practices which are detrimental to the competition amongst 

the banks and also to the interest of the borrower who is prevented from 

switching over to other enterprises which is offering a lower rate of 

interest. 

(c) Direct the IFSL to delete or amend the foreclosure Clause/provisions 

mentioned above, as the same are arbitrary, unjust and dominating 

Clauses. 

(d) Direct the IFSL to compensate the YHRCL for losses accrued on account 

of arbitrary and unjust application of such arbitral and prejudicial 

foreclosure charges. 

(e) Direct the IFSL to withdraw the letter dated 25 th November, 2009 which 

arbitrarily and unilaterally levies payment of such arbitral and prejudicial 

foreclosure charges to the tune of 5.52 per cent. 

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(f) Restrict the banks and other financial companies from indulging into 

such restrictive trade practice by binding the consumer to go on availing 

loan even if rate of interest charged by the said bank is much higher than 

the other banks and any such Clause which operates adversely to the 

consumer has to be held as void and, therefore, not enforceable. 

(g) Pass any other order(s)/Directions(s) deemed just, fit and proper in the 

interest of justice, equity and fair play. 

14. The Commission considered the facts of the case and the arguments of the 

Informant and referred the case for investigation under Section 26(1) of the 

Competition Act to the D.G. The D.G. gave an opportunity to India Bulls Financial 

Services Ltd., i.e. the Respondent. India Bulls stated that before taking the loan the 

Informant was aware that the pre-payment penalty for the foreclosure of loans had 

got to be paid. It was also stated that the interest rate was in accordance with the RBI 

guidelines. It was also argued that India Bulls did not levy anything in excess all the 

charges stipulated in the loan agreement. On the other hand, the Informant relied on 

the arguments which were enclosed mentioned with the information. 

15. The D.G. considered all these facts. He examined the issue of pre-payment and 

the levy of penalty for the foreclosure of loans. DG agreed that the recovery of 

pre-payment fees for the foreclosure of the loan was in accordance with the agreement 

entered into by the Informant with India Bulls. But the DG held that the levy of the 

penalty stops the borrower to switch over to another financial institutions which 

has offered a lower rate of interest and acts as an exit barrier and restricts the borrower 

in availing the opportunity of declining interest rate. He, therefore, held that this 

was a violation of the Section 3(3)(b) of the Competition Act, 2002. In the opinion of 

the DG the levy of pre-payment penalty was unjust and unfair trade practices and 

that it stops switching of the borrower from one bank to another. He, therefore, 

found an infringement of Sections 3(3)(b) of the Competition Act, 2002. As far as 

Section 4(1), (2)(a)(i) of the Competition Act, 2002 is concerned, the D.G. defined the 

relevant product market and relevant geographical market. But he found that India 

Bulls did not have a dominant position as it had a market share in the mortgage loan 

market of only 4.88 per cent. In his view the provisions of Section 4(1), (2)(a)(i) were 

not attracted. But the D.G. has also mentioned that this case should be clubbed with 

the case No. 5/2009 where a similar issue in the case of 15-16 Banks was discussed. 

16. After the receipt of Director General’s report, a hearing was given to India Bulls 

and the Informant. The Informant did not appear and was not willing to pursue its 

case as the penalty recovered by India Bulls had already been refunded to it. 

17. As far as India Bulls is concerned, arguments were advanced that there was no 

violation of the provisions of the Competition Act. 

It was argued on behalf of India Bulls that the findings of the DG were incorrect in 

view of decision of the Commission in case of Neeraj Malhotra v. Deutsche Bank and Ors. 

It was, therefore, stated that the complaint should be dismissed. It was also argued 

that as India Bulls had a market share only 4.88 per cent, it was not a dominant 

player and for this reasons Sections 4(1), 4(2)(a)(i) of the Competition Act are not 

applicable. As far as Section 3(3)(b) is concerned it was argued that there was no 

material to hold that India Bulls had coordinated with other Banks and Home 

Finance Companies in respect of pre-payment penalty on the foreclosure of the 

loans. The argument of Asset Liability Management was also raised. The Asset 

Liability Management and Fair Practices Code in accordance with RBI guidelines 


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were also argued. It was also stated that the case of Dr. (Mrs.) Usha Vaid and Ors. was 

not applicable to the facts of the Respondent case. On the other hand reliance was 

placed on the ratio laid down in the case of Hotel Vrinda Prakash v. Karnataka State 

Financial Corporation and TT Ltd. v. IFCI Ltd. In these two cases the High Courts had 

upheld the levy of penalty for the foreclosure of the loans. It was further stated that 

the DG had placed reliance on the examples of USA and Taiwan markets. It was 

stated that the sanctity of the contract should be preserved and that when a person 

knowingly enters into a contract for the levy of the penalty then the Competition Act 

cannot be invoked. It was further stated that the International practices favour the 

charging of pre-payment penalties. It was also argued the findings of the DG that 

the levy of the pre-payment penalty creates barriers for the new entrants in the 

market was totally incorrect as in India in the home loan market 1,000 NBFC/HFCs 

are operating. It was further argued that the findings of the DG based on 

Section 19(3)(d) of the Act were based on conjectures and surmises. It was stated 

that the foreclosure charges of Rs. 9,944,282 paid by the Informant had already been 

refunded by the Respondent vide a settlement on 10 th June, 2010. It was, therefore, 

stated the DG report is baseless and, therefore, the case should be closed. 

18. Another view can be held that in this case that as this case is an individual case 

and no class action was involved, there is no case under the competition Law. There 

is no doubt that it is a case of a single Complainant against a particular bank but 

according to the D.G. and the Respondent the issue is the same as that in the case of 

Neeraj Malhotra. I, therefore, agree that it is a single case but the issues involved here 

are one which is prevalent in the entire banking industry and is, therefore, the case 

is one of class action. 

19. In this connection it is necessary to examine the concept of “after market abuse” 

as explained by the U.S. Supreme Court in the case of Eastman Kodak Co. v. Image 

Tech. SVCS504 U.S. 451(1992). In this case, Kodak was the seller of photocopying 

machines. In the market of photocopying machines Kodak was not a dominant 

player. As far as the services and the repair market for the photocopiers was 

concerned, Kodak was initially selling the spares to various dealers who used to 

service the photocopiers and use the spares supplied by Kodak. Kodak found that 

some of these service dealers started developing their own spares to service the 

photocopiers and some of them used to give better service than Kodak themselves. 

Kodak, therefore, changed its business model and asked the equipment 

manufacturers to supply the equipment to it only. Kodak then used to sell the spares 

to those buyers of Kodak photocopiers who could service them themselves or used 

to service the photocopiers with spares in its own premises. In this manner, Kodak 

has had 100 per cent control over the entire spares and around 85 per cent of the 

service itself. Thus, many of the earlier Kodak dealers who used to service the Kodak 

photocopiers were driven out of business. These dealers filed an antitrust case against 

Kodak. The District Court ruled in favour of Kodak the dealers took the case in 

appeal to the Court of appeals for the Ninth Circuit. The Court of appeals held that 

Kodak’s approach was anticompetitive, exclusionary and involved a specific intent 

to monopolise. Aggrieved against the judgment of the Court of appeals Kodak went 

to the Supreme Court of the USA. 

20. The Supreme Court considered the facts of the case. In the opinion of the Supreme 

Court there were two markets, i.e. a market of photocopiers where Kodak was not a 

significant player. The second market was described by the Supreme Court as an 

aftermarket and consisted of service after sales. In this after market, there was a tie in 

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scenario as spares would be given with the service. The Supreme Court then relied 

on its own decisions on market power. In the case of Jefferson Parish 466 US at 14.9, 

Supreme Court had held that market power is power “to force a purchaser to do 

something that he would not do in a competitive market”. In another case U.S. v. E.I. 

du Point de Nemours & Co. 351 U.S. 377, 391(1956), the Supreme Court had defined 

market power as “the ability of a single seller to raise price and restrict output”. The 

existence of such power is ordinarily inferred from the seller’s possession of a 

predominant share in the market Jeffer Parish 466 US 17.1. 

The Supreme Court then held that in the aftermarket Kodak enjoyed monopoly 

power. The Supreme Court also held that a customer is “locked in” after the purchase 

of the equipment as the switching costs are high. The customer can then be subjected 

to abuse. The Supreme Court also held that it is a question of fact as to whether 

information costs and switching costs and switching costs foil the assumption that 

the equipment and service market act as a pure complement to each other. On these 

facts, the Supreme Court held that the behaviour of Kodak was anti-competitive. 

21. In this case, there were two markets. The first market is the one where the 

Informant wanted to switch his loan from syndicate Bank to India Bulls, the 

Respondent. At this juncture, the Informant had the choice of shifting to any other 

bank other than the Respondent. But when the Informant took the loan from the 

Respondent, he entered into an agreement where he agreed to pay penalty for the 

foreclosure of the loan. The penalty became the switching cost. The second market is 

the loan recovery market where the only monopolist was the Respondent. Due to the 

high switching costs, the Informant became a captured client which could be 

discriminated against and abused. I agree with the DG that in the first market of the 

loan market, the Respondent did not have a large share and was therefore, not 

dominant. But in the second market, i.e. the after market or the relevant market in the 

geographical territory of India, it was a monopolist and exercised full control over 

the Informant. The high switching cost is an example of the abuse for the purposes 

of Section 4(1) of the Act. 

22. Incidentally, in the case of Neeraj Malhotra (supra) I had given a dissenting 

judgment. Extract of my order is reproduced as under as they are relevant in this 

case: (Page 13 to 43): 

(14) After discussing the facts of the case, it is necessary to examine the provisions 

of the Competition Act. The preamble to the Act talks about: 

(i) Establishment of a Commission to prevent practices having adverse effect 

on competition. 

(ii) To promote and sustain competition in markets. 

(iii) To protect the interests of consumers. 

(iv) To ensure freedom of trade carried on by the other participants in markets 

in India 

(v) Matters connected therewith or incidental thereto. 

(15) Section 18 of the Competition Act defines the duty of the Commission which are: 

(i) to eliminate practices having an adverse effect on competition. 

(ii) Promote and sustain competition 

(iii) Protect the interests of consumers 

(iv) Ensure freedom of trade carried on by the other participants in markets 

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(16) Competition itself has not been defined in the Act. The reason could be that 

by defining Competition the meaning of Competition is restricted. Therefore, 

competition has to be given a wide meaning. The purpose of competition is the 

economic development of the country. Competition leads to higher productivity 

innovation, cheaper prices, freedom of choice and decreasing switching costs. 

Therefore, practices which lead to decrease in productivity, innovation, higher 

prices, decrease of the freedom of choice and increasing switching costs may be 

classified as anti-competitive or causing adverse effect on competition. It is the 

duty of the Commission to ensure freedom of trade, eliminate anti-competitive 

practices, promote and sustain competition and protect the interests of the 

consumers. 

(17) Section 3 of the Competition Act is reproduced and is as follows: 

Anti-competitive agreements 

(1) No enterprise or association of enterprise or person or association of 

persons shall enter into any agreement in respect of production, supply, 

distribution, storage, acquisition or control of goods or provision of 

services, which causes or is likely to cause an appreciable adverse effect 

on competition within India. 

(2) Any agreement entered into in contravention of the provisions contained 

in Sub-section (1) shall be void. 

(3) Any agreement entered into between enterprises or associations of 

enterprises or persons or association of persons or between any person 

and enterprise or practice carried on, or decision taken by, any association 

of enterprises or association of persons, including cartels, engaged in 

identical or similar trade of goods or provision of services, which: 

(a) directly or indirectly determines purchase or sale prices; 

(b) limits or controls production, supply, markets, technical 

development, investment or provision of services; 

(c) shares the market or source of production or provision of services 

by way of allocation of geographical area of market, or type of goods 

or services, or number of customers in the market or any other 

similar way; 

(d) directly or indirectly results in bid rigging or collusive bidding. 

Shall be presumed to have an appreciable adverse effect on 

competition: 

Provided that nothing contained in this Sub-section shall apply 

to any agreement entered into by way of joint ventures if such 

agreement increases efficiency in production, supply, 

distribution, storage, acquisition or control of goods or provision 

of services. 

Explanation - For the purposes of this Sub-section, “bid rigging” 

means any agreement, between enterprises or persons referred 

to in Sub-section (3) engaged in identical or similar production 

or trading of goods or provision of services, which has the effect 

of eliminating or reducing competition for bids or adversely 

affecting or manipulating the process for bidding. 

(4) Any agreement amongst enterprises or persons at different stages or levels 

of the production chain in different markets, in respect of production, 

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supply, distribution, storage, sale or price of, or trade in goods or provision 

of services, including: 

(a) tie-in arrangement; 

(b) exclusive supply agreement; 

(c) exclusive distribution agreement; 

(d) refusal to deal; 

(e) resale price maintenance shall be an agreement in contravention of 

Sub-section (1) if such agreement causes or is likely to cause an 

appreciable adverse effect on competition in India. 

Explanation - For the purposes of this sub-section: 

(a) “tie-in arrangement” includes any agreement requiring a 

purchaser of goods, as a condition of such purchase, to purchase 

some other goods; 

(b) “exclusive supply agreement” includes any agreement restricting 

in any manner the purchaser in the course of his trade from 

acquiring or otherwise dealing in any goods other than those of 

the seller or any other person; 

(c) “exclusive distribution agreement” includes any agreement to 

limit, restrict or withhold the output or supply of any goods or 

allocate any area or market for the disposal or sale of the goods; 

(d) “refusal to deal” includes any agreement which restricts, or is likely 

to restrict, by any method the persons or classes of persons to whom 

goods are sold or from whom goods are bought; 

(e) “resale price maintenance” includes any agreement to sell goods 

on condition that the prices to be charged on the resale by the 

purchaser shall be the prices stipulated by the seller unless it is 

clearly stated that prices lower than those prices may be charged. 

The Section consists of various parts. Sub Section (1) of Section 3 has wide 

ramifications. An agreement which causes appreciable adverse effect on 

competition in India in respect of production, supply, acquisition, control of 

goods and services is void as stated in Sub-section (2) of Section 3 of the Act. 

Sections 3(1) and 3(2) do not deal only with the supply side of the market. 

A market works on the principle of demand and supply. The assumption here 

is that a consumer would make a decision to purchase or sell in a rational 

manner so as to maximise gains to it. If an enterprise deals with an individual 

by entering into an agreement which causes an adverse effect to competition in 

India would be hit by Sections 3(1) and 3(2) of the Act. Any other view would 

be a narrow view and not authorised by the Act. 

Section 3(3) of the Act is based on the concept of presumption. It is envisaged 

that if the factors as enumerated Clauses (a), (b), (c) and (d) of Sections 3(3) 

exist then it would be presumed that there is an appreciable adverse effect on 

competition. No presumption is absolute as presumption can be rebutted. In 

the main Section 3(3) of the Act, the behaviour of the persons or enterprises 

which are covered are agreements, practices carried on and decisions taken. 

Another aspect to be looked into is that the enterprises are engaged in similar 

trade of goods or provision of services. 

Section 3(4) talks of an agreement between persons in a production chain in 

different markets in respect of production, supply, distribution, storage, sale 

or price of or trade in goods or provision of services. The Section has an inclusive 


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definition which includes tie-in arrangement, exclusive supply agreement, 

refusal to deal, exclusive distribution agreement and resale price maintenance. 

These five situations are not exhaustive and could include other situations. 

In any case exclusive supply agreement means an agreement which restricts 

the customer from buying goods or services from any other buyer. Only issue 

to be examined in Section 3(4) is whether on the facts and circumstances of the 

case there is an adverse effect on competition. 

(18) The next salient feature to be seen as to how the Act should operate. Under 

Section 16 of the Act, it is the duty of the Director General to assist the Commission 

to fulfill its obligation under Section 18 of the Act. It is not for the Commission to 

sit on judgment over the findings of the DG. If the DG has not carried out proper 

investigation, the Commission can direct the DG to investigate the case on the 

issues to be directed by the DG. It can inquire itself also. This is the scheme under 

Section 26(7) of the Act. 

(19) The procedure for inquiry has been laid down in Section 26 of the 

Competition Act. On the basis of own information or from any other source, the 

Commission can form an opinion that prima facie case exists it can direct the DG 

to carry out an investigation under the Competition Act (Section 26(1) of the Act). 

If on the basis of information, the Commission forms a prima facie opinion that no 

case exists, it can close the case (Section 26(2)). An appeal to the COMPAT lies 

against the Commission. Under Section 26(3) of the Act, the D.G. is required to 

submit his report to the Commission within the period specified. Under 

Section 26(4), the report of the DG is required to be forwarded to the parties 

concerned. Section 26(5) envisages a situation where the DG has not found a 

contravention of the Act. In such a case, the Commission is required to give a 

notice to all the parties and hear them. Under Section 26(6) of the Act, if the 

Commission agrees with the findings of the DG, it can close the case by passing 

an order. This order under Section 26(6) is appealable. Section 26(8) talks of a 

situation where DG has found a contravention of the Act but the Commission 

finds that more enquiries are needed, it can carry out enquiries. No order dropping 

the case or penalizing the concerned parties can be passed under Section 26(8) of 

the Act because the Section does not talk of an order as has been mentioned in 

Sections 26(2) and 26(6) of the Act. It is implied in the Act when the Commission 

has formed a prima facie opinion under Section 26(1) of the Act and the D.G. has 

confirmed this prima facie view by investigation, the Commission cannot drop the 

proceedings. If it drops the proceedings it amounts to a recall of its orders passed 

under Section 26(1) of the Act. Further, the legislative intent is clear. As discussed 

earlier, no order under Section 26(8) can be passed. If the intention of the legislature 

was to drop proceeding under Section 26(8) then it should have mentioned that 

an order was required to be passed and the said order would have been appealable. 

In such a case, the Commission has to accept the recommendations of the 

DG though it has discretion to levy penalty of different types under Section 27 of 

the Act. 

(20) We also have to examine the economic considerations for the levy of penalty 

charged by the banks for the foreclosure of loans. We have to examine the 

economies of treatment of this phenomena of penalty for the foreclosure of loans 

in other countries. We also have to examine the home loan market in India and its 

contribution to the Indian economy and vice versa. We also have to examine 

whether the banks/financial companies are losers or gainers if their customers 

prepay their loans. 

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(25) An economy would grow in the short run if consumer spending increases. If 

consumer spending increases the savings rate would go down. Savings rate 

increase in the long run may be beneficial but consumption spending in the short 

run is beneficial for the economy. Thus it is necessary to put surplus cash in the 

hands of the consumers. But the banks by having a pre-payment fine on the 

consumers is decreasing the cash availability. Further, a cap has been put on the 

banks and other companies as far as housing loan is concerned. If a fillip is given 

to housing by having cheap property prices and cheap loans, the housing industry 

would receive a boost. This in turn would lead to higher employment, higher 

industrial growth, higher growth of person income and increase of G.D.P. 

(26) It is, therefore, necessary that as India faces shortage of houses, the home 

loan market should be expanded. Mobility in the market for the customer should 

be encouraged. Competition in home loan banking is important in order to ensure 

an efficient banking industry and should not be viewed as dangerous to the 

banking sector. In fact, in Norway mortgages are the main source of income for 

customers constituting 75 per cent of the total income. In India as well as in 

various countries, the banks charge customers for terminating services. 

This reduces the mobility of customers. The ability of the customers to switch 

banks helps the competitors the benefits of a competitive banking market. Any 

obstacle which reduces customers’ ability to switch banks will correspondingly 

reduce the competitive pressure on banks. High switching cost may result in 

increased bank market power and enable the banks to extract extra rent from the 

customers. High switching costs may also constitute barriers to entry as they 

make it harder for new entrants to attract customers and hence discourage new 

market entry. Further high switching cost may discourage product innovation, 

as customers would be reluctant to switch to new products and services. 

(27) The European Commission carried out a study of retail banking. Even the 

EFTA Authority had carried out a study of retail banking in the EFTA countries. 

The European Commission found potential competition concerns and consumer 

harm in some of the areas such as list of coordinated behaviour in the banks to the 

detriment of customer mobility through a non-transparent treatment of certain 

products such as mortgages. There are some economists who consider that banks 

form a big cartel but most of the economists are not of this view. The European 

Commission observed that the mortgages generated largest share of income in 

retail banking in European banks. It has also been stated in the said report that 

before customers change banks he considers all the factors which help him in 

switching banks. This would include switching costs also. It was also observed 

by the Commission that switching costs in the retail bank industry has three 

significant effects, (i) it increases the bank market power and this leads the bank 

to discriminate between new customers and old customers. The bank would 

charge low charges to attract new customers and once the customers are locked, 

the banks would charge higher prices which may be in the form of switching 

costs. (ii) Switching costs served as an entry barrier because it does not allow 

switching to consumer to bank with cheaper and better product. If the switching 

costs are high it was uneconomic for new entrants in the market to induce 

customer to switching. (iii) The third aspect was it discourages product innovation. 

When a new product is introduced in the market due to innovation and the 

switching costs are low the customer would like to switch to the new product. But 

if the switching costs are high there would be no reward and no customer would 

like to switch. In the EFTA report it has been stated that in order to have the 


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benefits of the competition in the banking sector the customers should be able to 

choose their banks. Any obstacle that reduces consumers’ ability to switch banks 

would reduce the competitive pressure on the banks. If closing charges are charged 

by bank this would reduce the mobility of the customers. High level of switching 

cost in the banking industry results in increasing the bank market power and 

enables banks to extract extra rent form the customers. High switching costs also 

constitute barriers to entry as it makes harder for new entrants to attract new 

customers and hence it discourage new market entry. High switching costs also 

discourage product innovation as customers would be reluctant to switch to new 

products and services. The finding of the both European Commission and EFTA 

authority are similar. 

(28) A study was also carried out by Amsterdam Centre for Law and Economics. 

In this paper it has been mentioned that switching costs may be a reason for 

consumers’ immobility as they remain locked-in one supplier. Switching costs 

also influence on behaviour as the firms should attract new customers by charge 

low prices and in order to exploit captured customers. The firms cannot 

discriminate between old and new customers due to high switching costs they 

have been giving incentives to keep their prices high and exploit their old 

customers instead of attracting new customers through lower prices. Therefore, it 

has been stated in the report that switching costs played an important role in 

consumers’ decision. In another report, the European Commission had analysed 

the switching costs in the electricity market. In this report, the Commission held 

that in the market of retail banking a policy of the mobility of the competitors has 

got to be followed. 

(30) In banking, asset and liability management is the practice of managing risks 

that arise due to mismatches between the assets and liabilities (debt and assets) 

of the bank. A corporation that wishes to acquire an asset must decide whether to 

pay cash, thereby reducing an asset, or take out a loan, thereby increasing a 

liability. The banks contended that due to the pre-payment of the loans banks 

will be in a situation in which it will be difficult to manage the liabilities (saving 

accounts/fixed deposits/borrowing, etc.) of the banks. Further, the concern is 

also related with the depositors with the banks as they are being provided fixed 

interest rates on their deposits. 

(31) Although, through the pre-payment of loan, the principal money is repaid 

well in advance to the banks through foreclosure. Even if it has been paid through 

switching banks or availing loan by the other competitor banks, the bank 

foreclosing the loan will get their principal money returned well before the tenure 

and will provide opportunity to further pump in the market. 

(32) Concept of time value for money is well recognised in the financial market. 

As the money received today has better value than the same amount of money 

received in future. For example, Rs. 100 of today’s money invested for one year 

and earning 5 per cent interest will be worth Rs. 105 after one year. Therefore, 

Rs. 100 paid now or Rs. 105 paid exactly one year from now both have the same 

value to the recipient who assumes 5 per cent interest; using time value of money 

terminology, Rs. 100 invested for one year at 5 per cent interest has a future value 

of Rs. 105. 

Accordingly a principal received five years earlier will have more value than 

received 5 years later, as the money will again in the process of generating interest 

through advances. 

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Further, the Equated Monthly Installments (EMI) is calculated in such a way that 

in the initial period of the payment, the component of he principal amount is very 

low and the interest portion is very high. 

Suppose, if any customer wishes to foreclose the loan amount of 1 lac in the 

fifth year which has been taken for 10 years at the rate of 10 per cent per annum. 

The EMI of this will be Rs. 16,275/Annual, The EMI contains an interest 

component as well as a principal component. The interest component is always 

10 per cent of the balance because the interest rate is 10 per cent. The remaining 

amount is the principal repayment. 

(33) In view of the calculation of EMI and the “time value for money”, it is evident 

that banks are unreasonably charging foreclosure amount as the consumer is 

bound to pay more first in terms of interest portion in the initial months of the 

payments and later he is made to pay in terms of pre-payment charges, if he 

decides to foreclose for better options. As this practice is fleecing, the consumers 

and also it is not generating any economic value to the development and restricting 

the consumer to exercise the right of freedom to choose better financial options for 

the loan. 

(34) Moreover, the practice of pre-payment penalty on loans is not helping the 

banks to be more service efficient and competitive on the interest rate being charged 

on loans to the existing customers as banks are sure of their secured customers 

due to the anti-competitive agreement of pre-payment penalty. 

(35) It is thus clear that the main aim of the banks or housing finance companies 

is to find the customers and not allow them to switch to other institutions. It also 

allows the banks to overcharge the customers as they are giving loans to new 

customers at lower rate of interest. Because of these facts, competition between 

the banks is killed and no new products would come and no innovation would 

be introduced. This practice also does not allow new banks/institutions with 

lower rate of interest to garner new business. Therefore, by charging pre-payment 

penalty, the banks/institutions are following anti-competitive practices which is 

having an appreciable adverse effect on competition in India. 

(36) Another argument which has been advanced is that if the customers prepay 

their loans what would the banks/HFCs do with the case which would be 

available with them. The market of home loan in India is very large and there is a 

very big shortage of houses in India. Further there is a cap placed on the banks as 

far as housing loans are concerned. The banks/HFCs would be in a position to 

loan the amount received as pre-payment to new loan creditors. This in turn 

would lead to construction of new houses or the purchase of new flats and would 

help in the economic development of India. 

(37) The housing loan market is a very secure market as the creditors which are 

banks/HFCs have the securities of the houses/flats to recover their loans. To 

spur economic activities and decrease the shortage of houses, the banks/HFCs 

have to increase the portfolio of the loans for homes. In India the home loan 

market constitutes a minuscule of the total loan given by the banks. The banks 

charge lower interest on large loans given to large industrial houses but they do 

not do so in the home loan market. When an industrial house is in financial 

trouble, the banks restructure the loans by waiving interest but it is not done in 

the case of home loans. Home loans are given in India in two forms. There is a 

fixed interest home loan and there is a floating interest home loan. In the case of 

floating interest, home loan if the interest rate rises, the home loan interest is 


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raised by the banks and if the interest rate goes down, the interest on the home 

loan interest goes down. But in practice it is found that even when the interest has 

gone down, the banks have not reduced the interest. Thus, the banks/HFCs have 

been not very honest with their home loan customers. 

(40) A similar case came up before the French Competition Authority. In the year 

2000, Couseil de la concurrence (French Competition Commission) found that several 

banks and institutions had entered into anti-competitive agreement in the sector 

of home loans. According to this agreement, the banks/institutions had reached 

an “inter-bank non-aggression pact” under which each of them refrained from 

making offers to customers of other banks who wished to renegotiate their property 

loans. Besides aiming to prevent competition between banks, this agreement 

enabled each of them to better resist requests by their own customers to renegotiate 

their loans, since the customers in question were subsequently unable to turn to 

another bank in the event of their request being refused. The Competition 

Commission held that this agreement between the banks constitutes an anti 

competitive practice and that was viewed seriously by all the competition 

authorities. 

It also ruled that banking activities are subject to competition law and that the 

competitive workings of the market are based on the independence and 

autonomy of the players involved, The authority held that because the agreement 

between the banks acts as barriers the consumers were deprived of the option of 

significantly reducing their property cost The authority also hold that property 

represents the most substantial investment by households and the repayment 

of loans required for this investment accounts for 30 per cent of their disposable 

income. Thus, disposable incomes of the household were decreased. For this 

reason, economic development suffered and the markets were deprived of large 

amount of funds. The authority thereafter levied a fine of 150 million on 

the banks. 

(41) In the background of the legal position and the fact of the case, we have to 

examine each and every argument which has been raised by the banks and HFCs 

before the Director General and the Commission. The first argument is that the 

Commission had no jurisdiction over banks as RBI is the regulator. This argument 

is without any basis as the jurisdiction over the competition issues is with the 

Commission and the regulation of banks/HFCs on other matters is with the RBI. 

(42) The second argument is that pre-payment fines are more in the nature of unfair 

or restrictive trade practices and should be dealt with by the Consumer Courts 

rather than by the Commission. It was, therefore, stated that the Commission had 

no legal jurisdiction. No basis has been given as to how the issues under 

consideration are unfair and restrictive trade practices. This argument is therefore, 

without any basis. In fact, the issues here are ones which show that the banks/ 

HFCs have created an adverse effect on competition. 

(43) The third argument taken is that the decision taken in the IBA Circular of 

10 th September, 2003 should have been disregarded by the DG and that the 

economic consequences should have been seen by the DG. It has been conceded 

that the Circular had the intention of disciplining the customers and to increase 

the income of the banks. In fact, the circular which was more in the form of 

recommendation was issued with the idea of retaining the captured customers 

by the banks and stop then from switching by levying charges at the time of 

foreclosure of loans. 

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(44) The fourth argument taken was that when a borrower prepaid his loan, the 

bank lost future interest and also lost avenues to invest the funds received. It was 

stated that this created a mismatch in the asset and liability tenure. It was, therefore, 

argued that the banks charged penalty from the customers to compensate the 

losses. Though, most of the banks argued on these lines but none of them brought 

any data or material to establish this claim. No material has been brought on 

record to establish that the banks had suffered a loss which entitled them to levy 

penalty for the foreclosure of loans. On the contrary, as already worked out above, 

as the banks recover the interest first and the principal in later years, by the 

foreclosure of loans, applying the principles of discounting, the banks are gainers. 

Regarding the funds received as pre-payment, as the home loan market is very 

huge, the funds can be redeployed and the banks would be gainers. Therefore, 

this argument of the banks/HFCs are without any basis and ought to be rejected. 

(45) The fifth argument raised is that the DG has not gathered any evidence to 

establish the penalty levied is an anti-competitive practice. The DG has invoked 

Section 3(3)(b) of the Competition Act which is a case of rebuttal presumption. It 

is for the banks/HFCs to establish that the presumption is wrong by bringing 

material on record. This onus cast by the operation of the Act has not been 

discharged by the banks/HFCs. 

(46) The sixth argument is that PPC enhances cash flow from the borrowers and 

reduces the volatility of interest rates and, therefore, enhances consumer welfare. 

This is a fallacious agreement because the levy of penalty decreases the cash 

surplus of the borrowers and, therefore, is detrimental to the welfare of the 

consumers. 

(47) The seventh argument is that PPC is a tool to manage reinvestment risk. It has 

been argued that when pre-payment of loans is made, the banks would have 

surplus cash which they may not be in a position to invest. To compensate for 

this loss the penalty is levied. It has been discussed that the home loan market in 

India is very large with an insatiable demand for home loans and, therefore, the 

surplus can cash can be lent to some other borrower. There may be a time lag for 

which a small compensation from the borrower in the form of one month’s EMI 

may be collected. 

(48) The eighth argument was that the international treatment of PPC is not 

relevant in the Indian context. But no material was submitted to support this claim. 

(50) The tenth argument is that the market should be governed by a monopolist or 

by an oligarchy and then only it could be said to be anti-competitive. It was 

argued that in the absence of such a finding, Competition Act would not apply. 

The fact is that this argument is very simplistic. The provisions of the Competition 

Act would have to be examined as to whether they would be applicable in the 

Indian home loan market. 

(51) The eleventh argument is that the loans are prepaid due to cyclical factors 

and that PPC gives rise to demand constraints, as opined by the DG, is without 

any basis. The DG is to assist the commission and it is for the Commission to 

decide the anti-competitive behaviour of the participants in the market and not 

the DG. 

(52) The twelfth argument raised is that PPC is not usurious, otherwise it would 

have been declared so by the Courts. This argument is misplaced as the only 

issue before the Commission is whether the behaviour of the banks is 

anti-competitive in the home loan market. 


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(53) The thirteenth argument is that the DG has recorded a finding that charging 

of PPC by National Housing Bank and other retail lenders is justified. As already 

discussed in the scheme of the Competition Act, DG is only an investigative 

branch of the Commission. If his findings are erroneous and without any basis, 

the Commission is not bound to perpetuate such erroneous findings. If PPC is 

found to be anti-competitive, the Commission is bound to take action against 

National Housing Bank and the other retail lenders. 

(54) The fourteenth argument is that the DG has not considered the factors of 

Section 19 of the Competition Act. The arguments are misplaced because it is the 

duty of the Commission to consider the factors of Section 19 of the Competition 

Act and not the DG. 

(55) In the fifteenth argument, it has been conceded that PPC is harmful to the 

borrowers. But on the contrary it was stated to be beneficial to the depositors. 

This argument is without any basis because the gains from PPC have not been 

transferred to the depositors in the form of higher interest. 

(56). The sixteenth argument is that the Court cases relied upon by the DG are not 

relevant. The argument raised here are correct because the Court cases are with 

reference to the Consumer Act and not the Competition Act. Further, the Supreme 

Court has not opined on the legality of PPC and has left it open. 

(57) The seventeenth argument is that the home loan market has grown at a very 

high rate and that PPC has not deterred the entrance of new entrants to the 

market. This agreement is without any basis because the market in India has 

grown in spite of the anti-competitive behaviour of the banks. The reason for 

growth of the market is the pent up demand for houses, a very high GDP growth 

and cash surplus with the people in India. 

(58) The eighteenth argument is that banks apply upward interest rates to new 

consumers and not to existing consumers. It was therefore, argued that pre-payment 

penalty is welfare inducing and helps consumers. This argument is totally incorrect. 

The banks in order to attract new customers charge lower rate of interest and after 

a year or two put the customers on a floating rate of interest which is substantially 

higher. But the rate of interest is not reduced even when the interest rate comes 

down. Thus, the banks are extorting rent from their old customers. 

(59) The nineteenth argument was that Section 3(3) is not applicable to the banks/ 

HFCs because there existed no agreement between the banks and that Section 3(3) 

would apply only in the case of agreements. A reading of Section 3(3) would 

show that the Section would apply when the following situations exist - (i) when 

there is an agreement between the parties, (ii) Practice carried out by the parties. 

(iii) A decision taken by the enterprises as an association including a cartel. It is 

also stipulated in the Section that the parties/enterprises should be in the same 

line of business. Section 3(3) would apply if the conditions of Clauses (a) to (d) 

are satisfied. The existence of an agreement is not necessary for the application of 

Section 3(3) of the Act. A practice carried out or a decision taken would also be hit 

by Section 3(3) of the Act provided the enterprises are in the same line of business. 

(60) It has also been argued that the levy of penalty for the foreclosure of loans 

creates a healthy competition in the market and the bank industry. Further with 

the existence of PPC, the banks are showing very high profits and, therefore, PPC 

did not have any adverse effect on competition. It was also argued that banning 

PPC would have an adverse effect on competition. It has also been argued that the 

levy of penalty on the borrowers by the banks is beneficial to the consumers. 

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Though these arguments were advanced no material was provided in support of 

these arguments. It could be possible that high profits of the banks/HFCs were 

due to the pre-payment penalties of due to large home loan market. No bank 

furnished the details of their earnings through pre-payment penalties. It is not 

clear how PPC leads to competition and how banning PPC would be 

anti-competitive. Even how PPC brings benefits to the consumers is not clear. 

(61) It was further argued that the PPC has been levied to stop the adventurism of 

the consumers, to stop volatility in the markets, to discipline the consumers and 

to stop the consumers from migrating to other home loan suppliers. It was further 

argued that PPC was a safeguard against competition and unfair trade practices 

and that PPC was levied to compensate for the losses suffered by the banks. It was 

also stated that World Bank also levied PPC. From these arguments, it is clear that 

the main aim for the introduction of PPC was to hold on to customers and stop 

consumer choice. It has been conceded by some of the banks that PPC was 

introduced to increase profits and reduce competition in the markets. It is not 

material whether the World Bank charges PPC or not. What is to be examined is 

as to how the levy of PPC affects the competition in the home loan market. 

(62) But before examining competition in the home loan market it is necessary to 

examine the behaviour pattern of consumers, i.e. behaviour economics. Before a 

theory or hypothesis is formed, it is necessary to have certain axioms. In economics, 

the axiom is that in a perfect market, a consumer would make a rational choice 

which would increase his economic well being. The question is as to how this 

rational choice can be made. This choice depends on whether a person wants to 

improve his economic well being. It also depends on the information which is 

available to person in the market. This choice is dependent on the advertisements 

which flood any market, it depends on brand value, it depends on the services 

which are given in the market or it could depend on the perceived advantage to 

the consumer. The consumer can suffer from processing overload. Consumer 

biases can set in the processing of information. For a market to function properly 

a consumer should be able to assess access and process information. Because of 

the bulky information which the consumer has to go through before he enters in 

the agreement he can enter into an agreement which is anti-competitive. This can 

happen due to processing overload. The agreement may lead him to high switching 

costs. It there are high switching costs, mobility of the consumers would be affected. 

Thus, a new entrants would not get customers and innovation would suffer. 

Even the allocative efficiency of the markets would suffer. Competition Authorities 

such as the OFT and others thus realise that behaviour economies plays a major 

role in the competition in the market. It is recognised that agreements are not 

sacrosant as God’s Ten Commandments. Even if a consumer has signed the 

agreement, it could be due to misinformation fed by the sellers of the products. 

Further, as discussed above, switching cost are being recovered even if there was 

no such factor in the agreement. 

(63) In the background of these facts, this case has to be decided. The facts are that 

the Indian home loan market is very large and is expanding at a very fast pace 

because of the growth of G.D.P. at a rate nearly 9 per cent. There is a shortage of 

houses in the country and if the credit in the home loan market increases, due to 

high pent up demand for loan, the gross domestic product of the country would 

increase substantially. This in turn would give a boost to the cement and steel 

industry mainly because housing contributes nearly 6 per cent to 7 per cent to the 

G.D.P. of India. 


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(64) But the banking industry and the home finance companies have introduced 

the concept of fines on the foreclosure of loans before the loans come to an end. 

When HDFC entered this segment of home loans in 1978, there was no penalty on 

the pre-payment of loans. When competition came in the market in the form of 

LIC Housing Finance in 1993, HDFC introduced the concept of penalty on the 

foreclosure of loans. L.I.C. Housing finance introduced the system of penalty 

in 1995. National Housing Bank which is the regulator in the area of home finance 

and which lends to banks/HFCs introduced the concept of penalties in 1997. 

ICICI Bank which entered this field later introduced the concept of penalties on 

pre-payment in 2001. The PSU banks entered the field of home loan at a later date 

and initially they did not charge any penalty. But after the meeting of the banks in 

September, 2003 the P.S.U. banks started charging penalties varying from 

0.5 per cent to 2 per cent. Subsequently, many of the banks did not levy penalties 

from customers who prepaid the loans from their own funds. But if the loans 

were prepaid after taking loans from another bank, the banks levied penalty. 

Incidentally, according to a report of ICRA, HDFC and SBI have a market share of 

nearly 17 per cent in the home loan market. ICICI Bank has a share of 13 per cent. 

Even LIC Housing is a significant player in the market. 

(67) During the course of hearing of the banks, it was conceded by some of the 

banks that the concept of penalties for the foreclosure of home loans was 

introduced because the banks did not want to lose customers who could have 

migrated to banks giving loans at a lower rate. They thus wanted to reduce the 

mobility of consumers and reduce their choice. The banks also wanted to discipline 

the consumers. The banks wanted to extract rent out of the consumers by charging 

the penalty as they perceived losses. But what losses they had incurred to would 

have incurred was not worked out. The banks were also not aware of how much 

they had earned out of the pre-payment penalties. The data was not available 

because home loans constituted a very small percentage of their total loan portfolio. 

In fact even today S.B.I. which is the largest bank in the country, has a total home 

loan portfolio of 13 per cent. Most of the banks talked of asset liability mismatch 

when the consumers prepaid their loans. But no material to support this claim 

was furnished. On the contrary, as worked out above no loss is suffered by a bank 

if a consumer prepays his loan. In fact, the pre-payment enlarges and deepens the 

home loan market because there is an insatiable demand for home loans in India. 

I have already dealt with the arguments raised by the banks. 

(68) In view of the above noted factual position, the issues are to be examined 

with reference to the Competition Act, 2002. The question here is of switching 

charges which a consumer has to pay in the form of pre-payment penalties. There 

is no doubt that by charging pre-payment penalty the banks reduced the choice of 

the customers. As a consequence of the pre-payment penalty, a customer cannot 

shift from one bank to another. Further, when a new bank enters the market it 

would not be able to get customers from the other banks because the customer 

would not like to shift in view of the penalties which he would have to pay if he 

shifts to a new bank. Thus, by levying the pre-payment penalties banks are killing 

competition in the home loan market. This also leads to decrease in the allocative 

efficiency of the market and a reduction of innovation. Under the provisions of 

Section 3(1) of the Act, no supplier of goods and services can enter into an 

agreement which causes or is likely to cause an appreciable adverse effect on 

competition. In all the cases where the banks enter into an agreement with a 

consumer for home loans, the banks have envisaged penalties provided the 

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consumer pre-pays his loans. As already discussed, the levy of switching charges 

in the form of pre-payment penalties causes an appreciable adverse effect on 

competition. Therefore, under Section 3(2) of the Act of these agreements entered 

into by the banks are anti-competitive agreements and, therefore, void. 

(69) Before declaring an agreement to be void the provisions mentioned in 

Section 19(3) of the Act have to be looked into. An appreciable adverse effect on 

competition under Section 3 cannot be determined without regard to the facts 

enumerated in Section 19(3) of the Act which are: 

(i) Creation of barriers to new entrant in the market. 

(ii) Driving existing competitors out of the market. 

(iii) Foreclosure of competition by hindering entry into the market. 

(iv) Accrual of benefits to consumers,. 

(v) Improvements in production or distribution of goods or provision of 

services. 

(vi) Promotion of technical, scientific and economic development by means 

of production or distribution of goods or provision of service. 

In this particular case for the foreclosure of the loans, a barrier has been created 

for new entrant in the market as no consumer would shift to the new entrant as he 

would suffer a loss as pre-payment penalties would have to be paid. Competition 

has also effected as hindrance is caused to the consumers by the levy of the 

penalties when a person shifts to another bank. The next issue is the accrual of 

benefits to the customers. When pre-payment penalty is levied there is no benefit 

to the consumer. In fact there is a decrease of benefits to the consumer as he has to 

pay penalty. Further the choice of the customer decreases. Therefore, the provisions 

of Clauses (a), (c) and (d) are applicable to the facts of this case. Therefore, by the 

levy of the switching charges by the banks an appreciable adverse effect on 

competition within India is created. Therefore, the agreement by the banks with 

the consumers for the levy of penalty for the foreclosure of loans is an 

anti-competitive act and, therefore, void in accordance with the provisions of 

Section 3(1) and 3(2) of the Act. 

(71) The DG has carried out investigation in this case and he has found a 

contravention by the banks/HFCs under Section 3(3)(b) of the Act. 

The findings of the DG are based on following facts/evidences: 

(i) The Circular dated, 10 th September, 2003 issued by IBA suggests that 

there is a concerted action on the part of the banks. 

(ii) The internal circulars issued by the banks justifying their actions of 

charging pre-payment penalty are anti-competitive in nature. 

(iii) The origin and history of this practice. 

(iv) Regulatory position. 

(v) Judicial decisions, and; 

(vi) International practice. 

In order to find out whether the DG has applied the right provisions of law in the 

given situation, it is important to re-look into the provisions of the Act and find 

out whether this case fits into the entire scheme of things as provided therein. 

Section 3(3) of the Act deals with the following situations: 

(i) the agreements entered into between the entities of the class described 

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(ii) 

(iii) 

(iv) 

any practice carried on by them, or 

any decision taken by them and 

Containing the terms set out in Clauses (a) to (d) which in substance are 

fixing prices, limiting or controlling supply of goods or services or 

technical development, sharing the market, and bid-rigging or collusive 

bidding. 

If the above conditions are satisfied, it shall be presumed to have an appreciable 

adverse effect on competition. They are deemed to be in per se violation of Section 3 

and the onus is on the party to disapprove this claim. 

The classes of parties to an agreement dealt with by Section 3(3) are; enterprises, 

associations of enterprises; persons or associations of persons and they could act 

in any combination. It is that they are to be an association of persons or enterprises 

of services. Where the association of persons or enterprises is publicly identified 

as a group with a unity of purpose they are named as Cartel. 

However, before applying this Section, it is important to understand the definition 

of following “terms” of the provision. 

“Practice carried on” - “Practice” has been defined in Section 2(m) of the Act and 

includes any practice relating to the carrying on of any trade by a person or an 

enterprise. 

“Service” - “Service” means service of any description which is made available to 

potential users and includes the provision of services in connection with business 

of any industrial or commercial matters such as banking......financing.........and 

advertising. 

In view of the above definition, following questions need be answered in the 

present case: 

(a) Is “Retail Home Loan Financing” is a service being provided by the 

banks? 

(b) Is there any practice of pre-payment penalty being carried by the banks? 

(c) Is there any association of banks? 

(d) Is there any concerted action on the part of the banks? 

(e) Are they engaged in identical or similar trade? 

(f) Are these association of banks is in any way limiting or controlling this 

provision of services? 

If the answer is “yes” then Section 3(3)(b) is clearly attracted in this case because 

as per definition, the “practice carried on. ..... by any association of enterprises or 

association of persons........., engaged in identical or similar trade of goods or 

provisions of services, which - limits or controls........provision of services;” is 

covered under Section 3(3)(b) of the Act and once the conditions mentioned in 

Section 3(3) of the Act are fulfilled, it is deemed to have “appreciable adverse 

effect on competition”. 

But before reaching a conclusion that the provisions of Section 3(3) of the Act are 

attracted in this case the most important thing to find out is: 

(i) Whether there is any agreement, arrangement or understanding or action 

in concert in writing or informal? 

(ii) Does this agreement or arrangement or understanding or action in concert 

cause or likely to cause an appreciable adverse effect on Competition 

within India? 

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As per Section 2(b) of the Competition Act, 2002, “Agreement includes any 

arrangement or understanding or action in concert: 

(i) Whether or not, such arrangement, understanding or action is formal or 

in writing or, 

(ii) Whether or not, such arrangement, understanding or action is intended 

to be enforceable by legal proceedings. 

This means that in order to fall under this definition, a concerted action on the 

part of enterprises or persons is a pre-requisite. Even when party to such an 

arrangements do not intend to create any legally enforceable mutual duties and 

liabilities, it shall be considered as an agreement under this act. 

In Technip S.A. v. S.M.S Holding Private Ltd. 1 (2005) 5 SCC 465, the Court observed 

that the term “agreement” covers an arrangement or understanding which may 

be informal as well as formal. No written proofs of agreements are required, as 

writing has been done away with. 

The definition is designed in such a way as to produce a vast and sweeping 

coverage for joint and concerted anti-competitive actions. There is no need for an 

explicit agreement in cases of conspiracy where joint and collaborative action is 

pervasive in the initiation, execution and fulfillment of the plan-United States v. 

General Motors 384 US 127. 

It has been a contentious issue as to what constitutes an agreement to come 

within the ambit of competition enquiry. In CFI Judgment in Volksawagen AG v. 

Commission (2003), it has been held that there is no need for an explicit agreement 

in writing but there should be consensus between the parties concerned also 

referred to as meeting of minds or concurrence of wills. 

It has further been held in Commission v. Bayer AG (2004) 4 CMLR 13, that it is 

sufficient that the parties to the agreement have expressed there joint intention to 

conduct themselves in the market in a specific manner. As regards the form in which 

the common intention is expressed, it is sufficient for a stipulation to be the expression 

of the parties’ intention to behave on the market in accordance with its terms. 

However, there have been practical difficulties to establish the existence of an 

anti-competitive agreement between the firms. The fact is the firms engaging in 

anti-competitive behaviour have developed sophisticated mechanics of hiding 

their behaviour so that they escape the liability under the anti trust laws. Lord 

Denning in RRTA v. W. H. Smith & Sons Ltd. have observed “People who combine 

together to keep up prices do not shout it from the house tops. They keep it quite. 

They make their own arrangements in the cellar where no one can see. They will 

not put anything into writing nor even into words. A nod or wink will do.” 

From the above definition of “agreement”, it can be concluded that if following 

conditions are there, then it can be said that there is an agreement: 

• Any formal or informal arrangement or understanding. 

• No need to have an explicit agreement in cases of conspiracy where joint and 

collaborative action is pervasive in the initiation, execution and fulfillment of 

the plan. 

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1 Ed.: MANU/SC/0385/2005: III (2005) BC 56 (SC): [2005] 125 CompCas 545 (SC): (2005) 

4 CompLJ 385 (SC): 2005 (4) CTC 209: JT 2005 (5) SC 506: [2005] 60 SCL 249 (SC): [2005] 

Supp (2) SCR 223 


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• No need for an explicit agreement in writing but a consensus, between the 

parties concerned which referred to as meeting of minds or concurrence of 

wills, is sufficient. 

• It is sufficient that the parties to the agreement have expressed there joint 

intention to conduct themselves in the market in a specific manner. 

• As regards the form in which the common intention is expressed, it is sufficient 

for a stipulation to be the expression of the parties’ intention to behave on the 

market in accordance with its terms. 

• No need to have anything into writing or even into words. A nod or wink 

will do. 

However, there is a feeling of some different inference on the term “agreement”. 

There is a view that Section 3(3) is wider in scope than Section 3(1) as Section 3(1) 

deals only with any agreement whereas Section 3(3), in addition to any agreement, 

also covers practices carried on or decision taken by which results in AAEC. The 

fact that the Act uses, these three terms also indicates that “agreement”. “practices 

carried on” and “decision taken” are envisaged as distinct and distinguishable. 

A “follow the leader” syndrome may lead to anti-competitive “practices 

carried on” and “decision taken” without being an “agreement”. But these would 

still be actionable under Section 3(3) if they result in acts covered under 

Sub-clauses (a) to (d). 

The inference drawn can not be subscribed to Section 3(1) is the covering Section of 

the entire Chapter on “Prohibition of agreements” and it is the broader provisions 

which covers both Section 3(3) and Section 3(4). In fact, in Section 3(1) two 

situations, i.e. 3(3) and 3(4) have been envisaged. It means that any contravention 

of Sections 3(3) and 3(4), the contravention of Section 3(1) has to be there. Section 3(1) 

is inherent and implicit in Section 3(3) and 3(4). It also can not be concluded that 

“practices carried on” or “decision taken by” as provided in Section 3(3) can be 

without any “agreement”. Agreement is a necessary element in all the Sections 

provided under Section 3. It is the crux of the Chapter “Prohibition of agreements”. 

Unless there is an agreement, there cannot be prohibition of agreements. Thus, a 

contravention of Section 3(3) without having an agreement can not be visualised. 

This presumption is further strengthened by the fact that in Section 19(3) also 

it is clearly mentioned that while determining whether an agreement has an 

AAEC under Section 3, have due regard to all or any of the following factors, 

namely (a) to (f). 

There is a feeling that to establish an “agreement” between persons, there has to 

be conclusive evidence. This is not a correct presumption. Even under Evidence 

Act two types of evidence have been prescribed to establish an offence - i.e. direct 

and circumstantial. As has been stated above and is a settled position also that in 

the case of cartels or anti-competitive agreements to establish an “agreement” of 

being anti-competitive in nature direct evidence can not be found unless through 

dawn raids, so, one has to depend on circumstantial evidence or the 

preponderance of probabilities. In the present case there is both circumstantial 

evidence as well as preponderance of probabilities which establishes that there 

was an “agreement” among the banks to carryout the practice of charging 

pre-payment penalty. Further, Evidence Act is strictly not applicable to these 

proceedings. 

(72) Now, let us examine whether any or all elements of an anti-competitive 

agreements are present in the case under consideration. Is it not a fact that there 

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was a meeting of IBA in September, 2003 where all members bank were present 

and the issue of pre-payment penalty issue was discussed? It is irrelevant whether 

there was an agreement, consensus or a decision to impose the PPC. Why this 

meeting was held in 2003? There is a background to that. When HDFC was the 

only player in the home loan financing market from 1978 to 1993, they never felt 

the need of imposing PPC nor they raised any issue such as ALM, but when LIC 

HFC entered into the market in 1993 then they felt threatened and started charging 

PPC. Again when other players entered the Home Loan Market, the LIC HFC also 

started charging PPC to protect its market. Then other players also started 

advocating the imposition of PPC in order to hold their domain. That was the 

reason why this IBA meeting was held in 2003. Though, no consensus was reached 

due to opposition from some of minor players in HLF market, all major banks 

started this practice after this meeting. 

So, what these signify? 

• Was not there any tacit arrangement or understanding or a joint conspiracy 

and collaborative action which is pervasive in the initiation, execution and 

fulfillment of the plan, i.e. the charging of Pre-payment penalty? 

• Was not there meeting of minds or concurrence of wills? 

• Have not they expressed there joint intention to conduct themselves in the 

market in a specific manner? 

• Was any formal, explicit or written agreement is still required in this case? 

• Is not there a concerted practice on the part of the banks to charge pre-payment 

penalty more or less at the same rate and terms & conditions? 

• Is not there any coordination among the banks to charge pre-payment 

penalty to protect their market as held by the European Court of Justice in 

Sugar Cartel case (1969) 3 All ER 1065 that conceptually concerted practice is a 

form of coordination between the parties where they have not reached the 

stage of actual agreement but knowingly coordinate their actions and cooperate 

with one another instead of competing with each other? 

73. Now, coming to the “Practice carried on” by these Banks” which is limiting or 

controlling the provision of services”, it is a fact that the banks have adopted the 

practice of imposing pre-payment penalty to Borrowers who wish to either repay 

their loan in advance or to the Borrowers who wish to migrate the said loan to 

another lender. The Banks are charging a rate of pre-payment penalty varying 

from 1 per cent to 4 per cent on the outstanding loan amount. The banks have 

formed an association of banks known as Indian Banks Association (IBA). Though 

the Circular dated, 10 th September, 2003 issued by the IBA was not binding on 

any banks and it was optional for any bank to impose pre-penalty charge, it can 

not be denied that the practice adopted by most of the banks is a concerted action 

on the part of the banks in view of the settled legal position discussed as above. 

These banks are indulged in the restrictive practice as the consumers are not 

allowed to switch over from one bank to another because of this pre-payment 

penalty Clause. Switching costs are costs that existing customers have to incur 

when changing suppliers. Customer mobility and choice is essential to stimulate 

retail-banking competition but, here, consumers are tied to their bankers due to 

the existence of switching costs i.e. pre-payment penalty charge. 

Secondly, the loans were provided to those customers by the banks on floating 

rate of interest were made to understand that the rates will fluctuate as per the 

prevailing conditions of the market, however, in practice, it is observed that interest 


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rates were revised upward and not downward. Whenever there was condition in 

the market to lower the interest rate, lower rate of interest were being offered to the 

new customers and the existing customers were not being benefited. 

Differential treatment were being given to the new loan customers by the banks 

by providing very lower interest rate on loan amount in comparison to the existing 

loan consumers. If the existing customer asked banks to lower the interest rate at 

par with the new customers, it was conditioned by the banks to pay pre-payment 

penalty/ foreclosure amount on the outstanding loan, and then to apply for 

fresh loan. 

If any customer decides to pre-pay/foreclose the loans, they had to pay a certain 

percentage as penalty amount, i.e. normally 2 per cent - 5 per cent on the outstanding 

loan amount to clear their account, is not this practice anti-competitive, and the 

practice is limiting the provision of services? 

(74) Now, what is to be seen by the Commission? Under Section 19(3) of 

Competition Act, 2002, the Commission, while determining whether an agreement 

has an appreciable effect on competition under Section 3, is required to consider 

the all or any of the following factors: 

(a) creation of barriers to new entrants in the market; 

(b) driving existing com[editors out of the market; 

(c) foreclosure of competition by hindering entry into the market; 

(d) accrual of benefits to consumers; 

(e) improvements in production or distribution of goods provision of services; 

(f) promotion of technical, scientific and economic development by means 

of production or distribution of goods or provision of services. 

However, it is a wrong presumption that the parameters prescribed under 

Section 19(3) are not required to be applied while assessing an “agreement” 

under Section 3(3) as it is a deeming provision. Merely because, it is a deeming 

provision, it does not mean that the Commission is deprived of its powers to 

apply these factors while determining AAEC. Section 19(3) is a mandatory 

provision and the Commission is bound to apply these factors for arriving at 

AAEC. In my opinion, the deemed provisions of Section 3(3) is for forming a 

prima facie opinion and not the final one. The parameters given in Section 19(3) 

are not the “cause” of AAEC but a result thereof. For example, if an “agreement” 

results into the creation of barriers or driving existing competitors or forecloses 

the competition and so on, there has to be AAEC. 

So, what Commission is to determine is that due to the practices followed by 

the banks are there any entry barrier is being created? Is the competition is 

being foreclosed by hindering entry into the market or due to such practice any 

benefit is being accrued to the consumers? Because, the principle objective of 

competition law is to maintain and encourage competition as a vehicle to 

promote economic efficiency and maximise consumer welfare. The focal point 

of competition should be the actual and/or potential business conduct of 

firms in a given market and not on the absolute or relative size of firms. What 

needs to be seen by the commission is that whether a firm can exercise “market 

power”, i.e. engage in business practices which substantially lessen or prevent 

competition. The relevant product market in this case is “retail market of home 

loan financing” and the relevant geographic market is whole of India. 

(75) The case was, therefore, examined from the point of view of Section 19(3) 

and it is found that: 

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(i) The practice of imposing pre-payment penalty to borrowers who wish to 

either repay their loan in advance or to borrowers who wish to migrate 

the said loan to another lender, is rampant in the market and there is 

only one exception to that. The rates of pre-payment penalty vary from 

1 per cent to 4 per cent on outstanding loan. The said pre-payment penalty 

charged from borrowers appears to be arbitrary, anti competitive and 

without any basis. 

(ii) The asset liability mismatch argument does not support a charge of 

1-4 per cent penalty. Moreover, at least in an increasing interest rate 

scenario, the lender is actually benefited by the pre-payment because 

it should have raised the money at cheaper rate and now it can lend it 

at much higher rate, so there is no reason to levy a charge on the 

pre-payment. Secondly, ALM is not account specific and it matches the 

tenors of all deposits with all loans. This aggregation effect should render 

the impact, if any, to an insignificant amount. 

(iii) Large corporate prepay hundreds of crores of loans (which should cause 

bigger ALM issue for banks) whenever they get cheaper funds, but it is a 

common knowledge that the banks do not charge any pre-payment 

penalty. Moreover, the same corporate are given funds below PLR rates. 

It goes to prove that loss due to ALM is not the reason to charge 

pre-payment penalty. It is mainly to restrict small borrowers from 

choosing a cheaper loan. 

(iv) The pre-payment penalty is clearly to stop a borrower from going to a 

competitor for a cheaper interest rate or for better service. Through the 

pre-payment of loan, the principal money is repaid well in advance to 

the banks through foreclosure. Even if it is paid through switching over 

from one bank to another, the banks get their principal money returned 

well before the tenure and this provides opportunity to the banks to 

further pump money in the market. 

(v) Pre-payment penalty is in effect an enhancement of interest rate from 

back door. The lenders advertise a lower interest rate but in effect it is 

higher due to such penal charges. 

(vi) At the time of sanction of loans the lenders recover processing and other 

charges over and above the interest charge which is sufficient to cover all 

their risks plus a reasonable profit. There is no reason to impose 

pre-payment penalty to the tune of 1-4 per cent of outstanding amount. 

(vii) Most borrowers fail to reckon and compare the exit loads mentioned by 

the lender because they are not clear when they will need to repay the 

loan and what will the outstanding at that time. This situation is exploited 

by the lender. 

(viii) There appears to be no financial calculation to establish that pre-payment 

charge of 1-4 per cent is reasonable and justified as the concept of “time 

value for money” is not recognised by these Banks. As the money received 

today has better value than the same amount of money received in future. 

If we calculate the EMI and the “time value for money” it will be evident 

that banks are unreasonably charging foreclosure amount as the consumer 

is bound to pay more first in terms of interest portion in the initial months 

of the payments and later he is made to pay in terms of pre-payment 

charges, if he decides to foreclose for better options. This practice is 


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fleecing the consumers and also it is not generating any economic value 

and restricting the consumer to exercise the right of freedom to choose 

better financial options for the loan. 

(ix) Moreover, the practice of pre-payment penalty on loans is not helping 

the banks to be more service efficient and competitive on the interest rate 

being charged on loans to the existing customers as banks are sure of 

their secured customers due to the anti competitive agreement of 

pre-payment penalty. 

(x) There has been a tacit agreement among banks to follow the practice of 

pre-payment penalty and foreclosure fees on loans as to hold back their 

customers from switching over to other banks. Since, all lenders have 

imposed pre-payment penalty, it indicates of a concerted action leading 

to suspicion of cartelisation. In fact, many lenders have already admitted 

that this practice is being adopted by them to stop their customers to 

switch over from one bank to another. 

(xi) Even if it has not all the elements of cartel, which is prohibited under 

Section 3(3) of the Competition Act, 2002, customers were prevented from 

significantly reducing their property debts as it represented the most 

substantial household and repayment accounted for 50 per cent of their 

disposable income. This restricts competition, as it restricts a consumer 

to avail banking services of another bank which is ready to offer the loan 

at lower interest rates. 

(77) In another case, the French Competition Authority known as Conseil de la 

Concurrence, has dealt with the identical issue of giving property loans to 

individuals by different banks and charging pre-payment penalty. The gist of the 

decision is given below: 

Facts - In this decision, the Conseil de la Concurrence had, for the first time, to 

deal with anticompetitive practices in the banking sector. In 1993, the Conseil 

decided on its own initiative to investigate the property loans to individuals 

offered by the main French high-street and saving banks representing up to 

two-thirds of the relevant market. 

The investigated period took place while the long-term property loans were 

fluctuating, peaking at 20 per cent in the early 1980s then falling gradually from 

12 per cent in 1992 to less than 8.5 per cent in 1994. In such circumstances, any 

individual whose loan’s maturity exceeded five–seven years, could have benefited 

from the fall. Loans holders were then interested in either renegotiating with their 

bank, or benefiting from the competitive situation by paying off their loan earlier 

and subscribing to a new one in a rival bank. 

However, such a possibility allowing individuals to take full benefit of the market 

evolutions had been jeopardized by an “inter-bank non-aggression pact” which 

led to two main competition restrictions. First, the banks who signed the said 

agreement refrained from making offers to rival banks’ customers who wanted to 

subscribe to a new loan. Secondly, the agreement enabled each of the banks to 

better resist requests by their own customers to renegotiate their loans, since 

these customers could not ask another bank in case their request was rejected. 

The Conseil noted that, even if a cartel agreement between banks was not applied 

in a uniform manner, borrowers were prevented from significantly reducing their 

property debts, even though property represented the most substantial investment 

by households, and the repayment of loans required for this investment accounted 

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for 30 per cent of their disposable income. 

According to the banking establishments, the outstanding amounts likely to be 

affected by the renegotiation of property loans during the period in question 

amounted approximately to EUR 90 billion. However, households were only 

able to renegotiate around EUR 5.5 billion which represented for them an overall 

reduction in interest charges of about EUR 450 million over 10 years. 

Given the seriousness of the practice and the national scope of the agreement 

implemented by the main property loans operators, the Conseil imposed fines to 

nine banks totaling more than EUR 150 million. This is one of the highest fines 

ever imposed by the Conseil de la Concurrence. 

Comment - The Conseil de la Concurrence stated that, although banking activities 

are governed by specific regulations, they are still subject to competition law. 

The Conseil also indicated that any competitive market is based on the 

independence and autonomy of the players involved. It stated that when concerted 

practices lead to the removal of any uncertainty, they effectively distort 

competition; since each single actor is assured that the other banking networks 

will apply the same commercial policy. 

(78) In view of the facts and circumstances stated above there is no doubt that 

there is a contravention of Section 3(3)(b) of the Competition Act, 2002 as these 

Banks have adopted a practice of imposing pre-payment penalty by way of a 

concerted action which in effect limits or controls provision of services which 

resulted into foreclosing of customers mobility and by hindering entry into the 

market and thereby, no benefit is being accrued to the consumers. 

(79) In the consequences by having a system of pre-payment penalties for the 

foreclosure of the loans, the banks and the home loan companies have contravened 

the provisions of Section 3(1), 3(2), 3(3) and 3(4) of the Competition Act. 

23. Considering the facts of the case there is a contravention of Sections 3(1), 3(3)(b), 

3(4) and 4(1) of the Competition Act, 2002 by India Bulls Financial Services Ltd. 

24. India Bulls Financial Services Ltd. is, therefore, directed under Section 27 of the 

Competition Act to stop the practice of levying pre-payment penalty on the foreclosure 

of loans against purchase of properties. 

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B-209 

Section B 

Articles 

The Tripod of Independence, Expertise and 

Accountability of a Regulator – An Analysis of the 

Indian Competition Law 

Dr. S Chakravarthy* 

This is the second part of the three part Article on Independence, Expertise and 

Accountability of Regulators. The first part appeared in the May-June issue. 

The third and final part will appear in the next issue, September-October 2011. 

References will appear in September-October 2011 issue. 

In this part, the author says that in order to effectively and efficiently discharge its 

duties, a regulator, perforce, needs some degree of freedom to be provided by the 

statute creating it. This degree of freedom or independence should not be absolute 

but should be circumscribed by the laws of the land and the policy of the Government. 

Institutional independence is imperative for the regulator to perform the 

challenging task of maintaining a judicious balance amongst conflicting interest 

and maintaining an arm’s length relationship from interest groups. The statutes 

creating the institutional regulators may or may not explicitly mandate 

independence for them. In reality and practice, many regulators lack the requisite 

functional and organisational autonomy to be genuinely independent. 

* Dr. S. Chakravarthy is a civil servant by profession in India. He was Member, Monopolies and 

Restrictive Trade Practices Commission and also Member, High Level Committee on 

Competition Policy and Law appointed by Government of India. He was also Member of the 

Competition Law Drafting Committee and Advisor to Government on Competition Policy 

and Law. Presently, he is Advisor/Consultant on Competition. He is a consultant to World 

Bank, ADB etc. E-mail: chakravarthy38@hotmail.com and chakravarthy38@gmail.com. 


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[Vol. 2 

The author discusses as to how 

independence could be undermined on 

the touchstone of budgetary allocation, 

automatic funding, fixed tenure of the 

members of the regulator, their removal 

provisions and the bar on them for 

employment when they demit office. 

It was posited in the first part of this 

Article (see CLR issue May – June 2011) 

that the three pillars, namely, 

Independence (Autonomy), Expertise 

and Accountability, would constitute the 

tripod for a regulator, if that body has to 

be not only efficient but also effective. In 

this second part, the first pillar of the 

tripod is addressed. 

Independence/Autonomy 

In order to effectively and efficiently 

discharge its duties, a regulator, perforce, 

needs some degree of freedom to be 

provided by the statute creating it. This 

degree of freedom or independence 

should not be absolute but should be 

circumscribed by the laws of the land and 

the policy of the Government. Having 

said this, the regulator should not be 

dependent on the executive for survival. 

Its survival needs to be guaranteed by 

law. 

As noted earlier in the first part, 

institutional independence has become 

imperative for the regulator to perform 

the challenging task of maintaining a 

judicious balance amongst conflicting 

interest and maintaining an arm’s length 

relationship from interest groups. The 

statutes creating the institutional 

regulators may or may not explicitly 

mandate independence for them. In 

reality and practice, many regulators lack 

the requisite functional and 

organisational autonomy to be 

genuinely independent. 

Independence may be viewed in terms of 

“negative freedom” and “positive 

freedom”. The former is freedom from 

external coercion and the latter is freedom 

to do what one (the regulator) wants. 

External coercion arises mainly from the 

discretion that the Government has in 

making available to the regulator funds 

for its expenses. For instance, the new 

Indian Competition Law, Competition 

Act, 2002 states in Section 50 thereof, that 

the Central Government may “make to 

the Commission grants of such sums of 

money as the Government may think fit 

for being utilised for the purposes of this 

Act” (Emphasis supplied). This 

discretion takes the form of external 

coercion and prejudice the negative 

freedom referred to above. In particular, 

Government could utilise this weapon 

of discretion to pressurise the regulator 

to decide a particular case, issue or 

dispute in a desired manner. For obvious 

reasons, Government may not document 

its pressure but in subtle ways twist the 

arms of the regulator to decide a matter 

in a particular manner. Besides the said 

pressure, there could be other kinds of 

pressure constituting external coercion. 

Political pressure, “old boys’ network” 

pressure and the like are examples of 

external coercion, administered on the 

regulator subtly undermining negative 

freedom. 

Positive freedom is not an unbridled 

freedom but is tethered to the confines of 

the statute creating the regulator. Within 

the contours of the statute, the regulator 

must have the freedom to adjudicate and 

pass orders on disputes or decide matters 

like tariff fixing etc. This positive freedom 

is imperative to the regulator, if it has to 

perform its assigned functions and be 

effective in the market. The different 

market players must have confidence and 

faith in the regulator holding the balance 

even and in ensuring a level playing field 

for them. 

Governments, despite creating 

institutions as regulators and despite 

proclaiming their intention to accord 

them functional independence, in 

practice, are generally found to loathe 

loosening direct control over them. The 

Executive would like to keep the 

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The Tripod of Independence, Expertise and Accountability of a Regulator – 

An Analysis of the Indian Competition Law 

regulators in some kind of a check, be it 

through funding mechanisms or through 

arm twisting tactics of different kinds. 

Yet, it cannot be gainsaid that 

independence of regulators is the 

touchstone of their effectiveness, 

efficiency, transparency and 

accountability in the system. The 

discussion paper (CUTS, 2006a) very 

succinctly observes: 

Institutional independence has an 

inverse relationship with external 

influences over the authorities. The 

lesser the influence, the greater will 

be the scope for functional autonomy. 

There could be a host of possible 

external influences, including those 

wielded by interest groups. However, 

the relationships these bodies 

maintain with the Government have 

always been at the centre stage of the 

debate. The Government can always 

discover ways and means to 

conveniently distort the nature and 

extent of functional autonomy of such 

institutions. Therefore, in practice, the 

extent of the vulnerability to 

Government influence actually 

determines the degree of independence 

for these institutions..... 

B-211 

Thus, independence viewed in terms of 

negative and positive freedoms 

constitutes an important pillar for the 

regulator, both sectoral and competition. 

Multiple Objectives—Social and 

Political 

Taking the area of competition as an 

example, governments generally have 

multiple objectives. As a consequence of 

multiple objectives, public interest 

policies and intrinsic pure competition 

principles often are seen to be in conflict 

with each other. Because of this, 

competition law gets diluted and also 

suffers inconsistent application. The 

myriad conflicting objectives are 

pursued by the stakeholders concerned 

through political contacts and pressure 

groups. Unless such pressures are reined 

in, the independence of competition 

policy authorities and competition law 

implementing agencies get severely 

undermined. Compromises and political 

interventions prejudice the benefits of 

competitive process, namely, economic 

efficiency. 

An example of this is in Box 1, a Pakistan 

experience. 

COMPROMISE INIMICAL TO COMPETITION 

Box 1 

The Monopoly Control Authority (MCA) in Pakistan has the 

responsibility, inter alia, to conduct enquiries into restrictive agreements 

and trade practices. When the cement manufacturers in Pakistan 

increased the sale price of a bag (50 kgs) of cement from Rs. 135 to Rs. 235 

in October 1998, the MCA initiated an enquiry into the causes of the price 

increase after noting that the cement manufacturers were indulging in 

price cartelisation. The All Pakistan Cement Manufacturers Association 

(APCMA) informed the MCA that the reasons for the increase were 

increase in the cost of inputs and higher taxes. After collecting data, 

MCA found that the costs of inputs had not gone up except power tariff 

and that too only marginally. The taxation levels had actually been 

reduced. Cartelisation was manifest among the members of the APCMA 

and was against public interest, according to the MCA. MCA directed 

the cement manufacturers to cease cartelisation and revert to the 


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pre-October 1998 price level. Furthermore, it imposed a fine on each 

manufacturer and ordered that the consumers be compensated against 

verifiable claims. However, the cement manufacturers refused to comply 

with the order of the MCA and challenged the same in the High Court 

and obtained stay orders. Thereafter, the Ministry of Commerce, 

disregarding the supposed independence of MCA, persuaded the latter 

to close the case. It held negotiations with APCMA, lowered excise duty 

on cement and fixed the price of a bag of cement at Rs. 200. In doing so, 

the Ministry of Commerce had given in to the pressure of the cement 

manufacturers’ lobby (CUTS, 2006). This compromise was clearly inimical 

to the independence of the competition authority and to consumer interest. 

In developing countries, lack of political 

will has been recognised as one of the 

bottlenecks in adoption and effective 

implementation of competition and 

regulatory regimes. One needs to 

acknowledge and appreciate the fact that 

a democratic set up requires politicians 

and their parties to win elections to reach 

to policy-making positions. Therefore, 

they must satisfy aspirations of their 

electorates to whom they have to go back, 

at intervals, to seek a fresh mandate. In 

given contexts, one can easily 

comprehend, if not agree with, the 

reasons for politicians not allowing 

implementation of competition policy 

principles. By parting with certain 

hitherto enjoyed powers to the regulator, 

Government loses the leverage it has, in 

satisfying sections of electorates and 

vested interests (vested interests are also 

often seen to fund the parties during 

elections). However, efforts are short in 

identifying potential gains for politicians 

out of promoting and implementing 

competition policy measures and in 

understanding as to how competition 

policy outcomes could help them retain/ 

enhance their public image/supportbase. 

What is required is an alignment 

between the “competition policy 

outcomes” and the “incentives for 

politicians”. Accomplishment of this 

would go a long way in developing 

countries adopting and implementing 

competition policy principles on a fast 

track. For instance, where cartelisation 

has taken place and members of the cartel 

(generally with financial muscle and big 

pockets) fund the politicians in power, 

those in political power should be able 

to comprehend that cartels could 

devastate consumers, who really 

constitute the vote bank and that by 

proceeding against the cartel, a large 

number of consumers would benefit and 

consequently, may patronise them in the 

long run. It is difficult to posit a strategy 

for this except to emphasise that by 

following an appropriate competition 

policy, the long term interests of 

consumers will be served and so too the 

interests of those in power. 

In the Pakistan case, Government itself 

had intervened much to the discomfiture 

of the regulator. While Government 

should have the prerogative of making 

policy decisions, the field should be left 

free for the regulator to oversee if, within 

the policy framework, all players have a 

level playing field. But this does not 

happen in real life, because the dividing 

line between policy and regulation is, 

more often than not, thin. 

This is so, in particular, in the area of 

utility pricing. Utility pricing is a 

politically sensitive issue and 

Government is used to taking decisions 

thereon guided by political exigencies. 

After the creation of regulators, utility 

pricing should be legitimately left to the 

regulator, who is enjoined to maintain a 

balance between the interests of the 

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utilities, consumers, stakeholders and of 

course, the Government. Unfortunately, 

that has not been the case in many areas 

and jurisdictions, as was evidenced in 

the Pakistan case. 

This suggestion of leaving the area of 

pricing to the regulator brims with 

practical difficulties. Its feasibility could 

be in doubt in the milieu of politicoeconomic 

constraints. Again, the 

argument of short term political gains 

against long term economic gains 

surfaces. In utility pricing, the party in 

power may like to subsidise certain 

sections of society (like the farmers) in 

supplying power. The cost of subsidy 

obviously has to be borne by some other 

consuming sector, like the 

manufacturing. If so, the economy will 

be required to bear the cross of extra cost 

(arising out of subsidising the agriculture 

sector) suffered by the manufacturing 

sector. This can manifest in two ways. 

One, by way of enhanced price for the 

consumers and the other, by way of the 

manufactured goods getting 

outcompeted by goods in import. But 

then one has to countenance the fact that 

certain sections of society do require to 

be given certain subsidies. In that case, it 

will be unfair to place the burden on some 

other sector. A way to redress the 

situation is for the Government to 

reimburse the utility to the extent it had 

been advised to provide subsidy to a 

sector so that the burden is not 

unreasonably placed on someone else. 

This raises the larger issue of 

governmental policies constituting a 

boundary for the regulator. By and large, 

it is axiomatic that Government has the 

prerogative to lay down policies and 

policy framework. Particularly in 

democratic polities, people’s will usually 

stand reflected in governmental policies. 

For instance, in the State of Andhra 

Pradesh, the Congress party promised 

before the elections in 2004 that free 

power would be made available for 

farmers. Notwithstanding the cost to the 

B-213 

exchequer, Government after coming to 

power had to provide free power and it 

is continuing to do so even today. 

People’s will cannot be easily brushed 

aside. Regulators are bound by policies 

laid down by the Government. Given the 

sovereign authority for the Government 

to lay down policies and express them, it 

is imperative that they are conveyed to 

the regulators in a transparent manner. 

The statutes creating the regulators need 

to specify the power of the Government 

to lay down policies and specify the 

obligation of the regulators to be bound 

by them. Oftentimes, there is seen the 

ambiguity relating to the role and 

responsibilities of a regulator. 

Consequently, it would be eminently 

desirable to specify the regulator’s 

mandate in the statute itself. When as 

suggested above, the role and 

responsibilities of the Government are 

specified in the statute, the distinct turfs 

for the Government and the regulator 

will be clearly understood by both. In the 

event there is any confusion between 

policy making and regulatory role, it 

should be resolved by the Government 

issuing specific clarifications to avoid 

conflict-raising overlaps. 

In this context, a question is likely to arise 

as to what constitutes “policy”. Most, if 

not all statutes creating regulators in 

India, omit to define “policy”. It becomes 

subject to interpretation with the 

attendant arbitrariness in so doing, be it 

the Government itself, the regulator or 

the courts assuming the task of 

interpretation. The lack of clarity in this 

regard could undermine the 

independence of the regulator. The 

Chairperson of a regulator, if weak or if 

appointed on patronage by the 

Government would, likely seek the 

interpretation of the Government rather 

than attempt to interpret. Likewise, if he 

is a strong personality, he might tilt the 

balance in his favour, namely, that of the 

regulator. The Discussion Paper (CUTS, 

2006a) suggests a solution, as follows, 


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[Vol. 2 

though Government may loathe 

accepting it, as it would like to hold the 

strings vis-à-vis the regulator: 

An independent authority law should 

clearly demarcate the respective 

domains of their functional 

responsibilities with the State policy. 

The possibility of Government 

interference in the functional domain 

of the authority, in the name of policy 

directives, needs to be eliminated. 

Even when issuing so-called “policy 

directives”, the law should make it 

mandatory for the Government to 

consult the authority concerned and 

it be given an opportunity to express 

views, prior to issuing such directives. 

Automatic Funding 

Independence, as noted earlier in this 

Article, requires in the first place, 

automatic funding. Government 

functions through Ministries and 

Departments, who prepare their annual 

budgets not only for themselves but also 

for the institutions within their ambit. It 

is customary for the Ministries to consult 

with the institutions within their 

purview in preparing and providing for 

a budget for them. But there are variations 

in this regard in the statutes creating 

regulators. 

For instance, the sectoral regulator for 

electricity, the Central Electricity 

Regulatory Commission in India is 

enjoined by the Electricity Regulatory 

Commissions Act, 1998 to prepare its 

budget for each financial year showing 

its estimated receipts and expenditure 

and forward the same to the Central 

Government (Section 31). It is the Central 

Government that approves the budget. 

Furthermore, the expenses of the Central 

Commission including all salaries and 

allowances payable to, or in respect of, 

the Chairperson and the Members 

thereof are mandated to be charged to 

the Consolidated Fund of India 

(Section 11). Likewise, the State 

Electricity Regulatory Commission 

established under the same statute is 

enjoined to prepare for each financial 

year its budget, showing its estimated 

receipts and expenditure and forward 

the same to the State Government 

(Section 33). 

The illustrations above have been 

provided to stress the argument that most 

regulators are dependent on Government 

making available funds for their 

functioning and for carrying out their 

responsibilities. It therefore cannot be 

gainsaid that there is the potential for 

abuse of the discretion in the hands of 

the Government in funding the 

regulator’s expenses and also that there 

is the possibility of prejudice to its 

independence. On CCI and the Act, a 

discussion may be seen later in the 

Article. 

Oftentimes, what is provided in the 

budget falls considerably short of the 

needs of the institutions, in terms of the 

objectives set for them. Short-funding of 

the budgetary needs of the regulatory 

institutions besides limiting the activities 

of the regulators render them to beseech 

the Ministries for additional allocations. 

This gets manifested in terms of the 

functionaries of the regulators 

frequenting the corridors of the 

Ministerial secretariat. Naturally, the 

fall-out is the undermining of their 

independence. Atleast, the potential for 

such undermining surfaces. 

Most, if not all, regulators do not get the 

funds they need or the funds they seek 

in their proposals forwarded to the 

Government. Categorical evidence is not 

forthcoming but this is what the author 

was given to understand when he spoke 

to some regulators. 1 Tellingly, a report 

1 The author spoke to the Chairpersons of TRAI, CCI and SERC (Andhra Pradesh). 

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of CUTS (2002) observes that the budget 

of the MRTP Commission “is a 

negligible percentage of the Union 

B-215 

Budget and the GDP”. The report has 

provided a Table in support, which is 

self-explanatory. 

ANNUAL BUDGET OF THE MRTP COMMISSION 

TABLE 

Year Actual Budget Budget of (3) as GDP (3) as 

Expenditure (Rs. in Central per cent (Rs. in of (6) 

billions) Govt. of (4) billions 

(1) (2) (3) (4) (5) (6) (7) 

1996 10.48 11.08 2010.07 0.0005 13682.08 0.00008 

1997 14.363 14.399 2320.68 0.0006 15224.41 0.00009 

1998 16.724 17.728 2793.60 0.0006 17582.76 0.00010 

1999 — 17.605 2980.84 0.00059 19569.97 0.00009 

Reference: CUTS (2002) 

An interesting aspect thrown up by the 

Table is that notwithstanding the order 

of resources made available to the 

Commission by the Government, the 

Commission itself did not expend the 

same fully. This is because the 

Government did not sanction certain 

expenditures in time before the year was 

out with the result the Commission could 

not spend the monies allotted relating to 

the sanction. 2 As CUTS (2002) has 

pointed out, “The Commission manages 

the budget but has to seek permission 

from the Ministry to incur expenditure 

beyond a certain limit”. This is what 

constitutes lack of functional autonomy. 

It impacts the independence of the 

regulator. This is dealt with a little later 

in this Article. 

Funding mechanism of a regulator could 

be in terms of two distinct methods. The 

first is earmarked funding. The other is 

empowering the regulated utilities to levy 

fees from the consumers. The first method 

guarantees a stable funding source for 

the regulator. In the second method, 

Government sometimes sets a cap on the 

levy of fees. In Argentina, the cap on the 

levy of fees is 0.5 per cent on sales tax on 

the telecommunication segment and 2.67 

per cent of the consumer bill in the case 

of the water regulator (Sundar and 

Sarkar, 2000). 

While budgetary constraints and 

financial crunch are often contributory 

factors for under-allocations in the 

budget for the institutional regulator, the 

problem could be resolved, if the 

expenses of the regulators, for instance 

in India, are approved by the Parliament 

and charged to the Consolidated Fund. 

In India, the Consolidated Fund is voted 

by the Parliament after a discussion of 

the draft budget. In other words, 

independence of the institutional 

regulator could be protected and 

subserved by the Parliament voting its 

requirements and directly charging the 

same to the Consolidated Fund. 

The line Ministry’s role would be 

confined to making an exercise on the 

required budgetary allocation in 

consultation with the institutional 

regulator and placing the matter before 

2 The author was Member, MRTP Commission and had personal knowledge of monies being 

unused for want of sanction of expenditure by the government. 


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[Vol. 2 

the Parliament to vote. The exercise to be 

done by the Ministry needs to be linked 

to the objectives and activities set for the 

regulator on a realistic basis and 

whatever is decided after the exercise in 

consultation with the regulator must be 

placed before the Parliament for approval 

without any reduction or unilateral 

chopping. In a democratic polity, 

automatic funding needs to be 

understood as approval by the elected 

representatives of the people, namely, the 

Parliament with the Government’s role 

in carrying out the budgetary exercise 

being somewhat limited in the interests 

of the independence of the institutional 

regulator. Put in another way, 

Government will not be allowed to veto 

the regulator’s demand for budgetary 

allocation arbitrarily, for which purpose, 

the mechanism of effective consultation 

between the Ministry and the regulator 

should be in place. 

The line Ministry or Department of the 

Government controls the budget and 

other financial sanctions of the regulator 

in most countries. Regulator’s 

dependence on the line Ministry to get 

its budget approved is likely to limit its 

independence indirectly. In this context, 

it is desirable that the regulator is allowed 

to generate resources on its own through 

a fee, cess etc. wherever possible and is 

also allowed to spend it. For instance, in 

India, the Insurance Regulatory and 

Development Authority (IRDA) and 

Securities and Exchange Board of India 

(SEBI) have been allowed to raise 

resources on their own. TRAI and CCI 

have been allowed to levy fees and 

charges and to set up their own fund. On 

the other hand, TAMP and CERC are 

wholly dependent upon the Government 

for funding (CERC funds are charged to 

the Consolidated Fund of India). Even 

where a regulator is allowed to raise 

resources on its own, Government may 

not permit it the freedom to spend the 

amount it raises. 

Staying with the issue of setting up of a 

fund for a regulator, some of the Members 

of Parliament, during the discussions 3 

on the Electricity Bill, 2001 observed that 

a separate fund may result in lack of 

transparency and create doubts of 

financial probity or conduct of the 

regulator “leading to lack of confidence 

and inviting public criticism”. They 

queried as to what was special about the 

electricity regulator that a separate fund 

should be created, when the Supreme 

Court and High Courts were functioning 

with their expenses being met out of the 

Consolidated Fund of India. 

The TRAI Act, 2000 provides for 

crediting all the receipts, fees, interest 

and Government grants to the “TRAI 

General Fund”. In practice, however, the 

amounts are deposited in the 

Consolidated Fund of India, as 

Government revenue. TRAI gets 

allocations of monies as Government 

deems fit from time-to-time. This detracts 

from the independence of TRAI. The 

Competition Act, 2002 provides for the 

setting up of the Competition Fund into 

which will be credited Government 

grants, fees levied by the CCI, etc. There 

is no uniformity in India regarding 

setting up of funds for regulators but 

there appears no harm to set up such 

funds in the interests of financial stability 

for the regulators, subject to taking care 

of the concern expressed in the ensuing 

paragraph. 

One should be mindful of the possibility 

of a risk with the regulator using the said 

tool of raising resources and maximising 

the fees/cess as a part of fund-raising. 

A further risk lies in the regulator passing 

on the costs to the consumers, if it is 

allowed to charge fees for self-financing. 

One way out of this concern is for the 

3 Please see http://164.100.24.208/debate/debtext.asp?slno=3221; http://164.100.24.208/ 

debate/debtext.asp?slno=5604; http://164.100.24.208/debate/debtext.asp?slno=5625 

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Government to set caps, as in Argentina, 

in the statute itself so that the regulator is 

under some check in raising resources to 

the detriment of the consumer. Subject to 

the cap, creation of separate funds for 

regulators is advisable. 

In this Article, emphasis has already been 

laid on the need for “automatic funding” 

in the interests of the independence of the 

regulator. The essence of “automatic 

funding” is the absence of dependence of 

the regulator on the Ministry and 

Department of the Government for 

securing its budget and subvention of 

funds to it. Besides “automatic funding”, 

the more crucial requirement for the 

regulator is the financial autonomy to 

meet its expenditure. While funding needs 

to be insulated from Government 

interference through the route of 

“automatic funding”, the regulator should 

B-217 

have the power to apply the funds, as it 

deems fit in the discharge of its duties and 

responsibilities. Governments, true to their 

general predilections for control and 

oversight of the functioning of the 

regulators, retain the power to sanction 

expenditures for the latter. Sometimes 

such powers of sanction are for 

expenditures beyond a threshold limit or 

for capital expenditure. The illustration 

of the MRTP Commission in India not 

being able to spend even the monies 

allotted to it for want of sanction from the 

Ministry of certain expenditures bears 

testimony to the lack of functional 

autonomy of the competition regulator. 

Even in simple matters like participation 

in conferences, lack of functional 

autonomy reared its head for the MRTP 

Commission. 

Box 2 elaborates this. 

PROCEDURE NOT SUBSTANCE 

Box 2 

MRTP Commission, the competition regulator under the MRTP Act, 1969 

may like to participate in conferences within the country and abroad in 

order to update knowledge and skills for its Chairman and Members in 

the relevant technical area and also in regulation For this purpose, the 

regulator has to seek Government approval prior to its participation in 

the conferences. In many instances in the past, delays in according 

approval and last minute clearances had occurred 4 with the result that 

the regulator found it difficult to meaningfully participate in the 

conferences. It is the regulator, who can analytically assess the scope, 

importance and usefulness of conferences for participation but, the 

Government is likely to view participation in the conferences on the 

limited perspective of expenditure involved, the number of times the 

regulator has participated in the past, etc. Though such considerations 

do have force, it should be left to the regulator to arrive at decisions to 

participate in conferences having regard to its professional requirements 

and to its needs for interaction with sister regulators of other countries. 

While procedure and its cousin control are important, they cannot be at 

the cost of substance and objectives in participation at conferences. 

4 The author was Member, MRTP Commission and had personal knowledge of such 

happenings. 


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[Vol. 2 

Independence is often regarded as 

freedom from any supervision or control 

by any authority. In many countries, 

particularly the developing ones, 

democracy may not be fully mature nor 

do their economies have the ability to 

adjust to the pulls and pressures of 

market economics. The regulatory 

authorities are independent only in name 

and to a limited extent, as their ability to 

balance the conflicting interests of the 

players in the market, the consumers and 

Government gets circumscribed, if their 

directions or adjudicatory decisions have 

an adverse impact on the electoral 

fortunes of incumbent governments. 

Independence and autonomy constitute 

the cornerstone of an effective and 

efficient regulator. At the same time, one 

should not obfuscate the possibility of the 

regulator having unbridled power to 

question and annul Government policies 

and objectives thus diluting the 

sovereignty of the Executive. There should 

be a balance. Care should therefore be 

taken to ensure that the regulator while 

being invested with adequate 

independence is not invested with 

excessive independence. There is the 

need for a balance between independence 

and larger public interest dimensions. 

Unbridled independence for the regulator 

is as undesirable as lack of independence. 

To sum up, independent regulation implies 

that the regulator should be independent 

of the stakeholders and enjoined to 

discharge its responsibilities in the best 

interests of all, without any prejudice or 

leaning towards any particular 

stakeholder. In other words, the regulator 

is required to ensure a level playing field 

for different operators in the market and 

also a fair deal to both the consumers and 

the service providers including the 

Government. Statutorily, the independence 

of the regulator must be guaranteed. 

Without independence, the credibility of 

the regulator will suffer and will not be 

effective. An important issue in this respect 

is the independence of the regulator in its 

relationship with the Government. It is 

advisable to demarcate the turf between 

the Government and the regulator in the 

statute itself. While the Government 

should have the authority to make policy 

decisions, which will be binding on the 

regulator, the regulator should be allowed 

adequate degree of freedom to effectively 

discharge its duties within the policy 

framework. The regulator’s survival 

should not be dependent upon the 

pleasure of the Government and its 

independence should be guaranteed by 

law and respected by everyone. This 

independence should not be absolute but 

subject to the laws of the land and policy 

of the Government. A regulator should 

have the understanding that it is not a 

substitute for the Government but has been 

established to perform a set of functions 

under the statute creating it. 

Two Powers of the Government 

There are two powers of the Government 

which could prejudice the independence 

and autonomy of the regulator. One is 

the power to issue policy directives to 

the regulator. This power, in some cases, 

is incorporated in the statute creating the 

regulator. For instance, the Competition 

Act, 2002, the Electricity Regulatory 

Commission Act, 1998, the Telecom 

Regulatory Authority of India (TRAI) 

and the Tariff Authority for Major Ports 

(TAMP) in India incorporate such 

provisions. The policy directives are 

usually binding on the regulator even 

though as in Section 55 of the 

Competition Act, 2002, a mechanism is 

laid down for consultations, with the 

Competition Commission of India being 

given an opportunity to express its views 

before any directive is issued by the 

Government. Notwithstanding the 

possibility of this power to give directives 

to the regulator prejudicing the 

independence of the regulator, one has 

to contend with the axiom that the 

Government should have the prerogative 

to make policy decisions of a binding 

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nature on the regulator. The policy 

decisions should be confined to nontechnical 

and non-administrative areas 

and not to individual cases that may 

come up before the regulator. 

The Standing Committee of the Parliament 

in India, after examining the Electricity Bill, 

2001 recommended 5 that the Central 

Government or the State Government as 

the case may be, should have the power to 

give policy directives to the regulator. 

While cautioning the Government that this 

power should be sparingly used, it 

suggested that all policy directives should 

be laid on the table of the House. 

B-219 

The second power relates to the power of 

superseding the regulator by the 

Government. Any power of supersession 

severely undermines the independence 

of the regulator. This kind of a power 

could be capable of being abused, if the 

Government finds that some incumbent 

regulator is inconvenient or that he is not 

willing to get pressurised in an 

individual case or cases. Supersession 

power is very pernicious in character and 

has no justification. 

The TRAI supersession described in Box 

3 is an illustration. 

Supersession of TRAI 

Box 3 

Telecom Regulatory Authority of India (TRAI) was established under the 

TRAI Act, 1997. The Act protected the Members of the Authority, as their 

removal was subject to proven guilt in a judicial probe. In September 1999, 

TRAI said that the pricing of cellular phone calls should shift to a “calling 

party pays” regime, that calls from fixed phones to mobile phones would 

be charged at slightly more than the prevailing rates and that mobile 

subscribers would stop paying for incoming calls. This is a standard 

practice in most countries. A turf war broke up between the Governmentowned 

Department of Telecommunications and TRAI. The Department 

of Telecommunications was the biggest service provider followed by 

Mahanagar Telecom Nigam Limited (MTNL), a Government enterprise. 

MTNL argued that higher call rates were anti-people and proceeded to 

challenge TRAI’s jurisdiction. The Court, which adjudicated on the issue 

of jurisdiction, found TRAI’s powers limited and insufficient to ask for a 

shift in pricing regimes. The Court also observed that TRAI could only 

make recommendations to the government, which would then decide 

what was to be done. 

The position therefore was that the TRAI could only set caps in a given 

pricing structure and determine as to how the various operators would 

share revenues and that it had no say in disputes between operators. The 

upshot of this was that the Government scrapped the TRAI Act and 

sacked the incumbent Chairperson and the Members and decided to 

rewrite the TRAI law to create a pliant well-behaved TRAI. In the newly 

written law, TRAI Act, 2000 Government empowered itself with the power 

of superseding the Authority in certain situations and of terminating the 

tenure of the Chairperson and the Members. The Damocles’ sword of 

supersession raises the concern that the regulator may not behave 

independently of the Government and may be tempted to toe its line in 

the interest of its own survival. 

5 See http://164.100.24.208/debate/debtext.asp 


143


[Vol. 2 

Fixed Tenure 

The second element in institutional 

independence is the fixed tenure of the 

head of the institution and its members. 

The factor “fixed tenure” needs to be 

viewed as a larger factor including the 

various parameters that govern the 

selection, appointment and removal of 

the head and members of the 

institutional regulator. Such parameters 

include: 

(a) transparent selection process, 

(b) clearly stipulated qualifying and 

disqualifying criteria for selection, 

(c) prescribed tenure, 

(d) removal from office of the head and 

the members of the regulator on 

specific grounds. 

For the institutional regulator to be 

independent, effective and efficient, there 

is an unalloyed need to have a 

transparent selection procedure for 

selecting the people who will man the 

regulator as its head and members. 

Furthermore, the qualifications, 

experience and knowledge that should 

inform the selection will have to be clearly 

spelt out and the net cast wide to secure 

the right type of persons to constitute the 

regulator. If favouritism and patronage 

could be minimised, if not eliminated, in 

the selection, that itself would be a step 

forward in not only ensuring that merit 

would have the final say in the selection 

but also in ensuring independence of the 

institutional regulator. If those manning 

the institution are selected purely on 

merit considerations and suitability, they 

would not feel beholden to the Minister 

or the Executive for their appointment 

with the corollary that they would 

discharge their duties independently, 

independent of the pressures that may 

be brought on them by Government 

functionaries. 

There are different selection processes in 

different countries. By and large, the 

appointments of regulators are made by 

the Government. In the US and 

144 

Argentina, the Executive and the 

legislator jointly decide the appointment 

of regulators. The Executive selects the 

regulator in UK. In some countries, a 

collegium selection process is provided 

in the statutes creating the regulator. 

Hereagain, there could be differences on 

whether the collegium selection is 

binding on the Executive or otherwise. 

In order to get the right persons to man 

the regulator and to minimise 

favouritism, patronage and politicisation 

of appointments, the collegium selection 

process is desirable. The collegium itself 

needs to be constituted rationally with 

experts in the relevant field and with men 

of eminence and integrity. The collegium 

should be enjoined to make its 

recommendations to the Government 

(Executive), which desirably should be 

binding on the latter. For attracting the 

best available talent in the field (of the 

institutional regulator), the selection 

process should be transparent. This 

could be achieved through open 

advertisements, scrutiny of the 

applications and preparation of a panel 

of names by the collegium and finally, 

appointment by the Executive. 

As indicated earlier, Government would 

generally be not inclined to loosen its 

control over appointments of the 

Chairperson and Members of the 

regulator. The High level Committee 

(2000) appointed by the Department of 

Company Affairs to suggest a new 

competition law for India had advised 

the collegium selection approach and 

indeed, the Draft Bill of the law provided 

for the collegium. But when the Bill was 

taken up for discussion in the 

Parliament, Government chose to delete 

the collegium provision and ultimately 

when Competition Act, 2002 was passed 

by the Parliament, it was sans the 

collegium provision (this was before the 

2007 amendments to the 2002 version). 

Political considerations and the 

penchant for the Government to keep the 

reins in its hand for the appointment of 


2011] 



the persons constituting the regulator are 

likely to have impelled the deletion of the 

said provision from the Bill. 

CUTS (2006a) in its Discussion Paper, 

had suggested, inter alia, that: 

(a) a panel should be constituted to 

recruit capable personnel for 

manning independent institutions. 

(b) such a panel should be comprised 

of renowned and undisputed 

personalities with diverse 

expertise. 

(c) one-third members of this panel 

should be replaced every alternate 

year. 

(d) the extension of the tenure should 

also be decided by the same panel. 

There are practical difficulties in 

adopting the collegium approach 

because of political reasons and 

bureaucratic constraints but India is 

progressing towards accepting this 

approach as is evidenced in the statute 

establishing the National Human Rights 

Commission. In the area of competition 

law, Competition Act, 2002 was amended 

in 2007 incorporating the collegium 

selection procedure. 

Most statutes relating to institutional 

regulators stipulate fixed tenures for the 

head and members thereof. In India, the 

tenure is five years for the regulatory 

authorities in the power and port sectors. 

In the telecom sector, the tenure is three 

years. The Chairman and Members of the 

Monopolies and Restrictive Trade 

Practices Commission had five year 

tenure, which was renewable with an age 

cap of 65 years. The renewability clause 

is not in all statutes in India but is in 

some countries like Canada, Argentina 

and Israel. A rational approach to this 

issue of renewability is that the statutes 

would do well to have a provision for 

re-appointment of the head and the 

members through the prescribed 

selection process along with other 

candidates. The logic in support of this 

approach is that the expertise gained 


B-221 

during the tenure of an incumbent head 

or member could be effectively utilised 

further. This should be, of course, subject 

to the age cap prescribed. It is suggested 

that there should be a uniform age cap 

for the head and members of the 

institutional regulator and that there 

should be no difference in the age caps 

between them. 

Section 10 of the Act prescribes the age 

cap for the Chairperson and Members of 

the CCI at 65 years. In respect of the 

Competition Appellate Tribunal, 

Section 53F thereof prescribes age caps 

for the Chairperson at 68 years and for 

the Members at 65 years. 

Removal 

Removal of a regulator incumbent should 

not be arbitrary. Legislation in several 

countries provides an authority with 

powers to remove from office a Member 

of the regulator that has engaged in 

certain actions or has become unfit for 

the post. In Mexico, a regulator 

incumbent can be removed on charges of 

severe misdemeanour under criminal or 

labour legislation (Mexico, 1992). The 

incumbent can also be sentenced for 

abusing one’s position. Imprisonment is 

a cause for removal in Thailand 

(Thailand, 1979). 

The commonly noted grounds for 

removal of an incumbent Chairperson or 

Member of a regulator are that he/she: 

(1) is adjudged as an insolvent 

(2) has engaged during his/her term 

of office, in any paid employment 

(3) has been convicted of an offence 

involving moral turpitude 

(4) has acquired such financial or 

other interest that is likely to 

prejudice his/her functions 

(5) has abused his/her position as to 

render his/her continuance in office 

prejudicial to public interest, or 

(6) has become physically or mentally 

incapable of functioning in office. 

145


[Vol. 2 

The TRAI Act, 2000 provides for the 

removal of the Chairperson or Members 

on account of their being prejudicial to 

public interest but before their removal, 

they would be given a reasonable 

opportunity to be heard. However, the 

Members of the Appellate Tribunal can 

be removed only in case of proven guilt 

by a Supreme Court enquiry. The removal 

of Commissioners under the Electricity 

Regulatory Commission Act, 1998 is 

allowed on the usual grounds listed 

above but it is subject to proven guilt after 

proper enquiry. The Chairperson and 

Members under the Securities and 

Exchange Board of India, Act, 1992 can 

face termination of their services after 

being served with a three months notice 

or after being paid the salary for the same 

period. 

Bar on Employment 

Independence of institutional regulators 

may be strengthened, if the incumbents 

thereof are debarred from seeking and 

accepting appointments in the 

enterprises that fall within the ambit of 

the statutes creating them. The bar could 

be for atleast one year and not more than 

two years. The period of the bar is rather 

subjective, but for practical purposes, the 

bar should operate for atleast one year, 

so as to obviate the possibility of the 

incumbent functionary from passing an 

order in favour of a party to a case and 

from getting rewarded with an 

employment on a good remuneration on 

demitting office. Optimally, a two year 

ban may be in order, as the heat of 

adjudicating in favour of a party in order 

to reap a benefit would likely evaporate 

in the two year cooling off period. 

The regulators should not also seek or 

accept employment even directly in the 

Government in the interest of functional 

independence of the regulators. It has 

been noted earlier that regulators have 

the responsibility to ensure a balance 

between the interests of different players 

in the market, stakeholders and 

enterprises including Government. The 

bar on employment in enterprises falling 

within the pale of the statutes concerned 

would go a long way in subserving and 

ensuring the independence of the 

regulator. 

In some countries, legislation requires 

that the members of a regulator should 

not have interests which would conflict 

with the functions to be performed. For 

example in Hungary, the members of the 

Competition Council cannot pursue 

activities for profits other than those 

dedicated to scientific, educational, 

artistic, authorial and inventive pursuits 

as well as activities arising out of legal 

relationships (Hungary, 1996). A similar 

provision is available in the Mexican 

legislation (Mexico, 1993). 

Copyright © Dr.S. Chakravarthy 

146 


2011] 

B-223 

Analysis of Merger Regulation with Special Emphasis 

on the Civil Aviation Industry 

Chandrashekhar A.C.* and Sumangala A.C.** 

Mergers are a feature of a growing and vibrant economy. Throughout the past 

century, there has been proliferation of competition laws across the globe, and 

most of these jurisdictions realise the anti-competitive effects a merger may result 

into and therefore, they have merger control mechanisms. The Indian 

Companies Act does not contain a definition of mergers. In simple terms, a 

merger is, for example if there are two companies, A and B, they may merge to 

form C or may merge to become B or may merge to become A. 

Firms have various reasons to merge and mergers do not necessarily have a negative 

impact on the market. In fact, they play a very vital role in growth of the market 

and in increasing efficient utilisation of resources. It has to be seen that what is 

greater, the anti-competitive aspect or the benefits that will ensue. This is in 

nutshell the criteria of all merger review mechanisms. Competition law in India 

is a recent phenomenon. Legislative history shows that we have had not much of 

the merger control process for examining anti-competitive aspects of mergers. 

Competition is the lifeblood of any economy. If there is no competition in the 

market, the market will decay. Which is why, competition in the market needs to 

be preserved. Competition has two-fold effects on the market, firstly, it is favourable 

to the consumer and secondly, it keeps the market efficient, i.e. it generates 

productive efficiency, allocative efficiency that leads to better utilisation of 

resources and dynamic efficiency that leads to innovation. 1 It favours the consumer 

because it ensures that price and the quality of goods and services offered to the 

consumer are determined by market forces and not on the whim of the seller, 

hence saves the consumer from being exploited. Further, it also serves the freedom 

of trade an economic counterpart of political democracy. It preserves pluralism 

and distribution of market power thereby countering the concentration of wealth 

into a few hands. 2 Not only by modern economists but also by classical economists, 

* Student, Final Year, Hidayatullah National Law University, Raipur (Chhattisgarh) 

** LL.M., Karnataka State Law University, Dharwad 

1 Vinod Dhall, Key Concepts in Competition Law, in COMPETITION LAW TODAY: 

CONCEPTS, ISSUES AND THE LAW IN PRACTICE, 3 (Vinod Dhall, ed. 2007) 

2 Ibid. at 4 



[Vol. 2 

competition has been fundamental to the price formation of consumers’ goods 

and of the land, labour and capital that produce them. A competitive process 

equates quantities supplied and demanded and sets the prices at equilibrium or 

near equilibrium levels. Moreover, it apportions capital and labour amongst 

entrepreneurs so that the expected rate of return is almost equal among different 

users. Modern economists also recognise it as a process for economic growth. For 

example, Von Hayek argues that it is only through competition producers may 

know what the most efficient methods are; he calls it a process of creative destruction 

that revolutionises the economic structure from within, incessantly destroying 

the old one, incessantly creating a new one. 

1. Regulation of Mergers in India 

1.1 Legislative Background 

1.1.1 Companies Act 

Indian law had not paid any significant 

attention to the anti-competitive effects 

of mergers. The Companies Act, 1956 

regulates mergers that are referred to as 

“arrangements” under its Sections 390 

to 396A but none of its provisions except 

Section 394 can be interpreted to have a 

control over the anti-competitive impacts 

of mergers as it contains a public interest 

clause. 

1.1.2 Monopolies and Restrictive Trade 

Practices (MRTP) Act 

The Competition law regime under the 

MRTP Act dealt with Mergers under 

Sections 23 and 24, these provisions were 

however omitted in 1991. They only 

required that what was necessary to be 

examined was that the proposed scheme 

of merger or takeover was not likely to 

lead to the concentration of economic 

power to the common detriment or was 

not likely to be prejudicial to public 

interest in any manner. The power to 

approve a merger vested in Central 

Government and no merger review 

process was prescribed. 3 

1.1.3 Takeover Code 

The Takeover Code requires an acquirer 

of shares which (taken together with his 

existing shares or voting rights) would 

entitle him to more than five per cent of 

the shares or voting rights in the target 

company, to make disclosures to the 

target company and to the stock 

exchanges where the shares of the target 

company are listed. 

The acquirer(s) is also required to make 

a public announcement in case he 

acquires shares or voting rights (taken 

together with his existing shares of 

voting rights) that would entitle him to 

15 per cent or more of the voting rights in 

the target company. The Takeover Code 

also restricts consolidation of holdings 

and indirect acquisition of control over 

the target company without making a 

public announcement. Takeover Code 

applies only to listed companies. 

2. Merger Control Framework In India 

2.1 Regulation of Combinations 

Currently, the merger control framework 

in India consists of two sections of the 

Competition Act, 2002, Sections 5 and 6. 

Mergers are covered under the broad 

head “combinations” under the scheme 

of the Act. A combination is defined as 

3 T. Ramappa, Competition Law In India: Issues, Policies And Development, 187 (1 st ed. 2006 

148 


2011] 

Analysis of Merger Regulation with Special Emphasis on the Civil Aviation Industry 

B-225 

acquisition of control, shares, voting 

rights or assets, acquisition of control by 

a person over an enterprise where such 

person has control over another 

enterprise engaged in competing 

businesses, and mergers and 

amalgamations between or amongst 

enterprises when the combining parties 

exceed the thresholds set in the Act. 

The thresholds set under the Act 

contained in Section 5 are based upon 

combined assets/turnover of the 

combining parties, they are: 

(a) Combined assets of the enterprises 

value more than Rs. 1,000 crores or 

combined turnover is more than 

Rs. 3,000 crores. In case either or 

both of the enterprises have assets/ 

turnover outside India also, then 

the combined assets of the 

enterprises value more than 

US$ 500 million, including at least 

Rs. 500 crores in India, or turnover 

is more than US $ 1500 millions, 

including at least Rs. 1,500 crores 

in India. 

(b) Combined assets of the group to 

which the acquired enterprise 

would belong being more than 

Rs. 4,000 crores or such group 

having a joint turnover more than 

Rs. 12,000 crores after acquisition 

or merger. In case such group has 

assets/turnover outside India, then 

the combined assets of the group 

value more than US$ 2 billion, 

including at least Rs. 500 crores in 

India or turnover is more than 

US$6 billion including at least 

Rs. 1,500 crores in India. Group is 

defined in the Act as two 

enterprises belong to a “group” if 

one is in position to exercises at 

least 26 per cent voting rights, 

appoint at least 50 per cent of the 

directors, or controls the 

management or affairs in the other. 

The Act also provides for revision of the 

threshold limits every two years by the 

government, in consultation with the 

Commission, through notification, based 

on the movement in Wholesale Price 

Index (WPI) or fluctuations in exchange 

rates of rupee or foreign currencies. 

2.2 Procedure under the Merger Control 

The Competition Act, 2002 calls for a 

mandatory pre-merger notification to the 

Competition Commission of India (CCI) 

of combinations that exceed the 

prescribed threshold. And in case a 

notifiable merger is not notified, the CCI 

has the option to inquire into it within 

one year of the taking into effect of the 

merger. In case such an inquiry finds 

appreciable adverse effect on 

competition, the Commission may have 

to order the costly process of demerger. 

To impose, its pre-merger notification 

provisions therefore, the CCI is 

authorised to impose a fine which may 

extend to one per cent of the total turnover 

or the assets of the combination, 

whichever is higher. 

The time limit prescribed for notifying the 

proposed combination with all relevant 

details is 30 days of the approval of such 

proposal by the board of directors or of 

the execution of any agreement or other 

document. Thus, the regulations propose 

to permit parties to notify the CCI anytime 

after they can demonstrate a bona fide 

intention to combine. 

Further, the proposed combination 

cannot take effect for a period of 210 days 

from the date it notifies the Commission 

or till the Commission passes an order, 

whichever is earlier. If the Commission 

does not pass an order during the said 

period of 210 days the combination shall 

be deemed to have been approved. 

Exemptions to pre-merger notification have 

been granted under Section 6(4) to the share 

subscription or financing facility or any 

acquisition, inter alia, by a public financial 

institution, foreign institutional investor, 

bank or venture capital fund, pursuant to 

any covenant of a loan agreement or 


149


[Vol. 2 

investment agreement. However, they are 

required to make disclosure to the 

Commission within seven days by way of 

filing details of such transactions. 

In furtherance of the notification, if the 

Commission is prima facie of the opinion 

that a combination has caused or is likely 

to cause adverse effect on competition in 

Indian markets, it shall issue a notice to 

show cause to the parties as to why 

investigation in respect of such 

combination should not be conducted. 

On receipt of the response, if Commission 

is of the prima facie opinion that the 

combination has or is likely to have 


competition, it may direct publication of 

details of combination, inviting 

objections from the public, affected or 

likely to be affected by the proposed 

combination, and call for additional or 

other information from parties to the 

combination, if considered appropriate. 

Section 30 of the Act deals with cases 

when notification has been received by 

CCI, while Section 29 deals with cases 

when CCI is to act on basis of information 

received by it. When this is the case, CCI 

has to notify the parties of its intention to 

investigate into the matter. In order to 

conduct inquiry into combinations, the 

CCI has to first identify the relevant 

market, product and/or geographical 

market. Thereafter, it analyses if the 

merger has an appreciable adverse effect 

of competition in the relevant market and, 

then it has to decide whether to approve, 

or approve with modifications in the 

scheme or reject the scheme of merger. 

2.3 Factors for determining appreciable 

adverse effects: 

For analysing the appreciable adverse 

effect on competition in the market, the 

CCI considers the factors contained in 

Section 20(4) of the Act, they are: 

(a) actual and potential level of 

competition through imports in the 

market; 

(b) extent of barriers to entry into the 

market; 

(c) level of concentration in the market; 

(d) degree of countervailing power in 

the market; 

(e) likelihood that the combination 

would result in the parties to the 

combination being able to 

significantly and sustainably 

increase prices or profit margins; 

(f) extent of effective competition likely 

to sustain in a market; 

(g) extent to which substitutes are 

available or are likely to be 

available in the market; 

(h) market share, in the relevant 

market, of the persons or enterprise 

in a combination, individually and 

as a combination; 

(i) likelihood that the combination 

would result in the removal of a 

vigorous and effective competitor 

or competitors in the market; 

(j) nature and extent of vertical 

integration in the market; 

(k) possibility of a failing business; 

(l) nature and extent of innovation; 

(m) relative advantage, by way of the 

contribution to the economic 

development, by any combination 

(n) having or likely to have 


competition; 

(o) Whether the benefits of the 

combination outweigh the adverse 

impact of the combination, if any. 

Thus, after consideration of all the above 

listed factors mergers are either 

approved, modified or rejected. This 

order is passed under Section 31 of 

the Act. 

Considering the positive impacts mergers 

have in the market, they are not always 

held up for their anti-competitive effects, 

they are remedied. There exists provision 

for both structural as well as behavioural 

remedies under the scheme for 

150 


2011] 


B-227 

minimising or eliminating the anticompetitive 

effects of mergers. A 

behavioural remedy though difficult to 

implement is preferable. A structural 

remedy is easier to implement as it 

would entail requiring the merged 

enterprise to make structural adjustment 

which could be in the form of sale of 

assets, divestment of a division or a unit 

or creation or strengthening of 

competitors through, for example, 

licensing of an Intellectual Property 

Right (IPR). It is only when no remedy is 

available or feasible that mergers are to 

be prohibited. 

A provision for appeal is also there under 

Section 53 of the Act. Competition 

Appellate Tribunal (CAT) is to hear and 

dispose of appeals against any direction 

issued or decision made or order passed 

by the Commission under specified 

sections of the Act, such as orders relating 

to notification of combination, inquiry by 

the Commission and penalties. The time 

limit for filing an appeal is 60 days of 

receipt of the order/direction/decision of 

the Commission. 

2.4 Draft Regulations 4 

The CCI has recently published new draft 

guidelines for regulation of combinations 

utilizing its power under Section 64 and 

Section 6(2) and 6(5); they are yet to be 

notified in the gazette of India. It has been 

proposed to name them as Competition 

Commission of India (Procedure in regard 

to the transaction of business relating to 

combination) Regulations, 2011. 

Some key features of the draft regulations 

are: 

(a) Consultation prior to filing notice 

of proposed combination 

Parties to a proposed combination 

may make written request seeking 

informal and verbal consultation 

with the CCI about filing notices. 

However, CCI would not be bound 

by any opinion or view expressed 

during consultation. 

(b) Forms of notice 

The draft regulations prescribe 3 

formats of pre- merger notification 

Forms for obtaining approval. 

Form I 

For categories of following 

combinations: 5 

(i) Acquisition of not more than 15 per 

cent of the total shares or voting 

rights of the target company, solely 

as investment or in the ordinary 

course of business, not leading to 

control; 

(ii) Acquisition of shares or voting 

rights of the target company where 

the acquirer is already in control; 

(iii) Acquisition of assets not directly 

related to the business activity of 

the acquirer or made solely as 

investment or in the ordinary 

course of business not leading to 

control of the enterprise except 

where the assets being acquired 

represent the entire business 

operations of the target company 

in a particular location or particular 

product or services, irrespective of 

whether such assets are organised 

as a separate legal entity or not; 

(iv) Acquisition or acquiring of control 

or merger or amalgamation where 

not more than one party to the 

combination has in India assets of 

more than INR 2.5 billion or turnover 

of more than INR 7.5 billion; 

(v) Acquisition of stock-in-trade, raw 

materials, stores and spares in the 

ordinary course of business; 

4 Can be accessed at, http://www.competition-commission-india.nic.in/regulations/ 

ConsolidatedCCI-CombinationRegulation%20200_Revised30062008.pdf 

5 Ibid 


151


[Vol. 2 

(vi) Amended or renewed tender offer 

where a notice has been filed by the 

party making the offer prior to such 

amendment or renewal of the offer, 

provided that prior intimation of 

such change has been duly made; 

(vii) Acquisition of shares or voting 

rights by a securities underwriter, 

in the ordinary course of business 

and in the process of underwriting; 

(viii) Acquisition of shares or voting 

rights pursuant to a bonus issue or 

sub-division of shares; and 

(ix) Acquisition of control, shares, 

voting rights, or assets by one 

person or enterprise of another 

person or enterprise within the 

same group. 

Form II 

For combinations other than those 

listed above in Form I. 6 

Form III 

For public financial institutions, 

foreign institutional investors, banks 

and venture capital funds in respect 

of share subscription or financing 

facility or any acquisition made by 

them pursuant to any covenant of a 

loan agreement or investment 

agreement. 

2.4.1 Liability to file notice 

In case of merger or amalgamation, the 

liability to file pre-merger notifications 

is on the parties to jointly file notice. In 

case of acquisition or acquiring of control, 

the liability is on the acquirer. 

2.4.2 Filing Fees 

In case of merger, amalgamation, 

acquiring of control over an enterprise, 

the fees for filing Form I, or Form II is 

INR 4 million. In case of acquisition of 

shares, voting rights or assets of the target 

company, the fees shall depend upon the 

value of the acquisition as under: 

Value of Acquisition 

Less than INR 5 billion 

From INR 5 billion to 

less than INR 10 billion 

INR 10 billion and above 

Fee 

INR 1 million 

INR 2 million 

INR 4 million 

2.4.3 Prima facie view 

Upon filing of the pre-merger 

notification, the CCI shall form its prima 

facie opinion on the proposed 

combination within 30 days of filing of 

notice. 

2.4.4 Time period for review 

The draft regulations provide that CCI 

shall endeavour to pass an order or issue 

directions within 180 days of filing of 

the notice. The Act however currently 

prescribes a period of 210 days within 

which the CCI has to pass order or issue 

directions otherwise, the combination 

would be deemed as having been 

approved. 

2.4.5 Appointment of independent 

agencies to oversee modifications 

The draft regulations give power to CCI 

to appoint independent agencies if it is 

of the opinion that modifications 

proposed by it and accepted by the 

parties needs supervision. Such 

independent agencies may include an 

accounting firm, management 

consultancy, any professional 

organisation or independent practitioner 

of repute. 

2.4.6 Request for confidentiality 

Any party may submit a written request 

for confidentiality of documents 

submitted during investigation on the 

basis of cogent reasons, viz. making part 

6 Ibid 

152 


2011] 


B-229 

or whole of the document public would 

result in disclosure of trade secrets or 

destruction or appreciable diminution of 

commercial value of any information or 

cause serious injury which would be 

subject to consideration by CCI. The right 

to seek confidentiality extends only to 

documents submitted and not to the 

transaction itself. 

3. Background Of The Aviation Sector 

Civil Aviation plays an integral role in 

development of an economy. It helps in 

realizing the socio-economic objective of 

providing connectivity to foster travel 

and trade. As per International Civil 

Aviation Organisations’ estimates, every 

100 $ spent on air travel produces 

benefits worth 325 $ to the Economy. It 

generates 100 additional jobs in air 

transport and 610 related jobs. 7 

The air transport sector in India has 

undergone massive changes in the last 

decade. The Air Corporation Act 1953 

led to nationalisation of the airlines 

services. Consequently, the assets of nine 

existing companies were transferred to 

two entities in the aviation sector 

controlled by the Government of India – 

Indian Airlines and Air India. For many 

years, air travel in India was perceived 

as an elitist activity and there was 

restricted growth in the industry. 

In 1986, private sector players were 

permitted as air taxi operators. This led 

to entry of Jet, Air Sahara, NEPC, East- 

West & Modiluft. With the passing of the 

Air Corporation Act, 1994, this sector 

was opened up and private carriers were 

permitted to operate scheduled services. 

While six operators were granted licence 

only Jet and Air Sahara were able to start 

their services. 

However, the year 2003 marked a 

watershed in the history of civil aviation 

in India with the entry of low cost carriers 

like Air Deccan and Spice Jet. This was 

followed by entry of other private airlines, 

large and small on to the market, 

including Kingfisher Airlines, 

Paramount and Go Air. 8 

From the year 2003 onwards, the 

perception of air travel changed. Aviation 

became more affordable. There has been 

a large increase in passenger traffic. Also, 

there has been intense price competition 

that has resulted in discounted fares, 

promotional offers and introduction of 

flights to newer destinations. The 

co-existence of full service carriers and 

low cost carriers has also given the 

consumer a wide choice of service on the 

market. The factors that led to the growth 

in Aviation sector are Increase in 

Consumerism; Rising Disposable 

incomes; Rising Middle Class 

Population; Untapped Market; 

Increasing Business Travel; Increasing 

Tourists Travel; Entry of Low Cost 

Carriers; Increasing Competition; 

Government Reform Measures. 9 

The intense price competition also led to 

losses for the airlines. The total industry 

losses for the year 2006-07 were over USD 

500 million. As a result, the market 

structure in the air transport sector is 

undergoing rapid changes. There appear 

to be major corporate restructuring 

measures underway in this sector mainly 

in the form of mergers and acquisitions 

7 Nancy Shah, Competition Issues in the Civil Aviation Sector Evaluating Competition related 

issues pertaining to the Indian Airlines’ Industry, with Special Reference to M&A in light of 

Competition Act, 2002 can be accessed at, www.cci.gov.in/images/.../F1_NancyShah 

_20080411102237.pdf 

8 Competition Issues in the Air Transport Sector in India, can be accessed at, http://www.cci 

.gov.in/images/media/completed/transport_20090421133744.pdf 

9 www.marketresearch.com/map/prod/1482657.html 


153


[Vol. 2 

(M&A’s). The recent mergers of Indian 

Airlines and Air India, Kingfisher and 

Air Deccan and Jet and Sahara have led 

to an industry structure which is 

sufficiently concentrated to raise a 

fundamental question about whether the 

operation of market forces are adequate 

to prevent the abuse of market power. The 

changing market structure has provided 

a new competitive dimension to the 

industry. It is expected that as a result of 

the M&As taking place and resultant 

scale economies, efficiency and 

productivity will increase, thereby 

leading to enhancement of profits. It is in 

fact argued that such consolidation is 

needed in order to ensure efficient and 

sustained functioning of the airline 

operators. However, as a result of the 

M&A’s, the nature of the market, which 

was earlier open to many players thereby 

enhancing competitiveness, is now 

changing. It is perceived that this may 

lead to anti-competitive practices on the 

market with some large players 

dominating the market. 

4. Defining Relevant Market 

The competition assessment of M&A’s 

in the air transport sector is generally 

more complex than in many other 

economic sectors because of the nature 

of the industry. The role of the 

Competition Commission becomes 

important in the current scenario in this 

sector in the sense, that there is need for 

assessing whether the changing market 

scenario and the benefits of the 

combinations in terms of “efficiency 

mergers” outweigh the costs or adverse 

effects in terms of anti-competitiveness. 

Thus, while on the one hand, 

combinations like M&A’s currently 

occurring in the sector may improve 

efficiency in the sector in the form of 

higher productivity and lower costs, on 

the other, they may lead to abuse of 

market power and anti-competitive 

effects. 10 

To evaluate, the competition concerns, 

the first step is to determine the relevant 

market. Relevant product Market is 

defined as a market comprising of all 

those products and services which are 

regarded as interchangeable or 

substitutable by the consumer, by reason 

of characteristics of the products or 

services; their price and intended use. 11 

An analysis of nature of competition in 

the airline industry starts with 

identification of the set of services the 

industry provides and the nature of 

demand for those services. Broadly 

speaking the airline industry provides 

air transport services, which is divided 

into two categories – passengers and 

freight (cargo). However, the focus of 

Competition analysis shall only be 

passenger services. 

There are basically two separate 

categories of travellers: 

one which is time sensitive who is 

travelling for business purposes 

whose opportunity cost of time is very 

high and the second category which 

is the leisure travellers whose 

opportunity cost of time is not very 

high and their price elasticity of 

demand is very high. 12 The leisure 

travellers are highly responsive to 

price changes unlike the business 

travellers who have a strict preference 

for time, day of travel and non-stop 

10 Sunil Barthwal, Airline mergers and competition, The Financial Express, 30 th March, 2007. 

11 Section 2 of Competition Act, 2002 

12 OECD Report on AIRLINE MERGERS AND ALLIANCES, Directorate for Financial, Fiscal 

And Enterprise Affairs Committee on Competition Law and Policy, DAFFE/CLP(2000)1, 

at 26, http://www.oecd.org/daf/clp 

154 


2011] 


B-231 

routings versus indirect routings. 13 

The competition concerns are 

basically in the context of non-flexible 

class of passengers. Thus, under the 

non-flexible class non-stop, city pair 

wise flights at a particular time of a 

specific day is the relevant market. 14 

The methodology outlined by the 

Competition Assessment Framework 

(CAF) 15 has been followed. 

Key questions for the assessment include 

the following 16 

(a) Has there been much market entry 

in the past and how successful has 

it been? 

(b) Does a single airlines or a group of 

airlines account for a substantial 

part of the market? 

(c) Does the market structure suggest 

that the competition may be 

limited? 

The methodology involves the following: 

(a) An assessment of the percentage of 

traffic in selected routes on specific 

dates and specific time slots 

(b) Share of airlines in the above routes 

(c) Computation of four firm 

concentration ratios 

(d) On the basis of the above, analysis 

of whether, there is evidence of 

domination in certain routes. 

(e) Analysis of time slots available to 

airlines 

(f) Factors governing allocation of time 

slots 

(g) Slot arrangements between merged 

airlines. 17 

Further, to assess the degree of 

competition within a market, a standard 

measure which can be used is the 

Herfindahl index. 18 The Herfindahl index 

is a measure of the size of the firms in 

relation to the industry and is an 

indicator of the amount of competition 

among them. It is defined as the sum of 

the squares of the market shares of each 

individual firm. As such, it can range 

from 0 to 10,000 moving from a large no. 

of amount of very small firms to a single 

monopolistic producer. Decreases in the 

Herfindahl index generally indicate a 

loss of pricing power and an increase in 

competition, whereas increases imply the 

opposite. Competition authorities often 

use a scale such as the following to 

assess the significance of the HHI, 

particularly in relation to mergers. 

(a) An HHI of less than 1,000 is low, 

and there are no concerns about 

market concentration. 

(b) An HHI between 1,000 and 1,800 

is moderate, and competition 

concerns are not considered likely. 

(c) An HHI above 1800 is high, and 

might raise competition concerns. 

4.1 Important Mergers in India 

4.1.1 The Jet-Sahara Mega Merger 

On 20 th April, 2007, Jet acquired 100 per cent 

stake in Air Sahara 15 months after signing 

the original purchase agreement. Jet 

13 Berry, Steven, Carnall, Michael and Spiller, Pablo, “Airline Hubs: Costs, Markups 5 and the 

Implications of Customer Heterogeneity,” NBER Working Paper 5561, May 1996 

14 Competition Issues in the Air Transport Sector in India, can be accessed at, http://www.cci 

.gov.in/images/media/completed/transport_20090421133744.pdf at p.30 

15 http://www.businessenvironment.org/dyn/be/docs/154/Nellist-Annex.pdf 

16 Ibid. 

17 One may also refer, http://www.cci.gov.in/images/workshop/14_15march07/ 

14jhon.pdf?phpMyAdmin=NMPFRahGKYeum5F74Ppstn7Rf00 

18 http://www.justice.gov/atr/public/testimony/hhi.htm 


155


[Vol. 2 

purchased its arch rival for INR 14.5 billion 

(3500 USD Million) which is 35 per cent 

less than the price agreed in 2006. The 

ultimate consummation of Sahara 

represented the conclusion of the 

arbitration exercise that has been going on 

since July 2006. The new service would be 

under the brand name of “Jetlite” which 

would operate as a value carrier. 

With the merger in place, the merged 

entity with a fleet strength of around 

79 aircrafts has around 30 per cent share 

of the passenger airline market. The 

merged entity will have a major share of 

the market as well as of slots on a prime 

route such as Delhi-Mumbai which 

accounts for nearly 50 per cent of 

domestic traffic. Jet would also have 

control over the fleet, landing and 

parking rights of Air Sahara in some 

airports. The merger therefore raises 

issues of predatory pricing and 

unhealthy competition in the passenger 

air transport sector. 

4.1.2 The Air Deccan-Kingfisher 

Merger 

The merger between the pioneer LCC and 

liquor baron was announced on 

31 st May, 2007 as the United Brewies, 

picked up 26 per cent stake in Air Deccan 

and propose to buy another 20 per cent 

via an open offer. The deal UB group paid 

a whopping INR 550 Crore to pick up a 

26 per cent stake in the LCC. A number 

of synergies are expected as a result of 

the merger in terms of engineering, 

maintenance and overhaul. The merger 

has created an entity with around 

80 aircrafts. The move to merge with 

Deccan also makes it possible for 

Kingfisher to enter the international arena. 

Thus, Kingfisher can now conform to 

India’s policy which stipulates that 

airlines must have five years experience 

in the domestic market and a minimum of 

20 aircrafts before gaining permission to 

fly on international routes. With the 

merger, Kingfisher now qualifies to fly 

on international routes. The merger is 

156 

expected to save costs on operations, 

maintenance, ground and baggage 

handling, feeder services, engineering 

and security. However, this also raises 

few competition issues. For instance in 

the Delhi-Chennai sector, Kingfisher has 

taken over the slots of Deccan, post 

merger. This raises issues in terms of 

pricing. It also raises the issue of 

removing a vigorous competitor from the 

market through a merger. 

4.1.3 The Air India-Indian Merger 

The two state run carriers entered into a 

merger in April 2007 in a bid to 

consolidate and optimise the use of the 

assets of the two public sector airlines. 

The will help the two airlines to synergise 

their operations. The two public sector 

companies merged into a single 

company called National Aviation 

Company in April 2007. The merged 

entity will operate on both domestic and 

international sectors. The new company 

will be among the top ten airlines in Asia 

and among the leading 30 airlines 

globally in terms of having a fleet of 

120+ aircrafts and 34,000 employees 

including 1,315 pilots. It is the first 

airlines in India to have more than 

100 aircrafts. The government has 

approved acquisition of new aircrafts - 

68 aircrafts by Air India and 43 by Indian 

airlines. Major gains that can be reaped 

from the merger include economies of 

scale in maintenance, ground operations, 

use of landing slots and parking rights, 

etc. The government owned airlines face 

major challenges in terms of falling 

market shares under strong competition 

from private airlines and years of under 

investment in fleet strength and services. 

In fact, data indicates lower market 

shares for Indian Airlines compared to 

Jet in the three selected routes of study 

and also compared to Kingfisher in one 

route. In terms of slots also, in two of the 

selected routes, Indian Airlines has only 

one slot on one route and no slots at all 

in another. 


2011] 


B-233 

The merger by itself will not ensure efficient 

functioning. It needs to be followed up by 

measures like overhaul of operations and 

a strong professional staff. The 

Government expects that the merger will 

save around Rs 5,000 crores annually. 

5. Conclusion 

The merger control as regards the 

Aviation sector is not just dependent 

upon the thresholds that are prescribed 

under Section 5 and 6 of the Competition 

Act. They are also significantly 

influenced by the Slot allocation system 

that is followed by different Airports, 

Aviation policy etc. Thus, the exact effect 

of a particular merger can be seen only 

on the comprehensive analysis of all the 

above factors. 

As on the data available on 2008, the 

implications of the mergers have been 

summarised as: 19 

(1) On the Delhi-Mumbai route 

relating to slot shares of airlines pre 

merger, it is seen that Jet had a share 

of 25 per cent, Indian Airlines had 

a share of 18 per cent and Kingfisher 

had a share of 10 per cent. The 

correlation between share of 

passengers and the share of slots 

is very high. Post merger, share of 

Jet has become 28.27 per cent, share 

of Kingfisher is 24.63 per cent and 

for Indian-Air India it is 20 per 

cent. Thus, the three combines now 

have around 73 per cent of the total 

slots in this market. 

(2) On the Delhi Chennai route, pre 

merger, in terms of slot shares, Jet 

had 22 per cent of the market; 

Indian had 17 per cent while 

Kingfisher had no share at all. Post 

merger, Jet has 32.6 per cent of the 

slots, Kingfisher which earlier did 

not have any slots has 13 per cent 

and Indian -Air India combine has 

26 per cent. Thus, the three 

combines together own around 

72 per cent of the slots. 

(3) In the Bangalore-Chennai route, 

pre-merger, Jet had 35 per cent of 

the shares, and Kingfisher had 17 

per cent. Post merger, Jet owns 33.3 

per cent of the slots, Kingfisher 

owns 55.5 per cent and Indian-Air 

India does not own any slot at all. 

Thus, Jet and Kingfisher together 

hold 70.9 per cent of the slots in the 

market. 

The following are evident from the above 

analysis: 

(a) Market share of Jet and Kingfisher 

have been strengthened 

considerably, post merger. 

(b) The national carrier is steadily 

losing its share to the above two 

private airlines. 

(4) Likelihood that the combination 

would result in the removal of a 

vigorous and effective competitor 

or competitors in the market. 

Jet and Air Sahara were both full 

cost carriers and were indeed 

vigorous competitors. In the Delhi - 

Mumbai sector, while Jet had 

27 per cent, Air Sahara had 9.5 per 

cent of market share (passengerwise) 

pre merger. In terms of slots, 

Jet had 25 per cent and Air Sahara 

10 per cent of the slots. Post merger, 

Jet now owns 28 per cent of the slots, 

including those of Jetlite (earlier Air 

Sahara). Similarly, in the Delhi- 

Chennai sector, pre merger, Jet had 

a market share of 29.2 per cent while 

Air Sahara had a market share of 

8.9 per cent. In terms of slots, Jet had 

22 per cent and Sahara 22 per cent 

19 Competition Issues in the Air Transport Sector in India, can be accessed at, http:// 

www.cci.gov.in/images/media/completed/transport_20090421133744.pdf at p.38 


157


[Vol. 2 

of the slots. Post merger, Jet now 

owns 32.6 of all the slots (including 

Jetlite). This clearly establishes the 

removal of a vigorous competitor 

from the market. 

(5) Also, due to vigorous price 

competition, rising price of fuel and 

other issues, most of the airlines have 

been making major losses. Hence, the 

possibility of a failing business looms 

very large in this sector. 

(6) Relative advantage by way of 

contribution to the economic 

development, by any combination 

having or likely to have appreciable 

adverse effects on competition. 

Mergers will lead to scale 

economies, higher efficiency and 

improvement of productivity levels 

in the industry. Passengers will 

benefit from the fact that flight 

timings are likely to be rationalised 

and quality of service may improve 

with failing companies being 

acquired by the better performing 

companies. Overall, there is likely 

to be better utilisation of resources 

in the economy. 

(7) Whether the benefits of the 

combination outweigh the adverse 

impact of the combination, if any 

Considering the Indian Airlines -Air 

India merger, for many years Indian 

Airlines has been experiencing 

falling market shares under 

competition from the private airlines. 

There have also been years of under 

investment in the fleet. As a result, 

the airline has been experiencing 

losses and inefficiencies. While the 

merger by itself will not assure 

increase in efficiency, the resultant 

scale economies are expected to lead 

to better performance and the better 

utilisation of investment by the 

government. 

(8) Analysing the sector in terms of 

Section 20(4) of the Act, factors that 

may be noted are: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

Post mergers, there is a definite 

trend towards increased 

market concentration. This is 

indicated by the 

Concentration index in the 

selected sectors and also by 

the analysis of share of total 

passenger traffic as well as 

share of slot of the airlines. 

The market is oligopolistic. 

While there are a large 

number of players on the 

market, three players, namely 

Jet, Kingfisher and Indian 

Airlines control a major share 

of the market. Post merger, in 

terms of ownership of slots, 

market shares particularly in 

terms of share of slots of the 

two private players have 

increased substantially. 

There is some evidence of 

price parallelism between Jet 

and Kingfisher especially 

when the flights are 

scheduled closer together. 

We cannot however call it 

price collusion at this stage. 

Share of Indian in terms of 

ownership of slots and share 

of total passenger traffic is 

coming down compared to Jet 

and Kingfisher. It is thus, 

losing market share in terms 

of the above indicators to the 

private players. 

Mergers show indication of 

removal of a vigorous 

competitor from the market, 

e.g. in the case of Jet and 

Sahara on Delhi-Mumbai 

and Delhi-Chennai routes. 

Possibility of a failing business 

looms large in this sector due 

to rising fuel prices and intense 

price competition. However, 

mergers have benefits in terms 

of increased efficiency, 

economies of scale etc. 

158 


2011] 


B-235 

Bibliography 

(1) Vinod Dhall, Key Concepts in Competition Law, in COMPETITION LAW TODAY: 

CONCEPTS, ISSUES AND THE LAW IN PRACTICE, 3 (Vinod Dhall, ed. 2007 

(2) T. Ramappa, COMPETITION LAW IN INDIA: ISSUES, POLICIES AND 

DEVELOPMENT, 187 (1 st ed. 2006) 

(3) http://www.competition-commission-india.nic.in/regulations/ 

ConsolidatedCCI CombinationRegulation per cent20200_Revised30062008 

.pdf 

(4) Nancy Shah, Competition Issues in the Civil Aviation Sector Evaluating 

Competition related issues pertaining to the Indian Airlines’ Industry, with 

Special Reference to M&A in light of Competition Act, 2002 www.cci.gov.in/ 

images/.../F1_NancyShah_20080411102237.pdf 

(5) Competition Issues in the Air Transport Sector in India, can be accessed at 

http://www.cci.gov.in/images/media/completed/transport_200904211 

33744.pdf 

(6) www.marketresearch.com/map/prod/1482657.html 

(7) Sunil Barthwal, Airline mergers and competition, The Financial Express, March 

30, 2007. 

(8) OECD Report on AIRLINE MERGERS AND ALLIANCES, Directorate for 

Financial, Fiscal And Enterprise Affairs Committee on Competition Law and 

Policy, DAFFE/CLP(2000)1, at 26, http://www.oecd.org/daf/clp 

(9) Berry, Steven, Carnall, Michael and Spiller, Pablo, “Airline Hubs: Costs, 

Markups 5 and the Implications of Customer Heterogeneity,” NBER Working 

Paper 5561, May 1996 

(10) Competition Issues in the Air Transport Sector in India, can be accessed at, 

http://www.cci.gov.in/images/media/completed/transport_2009042 

1133744.pdf at p.30 

(11) http://www.businessenvironment.org/dyn/be/docs/154/Nellist-Annex.pdf 

(12) http://www.cci.gov.in/images/workshop/14_15march07/14jhon.pdf? 

phpMyAdmin=NMPFRahGKYeum5F74Ppstn7Rf00 

(13) http://www.justice.gov/atr/public/testimony/hhi.htm 

Copyright © Chandrashekhar A.C. and Sumangala A.C. 


159


[Vol. 2 

An Appraisal of India’s New Merger Control Regime 

Anamika Ahir* 

The new merger regime enforced on 1 st June, 2011 by Ministry of Corporate Affairs 

is a comprehensive set of regulations. The article attempts to critically examine the 

regulations along with its practical implications on the Indian markets. 

Introduction 

Lately, the Ministry of Corporate Affairs 

(MCA), Government of India had notified 

on 4 th March 2011, the provisions relating 

to regulation of “combination” also 

known as the “merger review provisions” 

under the Competition Act, 2002. This 

notification followed the release of new 

draft merger regulations by the 

Competition Commission of India (CCI). 

The Competition Act, 2002 was partly 

enforced on 20 th May, 2009 whereby, the 

merger control provisions were not 

notified. The Ministry of Corporate 

Affairs, Government of India has now 

notified that Sections 5, 6, 20, 29, 30 and 

31, regarding the merger control will be 

enforced on 1 st June, 2011. After this all 

mergers or acquisitions within the given 

thresholds in Section 5 of the Competition 

Act, 2002 will call for a prior approval 

from the Competition Commission of 

India. For this purpose, the notification 

to CCI must be done within 30 days of 

approval of the impugned merger by the 

board of directors of the merger parties 

or the execution of any agreement or any 

other document for the acquisition. 

These notifications and draft regulations 

will definitely alter substantially, the 

procedure for acquisition of shares or 

voting rights of listed companies in India 

from June 2011. 

The Competition Act controls all the 

“combinations” which reach the given 

thresholds for Indian or worldwide 

assets or turnover of the target company 

and the Indian or worldwide assets or 

turnover of the acquirers or the group to 

which the target will go post acquisition. 

However, it is pertinent to note that the 

size of the impugned transaction is not 

considered while deciding whether or 

not an acquisition is to be notified as a 

combination. 

Meaning of combination 

As per Section 5 of The Competition Act, 

2002, a “Combination” comprises of any 

of the following: 

(1) Any acquisition of control or 

shares or voting rights or assets of 

enterprises 

(2) Acquiring of control by person over 

an enterprises, where such person 

already has direct or indirect 

* Student, 3 rd year, National Law Institute University, Bhopal. E-mail: anamika.law@gmail.com 

160 


2011] 


B-237 

control over another enterprise 

engaged in similar or competitive 

business 

(3) Any merger or amalgamation 

between enterprises. 

For dealing with the various facets of 

merger control four notifications have 

been issued in four different parts. In a 

nutshell, the characteristics of the 

notifications are as follows: 

(A) Effective Date of Notification - 

1 st June, 2011 is declared as the date 

on which Sections 5, 6, 20, 29, 30 

and 31 of the Competition Act, 2002 

will be enforced. 

(B) Monetary Threshold Requirements 

- The value of assets 1 and turnover 

has been enhanced by 50 per cent 

on the basis of the wholesale price 

index for the purposes of Section 5 

of the Competition Act, 2002. 

A merger have to be notified if any 

of the below mentioned thresholds 

are met: 

(a) Combined assets of the 

acquirer and target in India 

is at least Rs. 1,500 crores or 

combined worldwide assets 

are of a minimum value of 

USD 750 million consisting at 

least Rs. 750 crores of Indian 

assets. 

(b) The combined turnover of the 

Indian entities is at least 

Rs. 4,500 crores or combined 

worldwide turnover is at least 

USD 2,250 million which 

includes at least 

Rs. 2,250 crores of turnovers 

in India. 

(c) The value of assets in India 

that belongs to corporate 

group which the target would 

go is at least Rs. 6,000 crores 

or the value of the worldwide 

assets owned by the group is 

at least USD 3 billion 

consisting at least 

Rs. 750 crores of assets in 

India. 

(d) The turnover in India of the 

group which the target would 

go to is at least Rs. 18,000 crores 

or the worldwide turnover of 

the group is at least 

USD 9 billion with at least 

Rs. 2,250 crores of turnovers in 

India. 

The CCI will have a period of 

180 days (earlier 210 days) from the 

date of notification within which it 

must consider the merger and 

decide whether to prohibit the 

merger or ask for modifications in 

order to clear the merger. This 

period can be further extended for 

6o days but not beyond. 

(C) Target entity - Some mergers and 

acquisitions will be exempted from 

India’s new merger control regime. 

These include: 

(a) Exemption of mergers and 

acquisitions for a period of 

five years, where the acquired 

target has assets of value not 

more than INR 250 crores or 

turnover of not more than 

INR 750 crores. 

(b) Also Share subscriptions, 

financing facilities or any 

acquisition by a public 

financial institution, bank or 

venture capital fund, foreign 

institutional investor, or Bank 

pursuant to any covenant of 

a loan agreement or 

investment agreement is 

exempted from notifying to 

CCI for approval. 

1 Assets - book value as per audited accounts and includes intangibles. 


161


[Vol. 2 

However, the public financial 

institution, foreign institutional 

investor, bank or venture capital 

fund must file a form with the CCI 

within seven days of the acquisition 

enclosing the details of the 

acquisition. 

(D) Group - A Group is defined in 

Explanation (b) of Section 5. Group 

means two or more enterprises, 

which directly or indirectly: 

(a) Exercise 26 per cent or more 

voting rights in other 

enterprise. 

(b) Appoint more than 50 per cent 

of board members in other 

enterprise. 

(c) Control 2 the management or 

affairs of the other enterprise. 

Under the new merger regime a 

“group” exercising less than 

50 per cent of voting rights in the 

other enterprise is exempted for a 

period of five years. 

Market Risks 

Effecting a merger or acquisition that 

reaches the prohibited threshold is 

outlawed in case such a merger or 

acquisition causes or is expected to cause 

a considerable adverse effect on 

competition within an Indian market. 

The Competition Act stipulates a number 

of aspects that the CCI must pay due 

regard while determining any 

considerable adverse effect on 

competition in an Indian market, due to 

a merger or acquisition. These aspects 

include factors likely to effect on share 

market, height of entry barriers, existence 

of countervailing power, scope of vertical 

integration and whether the target or 

acquirer is an unsuccessful business and 

whether the target is a nonconformist 

competitor. It is also required for CCI to 

consider whether the merger or 

acquisition is worthy of bearing any 

positive fruits. A proscribed merger or 

acquisition will be void. 

The decisive powers of CCI 

At the conclusion of its analysis, the CCI 

can under Section 31 of the Act: 

(a) make an order approving the 

merger or acquisition; or 

(b) make an order or direction that the 

merger or acquisition must not take 

effect; or 

(c) propose some modification to the 

merger or acquisition, where the 

CCI is of the opinion that the 


competition of the transaction 

could be eliminated by such 

modification. 

Any person or authority having a 

grievance against the direction or 

decision of CCI, may appeal to the 

Competition Appellate Tribunal. 

Procedure under the draft regulations 

The draft merger regulations notified by 

the CCI prescribe the form for the 

notification of combinations. The 

regulations stipulates filing of a shorter 

form for some combinations which 

includes acquisitions, of 15 per cent or 

less shares or voting rights for investment 

purpose or in the usual course of business 

not resulting in control of the target, 

acquisitions within a group, and 

acquisitions of shares or voting rights by 

an individual acting in a capacity of 

securities underwriter or pursuant to a 

bonus issue of shares or their 

sub-division. The regulations also 

provide elaborate scheme of filing fees 

for different combinations. 

2 Control includes controlling the affairs or management, either singly or jointly: 

• by one or more enterprises over another enterprise or group; or 

• by one or more groups over another group or enterprise. 

162 


2011] 


B-239 

Competition Commission of India at 

loggerheads with SEBI 

Under the current SEBI Takeover 

Regulations if an acquirer intends to 

acquire more than 15 per cent shares in a 

listed company, he will be required to 

publicly announce an open offer to the 

shareholders of the target company 

before the expiry of four working days of 

assenting to acquire the said shares. But 

in case such an acquisition suffices the 

requirements of a combination under the 

Competition Act, the acquirer will be 

bound to make an open offer according 

to the SEBI Takeover Regulations along 

with the notification to the Competition 

Commission as per the new merger 

control regime. 

The SEBI Takeover Regulations include 

a time-bound process wherein the offer 

opens before the expiry of 55 days from 

the day of public announcement and 

payments are made to the tendering 

shareholders within 15 days from the 

close of the offer. But if the acquisition 

requires to be notified to the Competition 

Commission of India, the shares tendered 

in the open offer cannot be transferred to 

the acquirer until approved by the 

commission or expiry of 180 days from 

the date of filing. 

It is pertinent to note that the registrar to 

the offer holds all the Shares tendered in 

an open offer in a trust until all the offer 

formalities are concluded. Consequently, 

any delay in receipt of approvals from 

CCI will create unnecessary 

inconvenience for the shareholders and 

also for acquirers who deposit a fraction 

of the offer consideration in escrow 

accounts which do not bear any interest 

with them. Hence, in my opinion it is vital 

to modify the offer timetable suitably in 

case the acquisition has to be notified 

under the Competition Act. 

There seems to be a further divergence in 

the operative provisions the Competition 

Act and the SEBI Takeover Regulations. 

The Competition Act stipulates that 

anyone who proposes to enter in a 

combination shall give notice to the 

commission in the prescribed form within 

30 days of carrying out of any 

“agreement” or “other document” for 

acquisition. 3 

The term “other documents” is defined 

in the draft regulations as “any document 

purporting to convey the intention to 

acquire control, shares, voting rights or 

assets”. 4 Moreover, the draft regulations 

specifies that the date on which intention 

to acquire is communicated to the Central 

Government, or a state government, or a 

statutory authority shall be deemed to be 

the date of execution of the other 

document for acquisition. 5 The words 

and the intention behind inclusion of 

these provisions are not clear both in its 

objective and application. 

Conclusion 

The Government in addition to the new 

merger regime is suggesting that a failure 

to notify under the rules may result in 

penalty imposition of up to 1 per cent of 

the total turnover or assets of the merger 

or acquisition by CCI. Though, the 

provision in the Competition Act 

empowering the CCI to impose such a 

penalty is not proposed to take effect at 

this point on 1 June 2011. Hence, for now 

after 1 st June, 2011, a failure to notify will 

merely result in violation of the 

Competition Act and will not call for 

imposition of any fines. 

3 Regulation 6(3) of draft regulations by The Competition Commission of India. 




163


[Vol. 2 

The introduction of the new merger 

regime under the Competition Act, 2002 

is a much awaited milestone in the 

application of a competition law regime 

in India. From 1 st June, 2011, companies 

intending to undergo merger or 

acquisition activity where the target or 

the acquirer has Indian assets will have 

to determine whether notification to the 

CCI is requisite or not. In near future, the 

draft merger regulations will undergo 

constant criticism and commentary from 

various sectors of the business. 

On a plain comprehension of the 

Competition Act, it seems that open 

market purchase of even a single share 

of an entity which meets the prescribed 

thresholds will prompt a requirement for 

notification. This undoubtedly cannot be 

the objective of the legislature. It is 

important that the CCI clarify such 

irregularity before implementing the 

regulations in the month of June. 

In the view that the SEBI Takeover 

Regulations are also proposed to 

undergo a considerable change, it is 

difficult to predict how acquisition of 

listed entities that may meet the 

requirements of a combination will be 

undertaken under the changed legal 

positions. 

It is also interesting to note that the 

notifications issued by MCA are 

unsigned and undated 6 . Hence, there 

prevails a reasonable confusion about the 

exact legal status of the notification. 

Copyright © Anamika Ahir 

6 http://www.mca.gov.in/Ministry/notifications.html 

164 


2011] 

B-241 

Treading the Thin Wedge between “Unfair Trade 

Practices” and “Abuse of Dominant position” 

Kaushal Kumar Sharma* 

On 12 th August, 2011, the Competition Commission of India (CCI), by an order 

under Section 27 of the Competition Act, 2002 (the Act), held the DLF Ltd 

guilty of abuse of dominant position under the Act and imposed a penalty of 

Rs. 6,300 million. After holding the concerned enterprise guilty of abusing its 

dominant position, the CCI had the option of levying a penalty of up to 10 per cent 

of its average turnover for last three years. The CCI has charged penalty at 

7 per cent stating that in view of the nature of violations, the penalty should be 

harsh. Thus, in the opinion of CCI, the case called for some type of exemplary 

penalty. 

This article analyses the order of CCI. This includes the entire background in 

which the order was passed, the improving track record of CCI, the signal the 

order sends, the questions and hopes this order raises. 

Last few months have seen the 

Competition Commission of India (CCI) 

pass some affirmative orders after more 

than two years of its due constitution on 

1 st March, 2009 under Section 8 of the 

Competition Act, 2002 (the Act). This is 

good news. Any new law cannot evolve 

unless practiced. The competition law is 

no exception. Who is better placed to set 

the ball rolling than the CCI? 

The affected parties have the option to 

either agree or disagree with the views of 

the CCI as expressed in the decisions 

passed under Sections 27, 31 or 33 of the 

Act. If they agree, it is fine and the position 

of law has been laid down for the moment. 

If they do not agree, they have the option 

of going before the Competition Appellate 

Tribunal (COMPAT) under Section 53B 

of the Act. After COMPAT has applied 

mind and given its finding, the party 

disagreed with—either the CCI or the 

enterprise(s) involved—may go to 

Supreme Court under Section 53T of the 

Act, if it so desires. The decision of the 

Supreme Court, if the matter reaches there 

or, in case it stops either at the level, of the 

CCI or the COMPAT is the finally settled 

position of law at that particular point of 

time. 

* Commissioner of Income Tax, Ministry of Finance, Government of India, and former Director 

General & Head of Merger Control, Competition Commission of India. The views expressed 

are personal. 


165


[Vol. 2 

In this evolutionary process of 

competition law, the CCI has an extremely 

important role, that of the initiator of the 

process of evolution of competition law 

to play. Any hesitation for whatever 

reasons to reach appropriate decisions or 

delay in pronouncing decisions for any 

reasons, whatsoever are going to slow 

down this evolutionary process. It is said 

that the “perfect” is the enemy of “good”. 

It is better to start than to keep on fearing 

a bad start in the form of a bad order–just 

because of the fact that it has to wade 

through the appellate machinery. It is 

especially important in view of the fact 

that out of more than 90 orders passed by 

the CCI, the affirmative orders can be 

counted on your finger despite India – like 

any other economy in transition– being 

perceived a land full of anti-competitive 

practices. 

Therefore, it is heartening to note that the 

CCI has actually kick-started the process 

by passing a number of affirmative 

decisions in the recent past. This sends a 

strong message that the provisions of the 

Act are here to be enforced and the market 

participants better be aware that the 

referee is watching them play. So long as 

the game is fair, they need fear nobody. 

Commit a foul and be ready for a whistle 

and consequent action. In any case, no 

decision of the Commission is final 

unless duly confirmed in the appellate 

structure - first by the COMPAT and then 

by Supreme Court - envisaged under 

the Act. 

No doubt, it is a fact that the competition 

law is new to our country and the 

capacity to understand and apply the 

law would take sometime to develop. 

However, the Courts have shown enough 

mature understanding of the underlying 

philosophy behind the competition law. 

The decision of Hon’ble Supreme Court 

in the case of Competition Commission of 

India v. Steel Authority of India Limited & 

Another is a case in point which more 

than adequately amplifies that the higher 

judiciary is quite appreciative of the basic 

principles behind enactment of the 

competition law in the country and the 

objectives of this law. 

In the orders passed recently, the CCI has 

held the film producers/distributers 

guilty of anti-competitive conduct and 

levied a penalty of Rs. 1,00,000 each on 

various parties involved. There may be 

divergent views on the amount of 

penalty finally imposed and its 

justification after a long process of fact 

finding investigation by Director 

General, entire process of inquiry by the 

CCI, involving hearing a large number 

of parties over a long period of time, 

resources spent by CCI in defending 

different challenges in various courts 

involving a considerably long time and 

substantial resources. However, one 

thing stands out and that is that is that 

CCI is finally finding it feet and is in a 

position of announcing decisions 

without fear or favour. May be the CCI is 

maturing now. 

The other matter adjudicated by the CCI 

involves a case of predatory pricing — a 

tough issue generally speaking — even 

in the developed jurisdictions. The job of 

the CCI was made easier by the fact that 

the enterprise alleged to be indulging in 

predatory pricing was not charging a 

finite amount as predatory price but a 

zero price. This was an important factor 

helping the CCI reach finality relatively 

quickly. Compared to the case of film 

producers/distributers and multiplex 

association, the cases of DLF and MCX 

have relatively been decided in a little 

quicker manner. Hopefully, this 

indicates quickening of pace of decisions 

by CCI in future. 

On 12 th August, 2011, the CCI passed 

another landmark decision in Case No. 

19 of 2010, on the basis of information 

filed on 5 th May, 2010 by Belaire Owners 

Association against DLF and Ors. 1 

166 

1 MANU/CO/0044/2011 


2011] 


and “Abuse of Dominant Position” 

Announcing a decision in nearly 

15 months time from the filing of 

information for a young competition 

agency is not bad. On the other hand, it 

would be stated to be rather prompt. 

The actual order of CCI, in case of Belaire 

Owners Association against DLF, after 

having enumerated the background, 

information and proceedings in the 

previous part, begins from Paragraph 12 

on Page 155 of the order. The issues 

crystallised by the Commission are 

summarised in Para 12.1 of the order. 

These are: 

(1) Do the provisions of Competition 

Act, 2002 apply to the facts and 


(2) What is the relevant market, in the 

context of Section 4 read with 

Section 2(r), Section 19(5), 

Section 19(6) and Section 19(7) of 

the Competition Act, 2002? 

(3) Is DLF Ltd. dominant in the above 

relevant market, in the context of 

Section 4 read with Section 19(4) of 

the Competition Act? 

(4) In case DLF Ltd. is found to be 

dominant, is there any abuse of its 

dominant position in the relevant 

market by the above party? 

The above would show that the issues 

have been correctly identified by CCI in 

its order. Perhaps there may not be any 

two views on the issue. It is the 

adjudication part where the CCI had to 

do a tight rope walk between the “unfair 

trade practices” and the provisions of 

the Act. 

The CCI has also passed a few orders in 

the past. There has to be a consistency of 

approach in the decisions. In an earlier 

case of charging of prepayment penalty 

by banks (Case No. 5 of 2009), the CCI 

has given considerable importance to the 

contract entered into between the lender 

and the borrower. What needs to be seen 

is that how the views of the CCI, as 

expressed in that order, reconcile with 

B-243 

the views expressed in this order. 

Further, while dealing with the 

prepayment charges in a fixed pattern 

printed agreement in which the consumer 

does not a choice, the CCI stated: 

…For the banking sector, prepayment 

charges are part of their overall 

strategy and asset liability 

management, while the consumer 

tends to look at them as barriers to ease 

of exit… 

(Paragraph 15.1 of order dated 

2 nd December, 2010 

in Case No. 5/2009) 

In this case, justification for not treating 

the prepayment penalty adversely 

affecting the competition was that the 

state of competition in banking sector 

was healthy – with so many players and 

the sector still registering growth: 

Though the prepayment penalty is 

being charged by the banks, it caused 

no negative impact in the growth of 

the home loan business & 

consequently on competition. 

(Paragraph 18 of the order dated 

2 nd December, 2010 

in Case No. 5/2009) 

It is not clear how a similar claim, if made 

by developers, that the terms in the 

agreement are a part of strategy as the 

development involves money which, at 

times, is borrowed at huge interests, 

therefore backing out by a person booking 

the apartment should involve a fear of 

forfeiture to ensure certainty for the 

project, can be countered. It may similarly 

be claimed that, but for small periodic 

fluctuations, the real estate sector is 

booming. Can it not be taken as a defence 

for no adverse impact on competition of 

all the actions the enterprise is being 

accused of? 

Another, nearly similar, Case No. 15/2011 

of Balabhadra Residency Flat Owners 

Association, Hyderabad, was closed vide 

order dated 5 th July, 2011, as not 

adversely affecting competition. 


167


[Vol. 2 

For legal certainty, it may be advisable 

for similar arguments leading to similar 

results. 

The last part of the order of CCI in DLF 

case deals with the practices prevalent 

in the trade of real estate development. If 

these are indeed industry practices-these 

should actually be being part of the order 

itself – it may give another defence to the 

enterprise in appellate proceedings. If all 

the competitors are following certain 

common practices for whatever reasons, 

how the dominant player can be held 

guilty of abuse of dominant position? In 

a scenario where a consumer willingly 

chooses one of the available options - 

under whichever circumstances 

including that of helplessness as all the 

participants are following the same trend 

- in the market, can it be said that the 

dominant player is abusing its position? 

Is the consumer a victim in this case of 

the prevalent “practices in the trade” or 

“abuse of dominant position” of any 

particular market participant who 

happens to come under the gaze of CCI 

either through some information or on 

its own motion? If that be the case, every 

dominant player would be at the mercy 

of the CCI. The only thing CCI has to do 

is to just look at the sectors having some 

“unfair trade practices,” locate the 

dominant player and fasten the liability 

of abuse of dominant position on its 

shoulders. It has nowhere to go. Is the 

dominant player also having the 

automatic responsibility of reforming the 

sector? Is it the intent of the Act? That, 

perhaps, was never the philosophy of the 

Act. A look at the media reporting the 

order indicates the flavour. Most of the 

reporting in media was on the lines “CCI 

fines DLF Rs. 630 crore for unfair trade 

practices” little realising that unlike 

many other countries, Indian competition 

law does not give the authority to CCI to 

look into “unfair trade practices” 

whereas, the same used to be available 

under MRTP Act, 1969 before it was 

repealed. 

Too much has been made out of the 

practice of giving readymade agreement 

to the customer who does not have any 

choice. The same issue came up before 

the Commission in bank prepayment 

penalty case referred to earlier wherein, 

by a majority order, the CCI found 

nothing wrong with the practice. On the 

contrary, it is held in the case of DLF that 

the agreements are one sided and this 

practice, like others, has also been 

emulated by weak competitors. It has not 

been brought on record, if DLF was the 

first to start the practice. This appears to 

be an interesting argument. Para 12.103 

of the order in DLF case states: 

In a competitive scenario, where the 

enterprise indulges in such anticonsumer 

conduct, there is sufficient 

competition in the market to provide 

easy alternatives for the consumers. 

It is not clear if the state of competition in 

real estate sector is so bad that a buyer of 

a premium residential unit in Gurgaon 

has no option except to agree to the anticonsumer 

conduct of getting to sign a 

printed contract of DLF? May be 

elsewhere he may have a choice? 

However, we are told that it is a nearly 

all India practice. It is not known if the 

developers claim it to be a mechanism to 

reduce administrative expenses. 

“Dominance,” by itself is not bad its 

abuse is, is the philosophy of the 

competition law which, we are told, is a 

modern instrument. Do we expect a 

dominant player - or a player which may 

be one of the few prominent players and 

with suitably picking of data or defining 

the relevant market in a particular 

manner - can be held to be a dominant 

player - to be a reformist to purge the 

trade of all unfair practices lest it should 

be accused of abuse of dominant 

position? If certain practices are 

prevalent in a trade, should the 

dominant player follow them to be one 

amongst the competitors, or to meet the 

competition, or it is supposed to be 

168 


2011] 



oblivious to the practices and not follow 

them despite pressure of the competition? 

Do we expect the dominant player to 

forget the practices adopted by others, 

dissect these practices and follow only 

that portion of practices which may not 

be called unfair? 

This brings us to the basic paradox on 

the provisions relating to abuse of 

dominant position. It is often said against 

these provisions that despite the basic 

philosophy of the competition law being 

“to protect the competition and not the 

competitor”, how come a player who has 

become dominant in the competitive 

process is being sought to be punished 

for a conduct for which others may go 

scot free. Forcibly putting the yoke of 

being a reformist on the shoulders of a 

dominant player, will strengthen those 

who, because of the logic given here, find 

the provision of abuse of dominant 

position not in tune with the basic ethos 

of competition laws. 

In the United Brands 2 case, it was held 

that “Chiquita” brand of banana was a 

“must have” brand for any departmental 

store. Not having that brand would 

jeopardise the very existence of the 

department store. In the cases of abuse of 

dominant position, what needs to be 

seen is why the second party had to enter 

into an agreement in the first place. In 

United Brands case, it was said that the 

other party had no practical choice, if it 

had to survive in the market. Can the 

same be said of a luxury brand premium 

residential unit? Are there any 

compulsions of those looking for a 

premium residential property not to look 

for any other developer in Gurgaon. The 

places in close vicinity could offer a 

comparative choice such as Noida, 

Greater Noida or the entire NCR region 

as a whole. 

There are a good number of working 

couples – one of whom work in Noida 

B-245 

and the other in Gurgaon. These couples 

decide either Gurgaon or Noida as a place 

of residence and one of the two 

commutes to the place of work. Further 

with the spread of Delhi, by leaps and 

bounds, where two places within the 

territory of Delhi take more than one to 

two hours, it is really difficult to 

understand how the two places - Noida 

and Gurgaon- can not be part of the same 

market- especially for the upwardly 

mobile aspiring for a property of a value 

between 2 and 2.5 crores. These are the 

people who, more likely than not, may 

own comfortable motor vehicles with 

chauffeurs. 

This entire issue of geographical market 

has been dealt by the Commission in Para 

12.38 of the order. While declaring that 

the Gurgaon is known to possess certain 

unique geographical characteristics such 

as its proximity to Delhi, proximity to 

Airports and a distinct brand image as a 

destination for upwardly mobile families, 

the CCI, in its order has compared the 

places such as Surat in Gujrat but not 

other places in close vicinity possessing 

similar characteristics. Except the last 

factor, i.e. the alleged distinct brand 

image as a destination for upwardly 

mobile families, all other factors apply 

in equal measure to NOIDA/Greater 

NOIDA/Faridabad/Ghaziabad. The 

defence of the party alleged to be in a 

dominant position may be that the 

relevant geographic market has not been 

adequately dealt with. On the contrary, 

use of Surat in Gujrat as a comparison 

and not any place close by may be used 

as a tool by the enterprise held to be in a 

dominant position to allege bias in 

appellate proceedings with forceful 

effect. The reason for the last factor, i.e. a 

distinct brand image of Gurgaon is not 

spelt out in the order. Whether it was as 

a result of some survey got done by the 

CCI is not clear. At least the order is silent 

2 27/76 [1978] ECR 207 


169


[Vol. 2 

on it. If it is not supported by any basis 

whatsoever, we should remember that 

unless backed by hard facts and 

reasoning, no order can survive in appeal 

only on the basis of some subjective 

assertions not backed by hard evidence. 

Further, the treatment given by the 

Commission in the past to some similar 

cases from Gurgaon/Faridabad in 

information relating to other developers 

of repute, holding that the information 

were either of consumer nature or did 

not raise any competitive concerns will 

be hard put to justify - decisions being 

on its own website (Girish Batra v. BPTP 

Ltd and Others, Case No. 42/2010 and 

many others). 

At this point, it may be instructive to 

remember the judgment of European 

Court of Justice in the Continental Can 

case. In that case, the ECJ found fault with 

the definition of relevant market adopted 

by the European Commission in 

Continental Can 3 case. 

In the Continental Can case, the European 

Commission had held that the Continental 

Can and its subsidiary SLW had a 

dominant position in three different 

product markets - cans for meat, cans for 

fish and metal tops - without giving a 

satisfactory explanation of why these 

markets were separate from one another 

or from the market for “cans” and 

“containers” generally. 

Similarly, in the case of United Brands 

case, the ECJ stated that the 

opportunities for the competition under 

Article 82 must be considered. It stated: 

with reference to a clearly defined 

geographic area in which (the 

product) is marketed and where the 

conditions are sufficiently 

homogenous to the economic power 

of the undertaking concerned to be 

able to be evaluated… 

If the enterprise in question argues that 

the product is marketed all over the globe 

and a large chunk of buyers are 

Non-Resident Indians, it may altogether 

change the contour of the case. 

Now coming to the last part of the order 

contained in Paragraph 12.112 which 

lists the common practices followed by 

developers in this line of activity. The 

order states that a few of the practices 

which the DLF has been following and 

are also followed by other builders. This 

is a very interesting argument. If this is 

true, the DLF can jolly well argue that 

the CCI has essentially tried to punish it 

for Unfair Trade Practices over which it 

has no jurisdiction. It may be really 

relevant to recall that the MRTPC 

Act, 1969 was repealed with effect from 

1 st September, 2009. Section 66 of the Act 

deals with the work-in-progress before 

MRTPC under the MRTP Act as on the 

date when the MRTPAct was repealed. 

The entire work-in-progress has been 

distributed to various agencies including 

COMPAT, CCI, DG in the CCI or The 

National Commission constituted under 

the Consumer Protection Act, 1986, etc. 

The part relating to unfair trade practices 

which was till then being dealt under 

MRTP Act, 1969, has not yet found a 

father. Not that the Government is not 

aware of this missing link, it has been 

repeatedly discussed at various levels 

with an aim to find a solution. As on date, 

the issue remains unresolved. 

Consequently, unlike at the time before 

the MRTP Act was repealed, there are no 

legal recourses to the area known as 

“unfair trade practices” being dealt by 

MRTPC earlier. Unlike many other 

countries, the law as envisioned under 

the Act, in India, does not include unfair 

trade practices within its ambit. The word 

“unfair” used in Section 4(2)(a) is in a 

different context. 

3 JO [1972] L7/25, (1972) CMLR D11 

170 


2011] 



Therefore, listing all these practices as 

practices of the entire trade in the 

decision of the CCI gives another window 

for the enterprise in question for claiming 

it to be an “unfair trade practice” and 

claim defence. The very fact that, 

admittedly, there are no provisions to 

tackle the “unfair trade practices’” today 

after the repeal of the MRTP Act, 1969, 

may be an argument in its favour. If 

indeed all the alleged abuses in the 

information are a part of the practices 

prevalent in the trade, it is a moot point 

whether these practices, even if adversely 

affecting the competition, should have 

been dealt under Section 3 of the Act by 

CCI or it should have chosen to hold a 

dominant player for abusing its dominant 

opposition for using the very same 

practices and, later, extended the scope of 

inquiry into these practices followed by 

other developers? Presently, it appears 

that the CCI has chosen the later path. 

Perhaps, the Commission could have 

considered the possibility of covering the 

matter under Section 3 of the Act. It would 

have given more strength to the order- not 

only against DLF but also other 

developers. Appellate outcome may be 

different now that the CCI has held DLF 

as violating Section 4 of the Act before 

holding the practice as wrong for further 

inquiry in case of other developers. 

B-247 

Historically, in cases of abuse of 

dominant position, the dominant 

enterprises imposed terms in their 

agreements which were a little more 

oppressive than the industry practice. 

The other party entering into the contract 

had not much of a choice, for commercial 

reasons, except to accept the oppressive 

terms which would not had been possible 

but for the dominant position of the other 

enterprise. The last part of the order 

alludes to the fact that these practices are 

common amongst most of the developers. 

This observation, if true, is likely to 

weaken the case before the first Appellate 

Authority, i.e. COMPAT. 

Another important thing which attracts 

attention is the question whether the 

judgments delivered in the context of 

MRTPC Act, 1969, before it was repealed, 

are of as much relevance in the light of 

the prominence given to them in the 

decision of CCI. 

It can be certainly said that the 

Commission has made a good beginning 

to make its presence felt. However, it 

remains to be seen whether the case 

survives or is upturned at COMPAT if it 

smells more of unfair trade practices or 

consumer nature in the case. 

Copyright © Kaushal Kumar Sharma 


171


[Vol. 2 

172 


2011] Notes on International Cases 

C-9 

Section C 

Notes on 

International Cases 

USA 

United States Court of 

Appeals, Fourth Circuit 

DuPont DE Nemours and Co. v. 

Colon Industries Incorporated 

Decided on 11th March, 2011 

Anti competitive practice — Motion to 

Dismiss Claim — DuPont brought trade 

secrets suit against Kolon — Kolon 

counterclaimed that DuPont had 

monopolised, attempted to monopolise 

the para-aramid market — District Court 

granted motion on basis that Kolon 

inadequately pled the relevant 

geographic market within which 

competition for para-aramid fibers takes 

place — Kolon failed to plead adequately 

unlawful exclusionary conduct on the 

part of DuPont — District Court held 

Supreme Court precedent required 

including in the relevant geographic 

market definition all locations where 

product suppliers are headquartered — 

relied on Tampa Electric Co. v. Nashville 

Coal Co. — District Court erred both in 

holding that Tampa Electric required the 

Netherlands and Korea to be included in 

Kolon’s relevant geographic market 

definition — Motion to dismiss order 

reversed. 

Under the Sherman Act, a Plaintiff 

making monopoly and attempted 

monopoly claims must allege a relevant 

geographic market to help the Court 

determine whether the defendant has 

monopoly power. In this case, the 

District Court held that Supreme Court 

precedent required including in the 

relevant geographic market definition all 

locations where product suppliers are 

headquartered. Yet the Supreme Court 

case upon which the District Court relied, 

Tampa Electric Co. v. Nashville Coal Co., 

365 U.S. 320 (1961), requires no such 

thing. Rather, it requires that Courts 

consider, in defining the relevant 

geographic market, where sellers operate 

and where purchasers can predictably 

turn for supplies. If U.S. consumers can 

predictably turn to supplies only in the 

United States, then the United States is 

the relevant geographic market. Because 

that is what Kolon Industries 

Incorporated alleged here, the District 


C-10 


Court erred in dismissing its 

counterclaim for failure to sufficiently 

plead a relevant geographic market. 

DuPont attempted to wield, and did 

wield, monopoly power over the U.S. 

para-aramid fiber market in violation of 

Section 2 of the Sherman Act. Three paraaramid 

producers-sold their para-aramid 

fibers to U.S. Consumers. In February 

2009, DuPont brought a trade secrets suit 

against Kolon, a relative newcomer to 

para-aramid production. Kolon 

counterclaimed that DuPont had 

monopolized and had attempted to 

monopolize the para-aramid market in 

violation of Section 2 of the Sherman Act, 

15 U.S.C. § 2.1 The primary thrust of 

Kolon’s second amended counterclaim 

(Counter-claim) is that DuPont illegally 

used multi-year supply agreements with 

high-volume para-aramid fiber 

customers. Those agreements required 

high-volume customers to purchase 80 

to 100 per cent of their para-aramid 

requirements from DuPont. Kolon alleged 

that those agreements removed 

substantial commercial opportunities 

from competition and limited other paraaramid 

fiber producers’ ability to 

compete. 

DuPont moved, under Federal Civil 

Procedure Rule 12(b)(6), to dismiss 

Kolon’s Counter-claim. The District 

Court granted that motion on 

18 th December, 2009, on the bases that: 

(a) Kolon inadequately pled the 

relevant geographic market within 

which competition for para-aramid 

fibers takes place; and 

(b) Kolon failed to plead adequately 

unlawful exclusionary conduct on the 

part of DuPont. This Court reviews the 

grant de novo. 

When ruling on a Rule 12(b)(6) motion 

to dismiss, “a Judge must accept as true 

all of the factual allegations contained 

in the complaint.” Nevertheless, a 

complaint “need only give the defendant 

fair notice of what the claim is and the 

grounds upon which it rests.” Therefore, 

the Court drew all reasonable inferences 

in favor of the Plaintiff. 

Monopoly Claim — DuPont violated 

Section 2 of Sherman Act — Use of 

exclusive contracts with high-volume 

para-aramid customers — Whether 

District Court erred in holding that 

Kolon failed to adequately plead anticompetitive 

conduct — As Per Kolon 

determination rested on information 

inappropriately considered on a motion 

to dismiss and on inferences in DuPont’s 

favour — Kolon adequately pled all 

elements of monopolisation claim — 

Order reversed. 

It was contended that DuPont violated 

Section 2 of the Sherman Act through its 

use of exclusive contracts with highvolume 

para-aramid customers. Under 

Section 2, “every person who shall 

monopolize, or attempt to monopolize, 

or combine or conspire with any other 

person to monopolise any part of the 

trade” is guilty of an offense and subject 

to penalties. 15 U.S.C. § 2. To prove a 

Section 2 monopolization offense, a 

Plaintiff must establish two elements: 

(1) the possession of monopoly power; 

and 

(2) willful acquisition or maintenance 

of that power-as opposed to simply 

superior products or historic 

accidents. 

In analysing Sherman Act Section 2 

claims Courts begin with a preliminary 

inquiry into market definition, which 

serves as a tool to determine the 

defendant’s market power. Cases in 

which dismissal on the pleadings is 

appropriate frequently involve either - (1) 

failed attempts to limit a product market 

174 


2011] Notes on International Cases 

C-11 

to a single brand, franchise, institution, 

or comparable entity that competes with 

potential substitutes or (2) failure even 

to attempt a plausible explanation as to 

why a market should be limited in a 

particular way. 

In this case it was pled that the relevant 

geographic market was worldwide 

supply of para-aramid fiber to 

commercial purchasers in the United 

States. Kolon also pled that: the U.S. paraaramid 

market is distinct from other 

markets; prices are high while supply is 

low; some foreign manufacturers do not 

sell their para-aramid fibers to U.S. 

consumers; high technical and legal 

barriers to the U.S. paraaramid market 

exist; and DuPont dominates the market 

through the use of essentially exclusive 

multi-year contracts. 

The District Court nevertheless 

concluded that “the market must be 

expanded to include the areas where the 

sellers operate,” apparently without 

regard to whether U.S. consumers of 

para-aramid fibers can practicably turn 

to supplies in those places. 

Here, Kolon pled a relevant geographic 

market—the United States. Further, Kolon 

pled plausible reasons for limiting the 

geographic market to the United States. 

Kolon therefore cleared the hurdle of 

pleading a plausible relevant geographic 

market. Whether Kolon’s proffered 

relevant geographic market definition 

will hold up upon a fact—intensive 

inquiry remains to be seen. But 

dismissing Kolon’s Counter-claim on its 

face was error. 

The District Court also concluded that 

Kolon failed to adequately plead 

anticompetitive conduct. Kolon contends 

that this determination rested on 

information inappropriately considered 

on a motion to dismiss and on inferences 

in DuPont’s, instead of Kolon’s, favour. 

We agree. 

However, the District Court erred in 

accepting statements beyond the 

Counter-claim and making inferences on 

that basis in favor of DuPont. And 

because the record indicates that the 

parties had not yet had the opportunity 

to conduct reasonable discovery, 

converting the motion to dismiss to one 

for summary judgment, where such 

statements, if appropriately presented, 

could be considered, would have been 

error. 

In sum, the District Court erred both in 

holding that Tampa Electric required the 

Netherlands and Korea to be included in 

Kolon’s relevant geographic market 

definition and in considering facts 

beyond the pleadings and construing 

them against Kolon to dismiss Kolon’s 

Counter-claim. Because Kolon plausibly 

pled monopolisation and attempted 

monopolization in violation of Section 2 

of the Sherman Act, we reverse. 


175

C-12 


176 


2011] 

News & Events D-31 

Section D 

News & Events* 

Australia 

Coles discounting of house 

brand milk is not predatory 

pricing 

T 

he 

Australian Competition and 

Consumer Commission (ACCC) has 

reached the finding that there is no 

evidence of Coles acting in breach of the 

Competition and Consumer Act, 2010 

(CCA). The major impact of the reduction 

in milk prices was since January which 

reduced the profit margins of the 

supermarkets’ on house brand milk. 

The ACCC to assess whether Coles is or 

has been in breach of the two predatory 

pricing provisions of the CCA conducted 

industry wide enquiries with dairy 

market participants including industry 

associations, milk processors, 

supermarkets and independent retailers. 

This exercise revealed that Coles’ 

purpose in reducing the price of its house 

brand milk was to increase its market 

share by taking sales from its 

supermarket competitors including 

Woolworths. As to the relationship 

between dairy farmers and milk 

processors, it is the case that some 

processors pay some farmers a lower 

farm gate price for milk sold as 

supermarket house brand milk. However 

on the evidence it was gathered that over 

the last 6 months most milk processors 

have paid the same farm gate price to 

dairy farmers irrespective of whether it 

is intended to be sold as branded or 

house brand milk and hence no evidence 

was found against Coles. 1 

ACCC not to oppose proposed 

merger of Teys bros and 

Cargill beef Australia 

T 

he 

ACCC has not opposed the 

proposed merger of the meat 

processing operations of Teys Bros. 

(Holdings) Pty. Ltd. and Cargill Beef 

Australia. Cargill supplies to both the 

* Compiled and edited by G.R. Bhatia, Partner and Head, Competition Law Practice Group, 

Kanika Chaudhary and Nidhi Singh, Associates, Luthra & Luthra Law Offices, New Delhi 

© Copyright reserved 

1 http://www.accc.gov.au/content/index.phtml/itemId/998776/fromItemId/2332 


177

D-32 Competition Law Reports 

[Vol. 2 

domestic and export beef markets, with 

the abattoirs in Tamworth and Wagga 

and the feedlot at Stockinbingal whereas 

Teys operates four beef abattoirs at 

Biloela, Beenleigh and Rockhampton in 

Queensland and Naracoorte in South 

Australia. Teys also operates a feedlot 

near Condamine in southern 

Queensland. 

In reaching its view on the proposed 

merger, the ACCC conducted extensive 

consultation of interested parties 

including cattle producers, feedlot 

operators, saleyard operators and agents, 

industry associations, abattoir operators, 

supermarkets and other suppliers and 

buyers of meat products. In considering 

whether the merger would enable the 

merged firm to depress fat cattle prices 

in the locations where both Teys and 

Cargill currently compete, the ACCC was 

satisfied post its consultation and from 

its inquiries that several existing 

competitors in these locations would be 

capable of responding by attracting 

business and winning market share 

away from the merged entity. 2 

Canada 

Competition bureau seeks to 

block joint venture between 

Air Canada and United 

Continental 

T 

he 

Commissioner of Competition filed 

an application with the 

Competition Tribunal for prohibiting the 

proposed joint venture between Air 

Canada and United Continental 

Holdings Inc. The proposed joint venture 

would allow Air Canada and United 

Continental to operate and set prices as 

one airline which would allow 

consumers already facing high prices 

with lesser choices on high demand air 

passenger routes. The proposed joint 

venture is in effect a merger between Air 

Canada and United Continental on all 

of their Canadian and US operations. It 

would allow the parties to jointly set 

prices, capacity and schedules. If 

allowed to proceed, it will result in: 

• a monopoly on ten transborder 

routes; 

• substantially reduced competition 

on an additional nine transborder 

routes; and 

• significantly higher prices. 3 

Therefore, the Competition Bureau is of 

the view that if allowed, such a merger 

would adversely impact the market. 

Bell Canada to pay a penalty 

of $10 million for misleading 

advertisement 

B 

ell 

Canada agreed to stop making 

misleading representations about 

the prices offered for its services. Under 

the terms of a consent agreement filed 

with the Competition Tribunal, Bell is 

also required to pay an administrative 

monetary penalty of $10 million, the 

maximum amount allowed under the 

Competition Act. Bell has charged higher 

prices than advertised for many of its 

services, including home phone, Internet, 

satellite TV and wireless. The advertised 

prices were not in fact available, as 

additional mandatory fees, such as those 

related to Touch Tone, modem rental and 

digital television services, were hidden 

from consumers in fine-print disclaimers. 

Under the terms of a consent agreement 

filed with the Tribunal, Bell has agreed 

to: 

2 http://www.accc.gov.au/content/index.phtml/itemId/995810/fromItemId/2332 

3 http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03386.html 

178 


2011] 


• modify all of its non-compliant 

advertisements within 60 days; 

and; 

• pay an administrative monetary 

penalty of $10 million. 4 

Les Entreprises Promécanic 

Ltée pleaded guilty and fined 

$425,000 for bid-rigging 

L 

es 

Entreprises Promécanic Ltée has 

pleaded guilty to three charges of 

bid-rigging and has also been fined 

$425,000 for its role in an agreement to 

rig bids for private sector ventilation 

contracts for residential high rise 

buildings in the Montreal area. 

Promécanic pleaded guilty in the Quebec 

Superior Court to three criminal charges 

of rigging bids on three calls for tenders 

issued by general contractors in 2004 and 

2005 to install ventilation systems. 

Promécanic admitted that it had secretly 

participated in the coordination of its 

bids with competitors to pre-determine 

the winners of the contracts. The illegal 

agreements also included compensation 

between the participants to ensure that 

the contract was awarded to the 

designated company. 5 

European Union 

Polish telecoms operator fined 

more than €124 million for 

abuse of dominance 

T 

he 

European Union (EU) fined the 

Polish telecoms operator 

Telekomunikacja Polska S.A. (TP) for 

abusing its dominant position in the 

Polish telecommunications market. In 

Poland, Internet operators who want to 

provide retail broadband Internet access 

to end-users will usually use TP’s access 

network, since building an alternative 

access network is not economically 

viable. Thus, the operators require certain 

wholesale broadband access products, 

which are provided exclusively by TP. 

The EU found that TP had obstructed the 

entry of new operators into Polish 

broadband markets by, inter alia, 

proposing unreasonable conditions, 

delaying negotiations, unjustifiably 

rejecting orders and refusing to provide 

accurate information to the potential 

operators. This impeded competition and 

amounted to an abuse of dominance by 

TP. The EU ordered TP to cease and desist 

its anti-competitive conduct, and 

imposed a fine of •124 million on TP. 6 

EU General court annuls fines 

imposed on Mitsubishi and 

Toshiba for gas insulated 

switchgear market 

T 

he 

EC imposed fines amounting to 

more than •750 million on 

European and Japanese companies, 

including Mitsubishi and Toshiba, for 

their participation in a cartel for gas 

insulated switchgear (an important 

component in electric substations). The 

EC found that the companies had entered 

into an unwritten understanding to 

develop a quota system and 

geographically divide markets. The 

General Court has upheld the finding 

that there was a cartel, but found that the 

EC had contravened the principle of 

equal treatment by using different 



6 http://www.lexology.com/library/detail.aspx?g=fc4cf720-a593-4df9-9dbd- 

0b268bcebd44 


179


[Vol. 2 

reference years for the turnovers of the 

European companies and Toshiba/ 

Mitsubishi. As such, it annulled the fines 

for Toshiba and Mitsubishi. The General 

Court also reduced the fine imposed on 

Fuji Group from •2.4 to •2.2 million, to 

take into account the fact that they had 

cooperated in the investigations. 7 

South Africa 

Government departments 

appeal against the 

Competition Tribunal’s 

Decision to permit Wal-Mart 

T 

he 

Competition Tribunal approved 

Wal-Mart’s purchase of Massmart 

on the condition that no jobs are cut for 

two years, both companies ensure that 

existing labour agreements are honored 

for three years after the takeover, and that 

$14.6 million is invested in a fund to 

assist in developing local suppliers. 

According to the departments of 

Economic Development, Trade & 

Industry and Forestry & Fisheries the 

failure by the merger parties did not 

provide certain information and 

documents for discovery which 

prevented the government from 

investigating. Consequently, the lack of 

information in turn affected the ability of 

the Competition Tribunal to properly 

appreciate the potential damage of the 

merger and the crafting of appropriate 

conditions to address such damage. 8 

USA 

Denso bids for leniency over 

cartel violation in USA 

Automotive parts maker Denso Corp. 

has voluntarily reported its 

involvement in price-fixing to the US 

antitrust agency for seeking remission 

of a potentially huge fine. The first 

company to come forward before an 

investigation opens is fully exempted. 

Denso informed the Fair Trade 

Commission (FTC) about a cartel formed 

by auto parts makers and prompted 

other firms to follow suit, leading to FTC 

conducting searches of seven Japanese 

companies. Under the revised 

antimonopoly law, which took effect in 

2006, the FTC can exempt from or 

reduces fines for up to five companies 

for self-reporting an antitrust violation. 9 

FTC approves EA proposal to 

buy PopCap 

Videogame maker Electronic Arts (EA) 

has won U.S. antitrust approval to 

buy PopCap Games. The deal was 

estimated at up to $1.3 billion, to better 

compete with Zynga Inc, which is headed 

for an initial public offering. PopCap has 

such popular video games as “Bejeweled” 

and “Plants vs. Zombies.” EA is investing 

more in online content as customers buy 

fewer games on discs to play on consoles. 

Videogame companies now offer users 

7 http://europa.eu/rapid/pressReleasesAction.do?reference=CJE/11/70&format= 

HTML&aged=0&language=EN&guiLanguage=en 

8 http://www.golegal.co.za/content/government-departments-appeal-againstcompetition-tribunal%E2%80%99s-antitrust-commission-decision 

9 http://search.japantimes.co.jp/cgi-bin/nb20110722a2.html 

180 


2011] 


options to play free or low-priced games 

on mobile devices, PCs and Facebook. 10 

Stanley gets us antitrust ok to 

buy Niscayah 

S 

tanley 

Black & Decker Inc. (Stanley) 

have got the nod of the antitrust 

regulator on the proposed acquisition of 

Sweden’s Niscayah Group AB. Stanley 

has bought the company for or 

18 Swedish Krona ($2.73) per share and 

.05 Swedish Krona (1 cent) per warrant. 

The offer represents a 15 per cent 

premium to Niscayah’s closing stock price 

the day before the offer was announced. 

Niscayah’s board has recommended that 

shareholders and warrant holders accept 

Stanley’s offer. Niscayah shareholders 

representing about 19.5 percent of the 

shares have committed to do so, subject to 

certain conditions. Niscayah’s 2011 

revenue is estimated at $1 billion, and 

Stanley has said the company could 

complement its own security product 

offerings. Niscayah’s business is in 

Europe and the Nordic region, as well as 

the United States. 11 

ASIA 

Singapore 

Alliance agreement notified to 

the Competition Commission of 

Singapore 

Singapore Airlines Limited (SIA) and 

Virgin Australia Airlines Pty. Ltd. 

(Virgin Australia) had applied to the 

Competition Commission of Singapore 

(CCS) for a decision to clear their 

Proposed Alliance (Alliance). Under the 

Alliance, SIA and Virgin Australia will 

code share international and domestic 

flights, also provide frequent-flyer 

programs, lounge benefits to each other’s 

customers, conduct joint sales, marketing 

and distribution and co-ordinate flight 

schedules between Singapore and 

Australia. SIA and Virgin Australia have 

stated that the Alliance does not breach 

the Competition Act as it will increase 

competition for air passenger services 

from Singapore and various Australian, 

Pacific and trans-Tasman destinations. 

The proposed alliance is intended to be 

implemented in 2011, and its purpose is 

to ensure mutual benefit to the parties 

involved, as well as to benefit 

passengers. It should be noted that an 

application for this Proposed Alliance 

Agreement has also been filed in 

Australia and is awaiting decision from 

both regulators. 12 

T 

he 

Japan 

Cease & Desist Order to 

DeNA 

Japan Fair Trade Commission 

(JFTC) has just issued a cease and 

desist order to Japanese mobile gaming 

giant DeNA after an investigation. The 

alleged offense is that DeNA pressurized 

social game developers to only release 

games on its platform exclusively. The 

order states that the company violated 

article 19 of the Anti-monopoly Act which 

simply dictates that ‘no entrepreneur 

10 http://www.reuters.com/article/2011/07/28/us-popcapgames-electronicarts-antitrustidUSTRE76R4PY20110728?feedType=RSS&feedName=internetNews 

11 http://www.msnbc.msn.com/id/43796965/ns/world_news-europe/t/stanley-gets-usantitrust-ok-buy-niscayah/ 

12 http://app.ccs.gov.sg/Spore_airline_ltd_virgin_airline.aspx 


181


[Vol. 2 

shall employ unfair trade practices.’ It 

goes on to dictate that DeNA shall stop 

such actions, and never force social game 

developers not to provide the games 

through other mobile SNS, by 

disconnecting the website links of the 

games the developers provide through 

Mobage-Town if the developers have 

provided the games through other mobile 

SNS. DeNA’s official response to the 

C&D is interesting, saying that the 

allegation pertains to “a transaction with 

a certain social game application 

provider,” language which sounds like 

an isolated (alleged) incident. 13 

T 

he 

JFTC raids 7 auto parts 

makers over alleged pricefixing 

cartel 

JFTC raided seven Japanese auto 

parts makers on Wednesday, 

including Denso Corp. and Mitsubishi 

Electric Corp., over their alleged 

involvement in a price-fixing cartel. The 

JFTC suspects that the parts 

manufacturers had meetings from 2002 

or earlier to set parts prices and decided 

which companies would win contracts 

before bidding for orders from 

automakers. Other companies 

investigated by the commission are 

Hitachi Automotive Systems Ltd., 

Calsonic Kansei Corp., Mitsuba Corp., 

T.RAD Co. and Denso subsidiary Asmo 

Co. The parts makers allegedly formed a 

cartel to fix prices of windshield wipers, 

radiators, engine starters and alternators 

supplied to automakers. JFTC had raided 

the offices of Denso and Mitsubishi 

Electric. Over price-fixing cartel practices 

for auto parts, the Japanese watchdog 

and U.S. law enforcement authorities 

launched investigations in their 

respective countries in February last year, 

and three Japan-affiliated companies, 

including a U.S. subsidiary of Denso, 

were targeted by the Federal Bureau of 

Investigation. 14 India 

T 

op 

CCI Probes Carmakers on 

parts, servicing 

carmakers Fiat, Honda and 

Volkswagen are under investigation 

by the CCI for restricting the supply of 

spare parts and technical know-how for 

servicing cars in the open market. The 

DG is directed to carry out investigation 

in the said matter and the 

aforementioned companies have received 

notices in this regard. The said probe is 

the result of a consumer complaint on 

car companies and dealerships 

controlling the spare parts and servicing 

business through their dealerships. The 

information is filed in relation to car 

brands which have a limited distribution 

network and customers face 

inconvenience if their city does not have 

a workshop or dealership outlet. As a 

result, the consumer is held hostage to 

the OEM dealerships and by controlling 

the supply of spares and technical 

knowhow, car companies and their 

dealers also control the price of spares 

and services. 15 

13 http://www.penn-olson.com/2011/06/10/japan-dena-anti-competitive/ 

14 http://mdn.mainichi.jp/mdnnews/business/archive/news/2011/07/20/20110720p2g 

00m0bu057000c.html 

15 http://articles.timesofindia.indiatimes.com/2011-05-25/india-business/ 

29581486_1_spare-parts-cci-servicing 

182 


2011] 

T 

he 

Apple India charged of 

anti-competitive practices 

CCI has started inquiring into 

allegation of abuse of dominant 

position by Apple India. In the information 

filed before the CCI, Apple has been 

accused of oppressing user choice, by 

offering iPhone 4 with only two service 

providers, namely Aircel and Airtel. The 

information also alleges that a user can 

only download the Apple software from 

the iStore (Apple Store) and application 

of other developers are not recognized by 

Apple products. Furthermore, the fact that 

smartphones from Apple can be serviced 

only in Apple centers enhances Apples’ 

dominant position and leads to increased 

cost to the consumer. 16 

Regulatory reforms bill aims to 

settle SECTORAL clashes 

with the CCI 

T 

he 

Delhi High Court, through an 

interim order, has prevented the CCI 

from investigating alleged anti-competitive 

practices of the state-owned oil marketing 

companies in the supply of aviation fuel. 

The state-owned oil marketing companies 

had argued that the case falls under the 

ambit of the Petroleum and Natural Gas 

Regulatory Board, the sectoral regulator 

and not the CCI. The Planning 

Commission, keeping in mind such 

developments, including previous clashes 

between SEBI and RBI with the CCI, has 

decided to introduce a Regulatory Reform 

Bill with the aim of evolving a uniform 

approach to the regulatory architecture 

across all sectors of the economy. The bill 

further proposes to establish a uniform 


process for the selection of chairman and 

members of the regulatory agency; their 

tenure; age limit; etc. Under the current 

scenario, each ministry has evolved its 

own approach to designing and manning 

the regulator, making it inconsistent with 

sound management science. 

CCI grants interim relief to 

Santuka Agencies 

In a drug cartel case, CCI has granted 

an interim relief to a drug stockist of 

Orissa, Santuka Agencies till 

30 th June, 2011. Santuka Agencies which 

stocks drugs manufactured by USV group 

in Orissa, petitioned the CCI for interim 

relief after the manufacturer issued a 

termination notice to it. Santuka Agencies 

has alleged that the action by USV group 

followed a dispute with All India 

Organisation of Chemists and Druggists 

(AIOCD) over elections of Cuttack District 

Chemist & Druggist Association. AIOCD 

had allegedly pressurized the USV group 

to terminate its supply contract as 

otherwise it would use its influence to 

prevent sale of the company’s drug in 

other states, the petition said. 

Meanwhile, CCI has ordered an inquiry 

into the allegations of using market 

dominant position by AIOCD to 

influence the supply of drugs from drug 

manufacturers. It has directed the director 

general to investigate the matter and 

submit its report in 45 days. USV is a 

leading healthcare company, which has 

a joint venture with a subsidiary of 

Revlon. Some of its product include 

Active Pharmaceutical Ingredients 

(APIs), Peptides, Biosimilars, Injectables 

and Ophthalmics and Solid Orals. 17 183 

16 http://www.phonesarchive.com/news/apple-is-facing-charges-for-anticompetitivepractices-in-india.html 

17 http://m.mydigitalfc.com/news/cci-grants-interim-relief-drug-stockiest-orissa-santukaagencies-692 



[Vol. 2 

Competition Panel studying 

whether cartelisation led to rise 

in food prices 

I 

n 

the backdrop of rising prices of food 

articles, CCI has initiated a thorough 

“market study” into the agriculture 

sector to determine whether possible 

cartelisation has been the cause for it or 

not. Though the CCI is not conducting a 

probe into the matter yet, it could order 

an investigation under the Competition 

Act if the study throws up some 

indicative patterns in the food chain 

especially procurement. Apart from this, 

the CCI has also started similar studies 

into the steel and paper sectors as well. 

These initiatives have been taken by the 

CCI in exercise of its suo moto powers. In 

the recent past the CCI has also ordered 

probes into sectors such as civil aviation 

(for air fares), cement, sugar and tyre. 18 

Competition Commission of 

India (CCI) finds M/s BigFlix 

Pvt. Ltd., Mumbai not 

contravening Section 3 or 

Section 4 of the Competition 

Act, 2002 

As per the Information filed before the 

CCI, M/s BigFlix Pvt. Ltd. allegedly 

enjoys a dominant position in the relevant 

market of DVD rentals and has a 

tremendous market share being a part of 

Reliance Big Entertainment. The CCI 

observed that looking at the market 

structure, it could not be said that M/s 

BigFlix was enjoying a position of 

dominance in terms of Explanation (a) to 

Section 4 of the Competition Act, as there 

were other players also like Seventymm, 

Clikflix, Catchflix, CineSprite etc. which 

were having considerable presence in the 

relevant market. It was observed that there 

was no issue in this case which raised a 

competition concern. The CCI was of the 

view that the allegations made did not 

violate either Section 3 or Section 4 of the 

Competition Act and the information filed 

by the informants did not provide a basis 

for forming a prima facie opinion for 

referring the matter to the DG for further 

investigation. 19 

Lafarge, Holcim say Indian 

units involved in antitrust probe 

L 

afarge 

SA (LG) and Holcim Ltd., the 

world’s largest cement makers, have 

reported that their Indian subsidiaries have 

been accused by local competition 

regulators (CCI) of breaking India’s 

antitrust rules. Lafarge is amongst several 

cement manufacturers in India accused of 

violations under the Competition Act 

dating from 2005. Lafarge and Holcim are 

also facing probe from the European 

regulator into possible price fixing and 

import limits. Lafarge last year lost a 

challenge at the EU’s highest court, against 

a 249.6 million-euro ($357 million) antitrust 

fine in 2002 for its role in a cement cartel. 20 

18 http://www.financialexpress.com/news/competition-panel-studying-whethercartelisation-led-to-rise-in-food-prices/798656 

19 http://www.cci.gov.in/May2011/OrderOfCommission/SanjayOrder260711.pdf 

20 http://www.bloomberg.com/news/2011-07-28/lafarge-holcim-say-indian-unitsinvolved-in-antitrust-probe-1-.html 

184 


2011] Statutes 

E-43 

Section E 

Statutes 

DRAFT ON NATIONAL COMPETITION POLICY FOR INDIA 

(Ministry of Corporate Affairs) 

Dated: 28 th July, 2011 

Ministry of Corporate Affairs had constituted a Committee under the 

Chairmanship of Shri Dhanendra Kumar, Former Chairperson of Competition 

Commission of India, for framing of National Competition Policy and related 

matters. The Committee had submitted a draft National Competition Policy to 

the Ministry on which the comments from chambers of the industries, Corporate, 

Law Firms, Members of Civil Society or other Stakeholders were invited. The draft 

policy is reproduced herein below: 

1. Introduction 

1.1 India, embarked on a new trajectory of economic liberalisation in 1991, when a 

host of controls on trade and industry were removed. The various reforms initiated 

recognised the need for removing various fetters on trade and industry with a view 

to unleashing the energy and dynamism of competition in the market. In his Budget 

Speech, Dr. Manmohan Singh, the then Finance Minister underlined, “no power on 

Earth can stop an idea whose time has come” and that “It is essential to increase the 

degree of competition between firms in the domestic market so that there are adequate 

incentives for raising productivity, improving efficiency and reducing costs” Since 

then, a host of new policy and regulatory reforms across various sectors have been 

introduced by the Government. 

1.2 After Independence, India pursued a strategy of planned economic development, 

with the objective of developing a broad industrial base to achieve speedy economic 

self-reliance and promoting social justice. The industrial policy assigned 

commanding heights of the economy to the public sector. The State exercised control 

over the direction, pattern and quantum of investments through the Industries 

(Development & Regulation) Act, 1951 and the Monopolies and Restrictive Trade 


E-44 Competition Law Reports 

[Vol. 2 

Practices Act, 1969 (MRTP Act). A major part of the financial sector was also kept 

under Government control while a number of products were also subjected to price 

and distribution controls coupled with extensive reservations and concessions in 

favour of small-scale industry. The trade policy too affected competition by providing 

a high level of protection to domestic industry. These restrictions, which were in 

consonance with the National Strategic Policies at that time and relevant in the 

context of limited resources and need of checking monopolies and concentration of 

economic power, did nevertheless, impacted competition. However, gradually, and 

from 1980 onwards, incremental changes were brought in to usher in greater 

competition. The Industrial Policy Statement of 1980 introduced greater competition 

in the domestic market, technological up-gradation and modernisation. The major 

reforms initiated from 1991 onwards were, however, on a much broader scale, sweep 

and scope, and provided a new paradigm shift to economic growth in India, releasing 

new entrepreneurial energy and dynamism in the Indian industry, diversification 

of domestic production and stimulating exports, adding to the GDP growth. 

1.3 The last two decades since 1991 have witnessed significant changes in terms of 

opening of markets, factor mobility and regulatory environment. The benefits have 

been substantial and manifested in various segments of economy, e.g. telecom, civil 

aviation, transport, manufacturing, etc. However, the progress has been somewhat 

uneven, and so also the trickle-down effects on the common man. Underlying this 

success is a structural shift in India’s growth trajectory. Further, like many other 

similar economies under transition, there have been residual restraints and anticompetitive 

traits in several areas of economy. While the process of reforms is a 

continuing one, the pace and direction necessitates the introduction of an overarching 

National Competition Policy to realise the fuller growth potential of the economy. 

2. Competition, Competition Law, and Competition Policy 

What is competition? 

2.1 Competition refers to a situation in a market place in which firms/ entities or 

sellers independently strive for the patronage of buyers in order to achieve a 

particular business objective, such as profits, sales, market share etc. By responding 

to demand for goods and services with lower prices and higher quality, competing 

businesses are pressured to reduce costs, innovate in processes and products, invest 

in technology and better managerial practices and increase productivity. This process 

leads to achievement of static, dynamic as also resource/allocative efficiencies, 

sustainable economic growth, development and poverty alleviation. 

2.2 Competition is not an end unto itself, rather a means to achieve economic 

efficiency and welfare objectives. Importantly, competition is not automatic, and 

requires to be promoted, protected and nurtured through appropriate regulatory 

frameworks, by minimising market restrictions and distortions, and provision of 

related productive inputs such as infrastructure services, finance, human capital 

etc. However, a Competition Policy has to be evolved to imbibe the principles of 

competition in various endeavours of the Government, of course in alignment with 

the national strategic objectives, alongwith social, environmental, public safety, 

and other considerations. 

What are competition law and competition policy? 

2.3 Competition Policy means government measures, policies, statutes, and 

regulations including a competition law, aimed at promoting competitive market 

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structure and behavior of entitites in an economy. 1 Competition Law is but a sub-set 

of the Competition Policy. The Raghavan Committee had observed that 

“Competition law must emerge out of a national competition policy, which must 

be evolved to serve the basic goals of economic reforms by building a competitive 

market economy.” 

2.4 The World Trade Organisation (WTO) defines competition policy as: 

the full range of measures that may be used to promote competitive market 

structures and behaviour, including but not limited to a comprehensive 

competition law dealing with anti-competitive practices of enterprises. World 

Bank also provides a definition of competition policy as: 

government measures that directly affect the behaviour of enterprises and the 

structure of industry. An appropriate competition policy includes both - (a) 

policies that enhance competition in local and national markets and (b) 

competition law, also referred to as antitrust or antimonopoly law. 

2.5 Competition Policy is a broader term which includes all government policies 

and laws whereas competition law is specific statute with a pre-defined mandate to 

adjudicate on violation(s) of the law. In the case of India, the Competition Act, 2002 

deals with anti-competitive agreements such as price fixing, bid rigging, joint 

boycotts, etc. abusive practices undertaken by dominant entities such as predatory 

pricing, abusive conditions of supply, etc, and regulation of combinations. It would 

be seen that a competition law is a regulatory instrument to check the prevalence of 

anti-competitive practices whereas a competition policy is a proactive and positive 

effort to build a competition culture in an economy. 

The Difference between Competition Policy, Competition Law & 

Competitiveness 

Competition policy, competition law and competitiveness are three distinct 

concepts. Unfortunately, most of the policy community considers these 

terms synonymous and interchangeable, which is not the case. Competition 

Law is but a subset of Competition Policy. Besides encompassing the law, 

Competition Policy tries to bring harmony in all government policies that 

affect competition and consumers welfare, such as trade policy, industrial 

policy etc. There are many policies of the government which create anticompetitive 

outcomes. 

Further, many do not understand the distinction between competition 

and competitiveness, thus skewing the debate. Competition does lead to 

better competitiveness but it is not necessarily the other way. As per 

Michael Porter, competitiveness means ability of a firm or a nation to 

compete which is based on the country needs and effective competition 

policy and law to ensure that the market functions, and both consumers 

and the economy gains. 

1 Several agencies such as the World Trade Organisation (WTO), the World Bank, UNCTAD, 

etc. have attempted to define the terms competition policy. WTO (1999), “The Fundamental 

Principles of Competition Policy: Background Note by the Secretariat” Working Group on 

the Interaction between Trade and Competition Policy WT/WGTCP/W/127 


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3. Need for Competition Policy 

3.1 The 2001-Nobel Prize winner Joseph Stiglitz has rightly said: 

Strong competition policy is not just a luxury to be enjoyed by rich countries, 

but a real necessity for those striving to create democratic market economies. 

3.2 National Competition Policy is necessitated, as an overarching Policy framework, 

in continuation of the 1991-reforms, to infuse greater competition across sectors, 

and unleash fuller growth potential of the Indian economy. Faced with dynamic 

market realities, there is a need for promoting economic democracy, the forces of 

competition and transparency in markets in keeping with the rapidly changing 

market conditions to ensure the protection of consumer interests, while at the same 

time protecting the rights of market players to free and fair competition. 

3.3 The need for Competition Policy was also articulated by the Finance Minister in 

2009 2 when he underscored that: 

“Competition law alone is not sufficient for realising the gains from greater 

competition”. He further added that - “There is need to engage in advocacy 

with stakeholders, including public institutions, in order to build a culture of 

competition that is receptive to and supportive of the new competition regime.” 

3.4 Competition has a two-way linkage with various policies of the Government 

such as: fiscal policy, trade policy, investment policy, labour policy, consumer policy, 

environment policy, policy on intellectual property rights, sectoral regulatory 

policies etc. 

FDI Policy 

Competition Policy 

Trade Policy 

Industrial Policy 

Disinvestment Policy 

Fiscal Policy 

IPR Policy 

Labour Policy 

Procurement Policy 

... others ... 

All Government 

Policies that affect the 

functioning of markets 

Competition 

Law 

Competition Policy – a broad 

concept that seeks to harmonise 

all government policies 

3.5 While a series of reforms in various sectors have been introduced from time to 

time and on incremental basis since 1991, the progress across sectors has been 

relatively uneven. Notably, some sectors have successfully imbibed a competition 

culture, several other sectors still witness weak competition. An overarching policy 

2 Speech of Shri Pranab Mukherjee, Minister of Finance at the National Conference on 

Competition, Public Policy and Common Man; 16 th November, 2009, New Delhi 

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framework seeks to harmonise these efforts, which would help policy reviews by 

the concerned authorities in relevant sectors, including at Central, State and 

Sub-state level. 

3.6 There may exist barriers, both fiscal and others, at the state level, which may 

hinder inter-state trade. These restrictions may tend to fragment the national market, 

and impact freedom of trade. A sub-State authority is an extended arm of the 

Government, and includes municipalities, panchayats, housing boards, universities, 

professional institutes, roadways, corporations which may be created by statutes or 

other mechanisms but engaged in production, supply, distribution of goods or 

provision of services. Policies and practices of these state and sub-state authorities 

may influence competition in the relevant market significantly, and in fact may have 

greater and day-to-day impact on the common man and it may be desirable to 

introduce competition principles there too. 

3.7 National Competition Policy has been taken up for consideration in different 

fora within the Government at different points in time during the last two decades. 

The Government of India has expressed its intent and views on the need and form of 

the National Competition Policy on various occasions. An account of various 

developments so far has been presented in the Annexure–I to this document. 

4. Premise of Competition Policy 

4.1 The Constitution of India seeks to ensure for its citizens—social, economic and 

political justice. Article 19(1)(g) of the Indian Constitution provides “freedom to 

practice any profession, or to carry on any occupation, trade or business”. 

Articles 301-304 further elucidate the issues. In a judgment 3 the Supreme Court held 

that Article 301 provides freedom not from all laws but freedom from such laws 

which restrict or affect activities of trade and commerce among and within the 

States; and that Article 301 refers to freedom from laws which go beyond regulations 

which burdens, restricts or prevents the trade movements between states and 

within states. 

4.2 Competition Policy is widely recognised as a powerful tool to promote freedom 

of trade, efficient use of scarce resources, enhance productive efficiency, add to the 

static and dynamic efficiency of the economy, maximise economic growth and 

contribute to the welfare of the common man. 

4.3 The basic premise of the National Competition Policy (NCP) is to unlock fuller 

growth potential of Indian economy, which among other things could also help in 

tapping the opportunities arising from the demographic dividend in our country. 

It would seek to inculcate a competition culture across various sectors to induct 

greater efficiency and dynamism, bringing in innovation and technology, delivering 

goods and services which are competitive, thus contributing to accessibility for 

consumers and consumption and thereby accelerating economic development, global 

competitiveness, unleashing entrepreneurial energy, creating more jobs and 

opportunities to raise the living standards of people, thus ensuring inclusive growth. 

4.4 National Competition Policy may also help to promote good governance by 

transparency, accountability through competing responses and avoidance of rent 

seeking. It would also have a positive co-relation with other strategic national 

3 Jindal Stainless Steel Ltd. v. State of Haryana AIR 2006 2550 


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objectives like employment, R&D efforts and environmental objectives. It also respects 

the sovereign functions of the State like defence and security etc, and would seek to 

encourage competition related measures only in matters having economic impact 

on the market. 

4.5 The National Competition Policy is not dogmatic and is mindful of appropriate 

balance in matters having bearing on social, environmental, security and other 

strategic issues of national importance; the only thing is that a conscious view may 

have to be taken but the concerned authorities in balancing the competing 

considerations. It does not seek disinvestment, blanket deregulation, laissez faire 

markets, welfare cutbacks, and reduced social services. It does not seek to prevent 

government from increasing expenditure on welfare or levels of government-funded 

or subsidised social services, or maintaining government ownership of businesses. 

It explicitly recognises the need of government intervention in markets through 

optimal regulation, where it is justified. It seeks to strike a balance, of course with 

reasons, between competition policy objectives on the one hand, and other policy 

considerations such as prudential supervision, service quality, social service 

commitments, safety etc on the other. 

5. Benefits of Competition Policy 

5.1 The National Competition Policy seeks to address policies, practices and market 

structures that significantly lessen or harm competition. The objective of such a policy 

is to nurture and nourish competition and create a competition culture in order to 

foster greater efficiency in resource allocation and maximise total welfare. With the 

encouragement of competition and the maintenance of the competitive process, 

associated objectives of freedom of choice and access to markets are also achieved. 

5.2 A review of cross-country literature suggests a positive association between 

GDP growth and degree of competition. Many empirical studies of select industries 

in OECD countries suggest that competition enhances productivity at industry level 

and lowers consumer prices. 4 Enhancement of productivity is caused by the pressure 

generated by competition on firms to innovate or enhance efficiency of operations 

both of which are associated with lower costs. Higher productivity is also associated 

with enhanced output and therefore increased employment. 

5.3 Public procurement of goods or services is a key economic activity of governments 

accounting for 20-30 per cent of GDP in India as per estimates available. As per the 

findings of an OECD survey, savings to public treasuries between 17 per cent and 43 

per cent have been achieved in some developing countries through implementation 

of competitive procurement processes. In view of the huge public expenditure on 

procurement including in infrastructural sector, substantial savings can be achieved 

in India by infusing greater competition, which in turn could release resources for 

the much needed investment in social sector development in the country. 

5.4 Studies have outlined positive linkages between good governance and 

competition. It has been found that by lowering barriers to the entry of new firms, 

competition policy helps to create an enabling environment for entrepreneurial 

4 Eleventh Five Year Plan Report on Inclusive Growth, http://planningcommission.nic.in/ 

plans/planrel/fiveyr/11th/11_v1/11th_vol1.pdf 

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development, an essential pre-requisite for a vibrant economy (OECD and Khemani 

1998). 5 Michael Porter in his book “Competitive Advantage of Nations” has outlined 

the role of government as a catalyst which should encourage companies to move to 

higher levels of competitive performance. 

5.5 To illustrate the growth benefits of competition, Bayoumi et al. (2004) 6 have 

estimated that differences in levels of competition account for more than 50 per cent 

of the current gap in GDP per capita between the Euro area and the United States. 

They conclude that more intense product market competition enhances growth and 

employment. Aghion et al. (2001) 7 and Dutz and Hayri (1999) 8 echo these views 

through their empirical work. 

5.6 There is extensive economic literature wherein the effects of competition 

distortions have been brought out. For example, in his book, the Power of Productivity, 

William Lewis says that one of the main obstacles to economic growth and poverty 

reduction in many countries is the many policies that distort competition. Similarly 

in the theory of political economy developed by Anne Krueger 9 and Gordon Tullock, 10 

the authors argue that in many market oriented economies, especially developing 

economies, like India, governmental restrictions upon economic activity are pervasive 

facts of life. These restrictions give rise to a variety of forms and people often compete 

for the rents. 

5.7 OECD 11 has observed that with the globalisation and increasing global 

integration, a large number of developing countries and transition economies are 

rapidly adopting competition legislation and are strengthening the existing 

competition policies. On future trends, OECD noted that: 

we can conclude that in the near future, competition policies will be the core 

policies in the countries that pursue constant economic development regardless 

of their current economic status. 

In view of the growing global recognition of the strong linkage between competition 

policy and the pillars of economic development, as evidenced in several countries, 

the OECD stressed: 

the building of a competition culture is the most important step to be followed 

by all countries that are committed to promote a more market based economy. 

5 Organisation for Economic Cooperation and Development and R. Shyam Khemani, 1998. A 

Framework for the Design and Implementation of Competition Law and Policy (Washington, 

World Bank). 

6 Bayoumi, T. Laxton D. and Pesenti P (2004), “Benefits and Spillovers of Greater Competition 

in Europe: A Macroeconomic Assessment”, Working papers 

7 Aghion, P., Harris, C., Howitt, P. and Vickers, J. (2001), “Competition, Imitation and 

Growth with Step by Step Innovation,” Review of Economic Studies 68 

8 Dutz, M. and Hayri A., (1999), “Does more Intense Competition lead to Higher Growth?” 

CEPR Discussion Paper, No. 2249 

9 Anne O Krueger, “The Political Economy of the Rent Seeking Society”, American Economic 

Review, Vol 64, No 3, June 1974. 

10 Gordon Tullock. “The Economics of Special Privilege and Rent Seeking”, Kluwer Academic 

Publishers, Massachussets, USA, 1989. 

11 OECD (2003), The Objectives of Competition Law and Policy and the Optimal Design of a 

Competition Agency. CCNM/GF/COMP/WD(2003)7 


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6. Objectives of National Competition Policy 

6.1 The National Competition Policy aims to promote economic democracy, 

achievement of highest sustainable levels of economic growth, entrepreneurship, 

employment, higher standards of living, and protect economic rights for just, 

equitable and sustainable economic and social development, and supports good 

governance by restricting rent seeking practices. 

6.2 In this background, the National Competition Policy will endeavour to: 

(a) preserve the competition process, to protect competition, and to encourage 

competition in the domestic market so as to optimise efficiency and maximise 

consumer welfare. This would also make domestic firms competitive globally, 

(b) promote, build and sustain a strong competition culture within the country 

through creating awareness, imparting training and consequently capacity 

building of stakeholders including public officials, business, trade associations, 

consumers associations, civil society etc., 

(c) achieve harmonisation in policies, laws and procedures of the Central 

Government, State Government and sub-State Authorities in so far as the 

competition dimensions are concerned with focus on greater reliance on wellfunctioning 

markets, 

(d) ensure competition in regulated sectors and to ensure institutional mechanism 

for synergised relationship between and among the sectoral regulators and/ 

or the CCI and prevent jurisdictional grid locks, 

(e) strive for single national market as fragmented markets are impediments to 

competition, and 

(f) ensure that consumers enjoy greater benefits in terms of wider choices and 

better quality of goods and services at competitive prices. 

7. Competition Policy Principles 

7.1 Taking into account the needs of and priorities for promoting a healthy 

competition culture the principles of the National Competition Policy are: 

(a) Fair market process - Market regulation procedures should be rule bound, 

transparent, fair and non-discriminatory. Public interest tests are to be used to 

assess the desirability and proportionality of policies and regulations, and 

these would be subject to regular independent review. 

(b) Institutional separation between policy making, operations and regulation, 

i.e. operations in and regulation of a sector should be independent of the 

government branch which deals with policy formulation in the sector and is 

accountable to the Legislature. 

(c) Competitive neutrality - Such as adoption of policies which establish a “level 

playing field” where government businesses compete with private sector and 

vice versa. 

(d) Fair pricing and inclusionary behaviour, particularly of public utilities and 

intellectual property rights holders, which could be imbued with monopolistic 

characteristics and a large part of the consumers could be excluded. 

(e) Third party access to ‘essential facilities,” i.e. requiring dominant 

infrastructure owners to grant to third parties access (e.g. electricity, 

communications, gas pipe lines, railway tracks etc) to their infrastructure on 

agreed terms and conditions and at regulated prices, aligned with competition 

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principles. Such treatment can be given to intellectual property rights as well 

if the IPR concerned possesses essential infrastructure characteristics. 

(f) Public Policies and programmes to work towards promotion of competition 

in the market place; and 

(g) National, regional and international co-operation in the field of competition 

policy enforcement and advocacy. 

8. Government Initiatives 

Central Government Initiatives 

8.1 The following initiatives are envisaged to effectively generate a culture of 

competition and to enhance competition in the domestic markets with the 

involvement of all the stakeholders: 

(i) Several existing policies, statutes and regulations of the Government restrict 

or undermine competition. A review of such policies, statutes and regulations 

from the competition perspective will be undertaken with a view to removing 

or minimising their competition restricting effect. 

(ii) Proposed policies, statutes or regulations that affect competition should be 

subject to Competition Impact Assessment, as outlined in subsequent 

paragraphs. 

(iii) Where a regulatory regime is justified, it should provide that the principles of 

competition would be taken into account in the regulation. Regulation needs 

to be diluted progressively as competition becomes effective in the regulated 

sector. 

(iv) The competition authorities need to be functionally autonomous and 

financially independent. 

(v) In order to ensure effective competition, third party access to essential facilities 

in the infrastructure sector owned by dominant enterprise on reasonable and 

fair terms should be provided. 

(vi) Incorporate competition clauses in bilateral and regional trade agreements, 

which will go a long way in preventing anti-competitive behaviour and 

potential anti-competitive cross-border conduct. 

State Government Initiatives 

8.2 The process of economic reform is incomplete unless it permeates to the level of 

State Governments. The initiatives at the State Government level would require 

undertaking pro-competition reforms keeping in mind the principles of the National 

Competition Policy. There are many economic areas of state legislations, regulations, 

policies and practices that impact or inhibit competition in the markets. The following 

are envisaged: 

(i) There may exist barriers, both fiscal and otherwise, which hinder inter-state 

trade. These restrictions tend to fragment the national market, which not only 

heightens the possibility of indulgence in trade practices adversely affecting 

competition but also hinder freedom of trade. 

(ii) The State Governments may volunteer to undertake a review of existing policies, 

laws or regulations from the competition perspective and also undertake a 

Competition Impact Assessment of proposed policy, law and regulations before 

these are finalised. 


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(iii) The State Governments may be encouraged to consult the implementation 

authority of the National Competition Policy. 

Sub-State Authority Initiatives 

8.3 A sub-State authority is an extended arm of the Government. It has wider 

connotation and may include municipalities, panchayats, housing boards, 

universities, professional institutes, roadways, corporations which are created by 

statutes but are engaged in production, supply, distribution of goods or provision of 

services. The following are envisaged: 

(i) The statutes, laws, procedures which govern the sub-State authorities may be 

reviewed so as to align them with the broad principles of the National 

Competition Policy. 

(ii) Such authorities will be encouraged to consult the implementation authority 

of the National Competition Policy on changes contemplated in the rules and 

procedures to ensure that competition is not undermined. 

9. Implementation Measures 

9.1 Institutional Arrangement to Enforce the NCP - The Government has already set 

up the Competition Commission of India and the Competition Appellate Tribunal 

to enforce competition laws. To further promote competition in the market place, the 

Government will establish and resource an agency, the National Competition Policy 

Council. 

9.2 The Government will encourage all Departments/Ministries of the Central, State, 

sub-State Governments to set up an in-house cell to undertake Competition Impact 

Assessment, as described below, of various policies, statutes, regulations/rules 

enforced by them. 

9.3 The National Competition Policy Council will inter alia: 

(a) Facilitate and provide technical assistance to the in-house cells of different 

government departments/ministries at the Central and state governments in 

undertaking competition assessment of the policies, laws, regulations and 

practices under their purview. 

(b) Promote and encourage involvement of consumer movement in implementation 

of the NCP by building their capacities and strengthening their resource base; 

(c) Encourage formulation, adoption and wide dissemination of Competition 

Policy Principles in all ministries, departments and bodies of the central 

government, state, sub-state governments, business and cooperative sectors to 

increase representation, accountability and transparency. 

(d) Undertake, or get undertaken through appropriate agencies/experts sectoral 

studies or reviews and make recommendations for fostering policies and 

practices that increase competition in the concerned sector. 

(e) Undertake measures to build capacity of government departments, ministries 

and other stakeholders. 

(f) Frame and administer an incentive scheme under which financial grants will 

be given to State Governments linked to the progress in aligning their policies 

and laws with the principles of the National Competition Policy. 

(g) Take measures to create public awareness and undertake advocacy, among 

various stakeholders, including consumer organisations. 

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9.4 Competition Impact Assessment - It has been envisaged that government 

departments and ministries will undertake Competition Impact Assessment to see if 

any anti-competitive effect is exerted by a provision in the policy/law/regulation/ 

practice, enforced by them. An illustrative list of parameters for undertaking 

Competition Impact Assessment is enclosed at Annexure–II. The National 

Competition Policy Council will facilitate development of a Manual for undertaking 

Competition Impact Assessment suited to the local context. 

10. Review of the NCP 

10.1 There will be a review of NCP every five years from the date of notification of the 

NCP. 

10.2 An annual report of the work undertaken will also be submitted by the NCPC to 

the Government and will be available in the public domain. 

10.3 The Ministries/Departments of the Central Government, and the other State/ 

Sub-State Bodies will undertake review of their laws, regulations, policies and 

practices, and submit annual reports to their appropriate Governments. 

11. Conclusion 

11.1 Indian economy after a slew of measures taken post-1991 is on a high growth 

path. In the recent years the Indian economy has been one of the strongest performers 

in the world. However, the full growth potential of the economy remains yet to be 

realised. Infusion of greater degree of competition can play a catalytic role in 

unlocking the fuller growth potential in many critical areas of the economy, which 

hitherto has been held back by restriction on competition in various forms. However, 

still much is required to be done in several endeavours of Central and State 

Government where a well-designed Competition Policy reflecting a broad consensus 

of major stakeholders, can play very useful and effective role. It would be desirable 

to undertake competition assessment of existing and proposed public policies that 

unduly restrict competition and develop specific and transparent criteria for 

performing competition assessment, including the preparation of screening and 

monitoring mechanism. Greater transparency and adherence to competition 

principles in different sectors and activities could ultimately boost India’s growth 

and help our country to attain a double digit growth on an inclusive and sustainable 

platform. Two decades after the first generation economic reforms of 1991 perhaps 

the National Competition Policy can provide the necessary push to unlock the fuller 

growth potential of the Indian economy. 

Genesis of Competition Policy in India 

Annexure - I 

Introduction 

As enumerated earlier, the process of economic reforms which had been initiated in 

1980s gathered pace and momentum in 1990s. The Industrial Policy Statement of 

1991 noted that operating in an over regulated environment was detrimental for 

competitiveness in the international economy and technological dynamism. There 

were major complementary policy reforms in the financial sector, especially in 


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banking, stock market and insurance. The same thread ran through other sectoral 

reforms like in telecom, civil aviation, manufacturing, and other infrastructure sectors 

where Public Private Partnership (PPP) was introduced in a big way. Alongside, a 

new competition law was enacted in 2002 and need for a Competition Policy was 

also articulated by the Government. 

National Competition Policy has been taken up for consideration in different fora 

within the Government at different points in time during last two decades. 

The Government of India has expressed its intent and views on the need and form of 

the National Competition Policy at various occasions. At the time when the 

Government of India was considering to bring in a new competition law, the then 

Finance Minister, during a debate in Lok Sabha 12 in 1999 informed the House that 

the Government will come out with a National Competition Policy. Prior to that, 

pursuant to WTO’s Singapore Ministerial Declaration in 1996, which established a 

Working Group on the Interaction between Trade and Competition to ostensibly 

propose the adoption of competition laws by member States, an Expert Group was 

established by the Union Ministry of Commerce in October 1997 to study the 

interaction between trade and competition policy in India, including anticompetitive 

practices and the effect of mergers and amalgamations on competition. In its report 

submitted in January 1999, the Expert Group suggested enactment of a new 

competition law and recommended harmonisation of competition principles, 

competition policy and objectives, and competition law enforcement efforts. This 

laid the ground for future developments in the direction of ushering in a National 

Competition Policy. 

(A) Raghavan Committee’s Recommendation on National Competition Policy 

Following the Government’s resolve to enact a new competition law, a High Level 

Committee on Competition Policy and Law (the Raghavan Committee Report) was 

set up, which in its report recognised the need for a National Competition Policy 

and noted that: 

An effective competition policy promotes the creation of a business environment 

which improves static and dynamic efficiencies and leads to efficient resource 

allocation, and in which the abuse of market power is prevented mainly through 

competition. Where this is not possible, it requires the creation of a suitable 

regulatory framework for achieving efficiency. In addition, competition law 

prevents artificial entry barriers and facilitates market access and complements 

other competition promoting activities. Trade liberalisation alone is not 

sufficient to promote competition and there is a need for a separate competition 

policy. 

(B) In 2004, the Common Minimum Programme of the United Progressive Alliance 

(UPA), also recognised the need for promotion of competition across sectors and 

noted that: 

Indian industry will be given every support to become productive and competitive. 

All regulatory institutions will be strengthened to ensure that competition is free 

and fair. These institutions will be run professionally. 

12 Lok Sabha (1999), “Further Discussion on the Insurance Regulatory and Development 

Authority Bill, 1999”, XIII Lok Sabha Debates, Session II (Winter Session), Thursday, 

December 2, 1999 

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(C) Standing Committee on Finance (2006-07) Observations 

The issue of a National Competition Policy was considered by the Standing 

Committee on Finance 13 (2006-2007) of the Fourteenth Lok Sabha while considering 

the relevant issues in the context of Competition (Amendment) Bill 2006. The 

Committee made a reference to the Competition Policy and recommended the 

inclusion of “state governments”, in addition to central government, within the 

ambit of competition policy provisions. 

(D) CCI Advisory Committee on National Competition Policy (2007) 

The Ministry of Corporate Affairs had asked the Competition Commission of India 

(CCI) in 2005-06 to draft a “Consultation Paper on Competition Policy”. Accordingly, 

an Advisory Committee, under the chairmanship of Dr. Vijay Kelkar was set up by 

the CCI wherein a sub-committee, under the chairmanship of Shri P. G. Mankad, 

was also set up to finalise a draft “Consultation Paper”. In the meantime, the 

Planning Commission Working Group, as referred to in the following para, submitted 

its report which was accepted by the Planning Commission in 2007. In September 

2007, the CCI Advisory Committee decided to adopt the report of the Working Group 

of the Planning Commission as the “final draft Consultation Paper on Competition 

Policy. 

(E) Planning Commission Discourse on the National Competition Policy (2007) 

The issue has been discussed at the Planning Commission in the context of Tenth 

and Eleventh Plans. During the mid-term appraisal of the Tenth Plan, it was 

recognised that there is an urgent need for articulating a National Competition 

Policy (NCP) in India, which should fully reflect the national resolve to accelerate 

economic growth, improve both the quality of life of the people of the country, national 

image and self-esteem. It further noted that NCP would bring about a competition 

culture amongst economic entities to maximise economic efficiency, protect consumer 

interests and improve international competitiveness. During the Eleventh Plan, a 

Working Group on Competition Policy submitted its report to the Planning 

Commission. In addition, the Eleventh Plan Document in chapter 11 made a reference 

to need for a competition policy. The Chapter 11 14 notes that: 

To strengthen the forces of competition in the market, both competition law and 

competition policy are required. The two complement each other. The competition 

law prohibits and penalises anti-competitive practices by enterprises functioning 

in the market; that is, it addresses market failures. Sector regulatory laws mimic 

competition in the areas of natural monopolies. Other regulatory laws, such as 

those for intellectual property or anti-dumping or even capital markets, too have 

an important interface with competition. 

The aim of the competition policy is to create a framework of policies and 

regulations that will inform other policies to facilitate competitive outcomes in 

the market. Competition policy is a critical component of any overall economic 

13 Lok Sabha Secretariat (2006), Forty Fourth Report – Competition (Amendment) Bill, 2006, 

Standing Committee on Finance (2006-2007) , December 2006 

14 Extract from Para 11.23 of Chapter 11 of the Policy Document: “Inclusive Growth” as part 

of the 11 th Five Year Plan adopted by the National Development Council in December, 2007 

(http://planningcommission.nic.in/plans/planrel/fiveyr/11th/11_v1/11th_vol1.pdf) 


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policy framework. Competition policy is intended to promote efficiency and to 

maximize consumer/social welfare. It also promotes creation of a business 

environment, which improves static and dynamic efficiencies, leads to efficient 

resource allocation and consumer welfare, and in which abuse of market power 

is prevented/curbed. It also promotes good governance by restricting rent seeking 

practices of economic actors. 

Given the wide canvas of NCP, a suggestion has been made by the Working 

Group on Competition Policy for setting up an institutional arrangement for 

monitoring the progress of the implementation of the policy. A small and compact 

Competition Policy Council of about 25 members could be set up which would be 

advisory, non-statutory and autonomous in its functioning and be headed by an 

eminent non-official person and comprising key officials from economic 

Ministries/Departments, and non-officials from media, academia and civil 

society. The task of the Competition Policy Council would be to review the progress 

in the implementation of NCP such as reviews of policies, regulations and 

practices, and the competition impact assessment of new laws, regulations and 

policies. 

Subsequent to the submission of the Report of the Working Group on Competition 

Policy, its recommendations, contained in a document titled ‘Inclusive Growth, Vol. 

I, as part of the 11 th Five Year Plan, were adopted by the National Development 

Council in December, 2007. 15 

(F) The Second Administrative Reforms Commission (ARC) Recommendations (2007) 

The Second Administrative Reforms Commission (ARC), chaired by Dr. M. Veerappa 

Moily, recommended that: 

Each Ministry/Department may undertake an immediate exercise to identify 

areas where the existing “monopoly of functions” can be tempered with 

competition. A similar exercise may be done at the level of State Governments and 

local bodies. This exercise may be carried out in a time bound manner, say in one 

year, and a road map laid down to reduce “monopoly” of functions. The approach 

should be to introduce competition along with a mechanism for regulation to 

ensure performance as per prescribed standards so that public interest is not 

compromised. 

Some Centrally Sponsored schemes could be restructured so as to provide 

incentives to states that take steps to promote competition in service delivery. 

All new national policies on subjects having large public interface (and 

amendments to existing policies on such subjects) should invariably address the 

issue of engendering competition. 

(G) Committee on National Competition Policy (2011) 

Continuing the pursuit of the core philosophy of promotion of competition 

across sectors, Ministry of Corporate Affairs, Government of India, vide Notification 

F.No.5/15/2005-IGC/CS dated 8 th June 2011, has now constituted the Committee 

on National Competition Policy and Related Matters (C-NCP) for: 

• Framing of a National Competition Policy (NCP) 

• Strategy for competition advocacy with government and private sector 

15 Planning Commission (2007), Eleventh Five Year Plan 2007-2012, Vol I - Inclusive Growth. 

198 



E-57 

• Changes required in Competition Act for fine tuning it and 

• Any other matter relation to competition issues 

The Committee, after eight meetings, recommended the objectives, principles, 

initiatives and measures to be taken by the government. 

Annexure - II 

Illustrative List of Parameters for Undertaking Competition Assessment 

An illustrative list of parameters, some of which may be considered while 

ascertaining, if government policies or institutions limit competition may include: 

• Limits on the number or range of suppliers through 

Granting exclusive rights for a supplier to provide goods or services 

Establishing a license, permit or authorisation process as a requirement 

of operation 

Limiting the ability of some types of suppliers to provide a good or service 

Significantly raising cost of entry or exit by a supplier 

Creates a geographical barrier to the ability of companies to supply goods 

services or labour, or invest capital 

• Creates and fails to address natural barriers, strategic barriers, regulatory and 

policy barriers or gender-based barriers 

• Limits the ability of suppliers to compete through 

Limiting sellers’ ability to set the prices for goods or services 

Limiting freedom of suppliers to advertise or market their goods or services 

Setting standards for product quality that provide an advantage to some 

suppliers over others or that are above the level that some well-informed 

customers would choose 

Significantly raising costs of production for some suppliers relative to 

others (especially by treating incumbents differently from new entrants) 

• Reduces the incentive of suppliers to compete through 

Creating a self-regulatory or co-regulatory regime 

Requiring or encouraging information on supplier outputs, prices, sales 

or costs to be published 

Exempting the activity of a particular industry or group of suppliers 

from the operation of general competition law 

• Limits the choices and information available to customers 

Limiting the ability of consumers to decide from whom they purchase 

Reducing mobility of customers between suppliers of goods or services 

by increasing the explicit or implicit costs of changing suppliers 

Fundamentally changing information required by buyers to shop 

effectively 

The company while seeking approval of the directors and shareholders in their 

meetings shall specifically take approval to the effect that: 

(i) Proposed contract is competitive, at an arms length, without conflict of interest 

and is not less advantageous to it as compared to similar contracts with 

other parties. 


199


[Vol. 2 

(ii) The company has not made any default in repayment of any of its debts 

(including public deposits) or debentures or interest payable thereon and has 

filed its up to date Balance Sheets and Annual Returns with the Registrar of 

Companies; 

(iii) The proposed contract is falling within the provisions of Section 297 of the Act 

and provisions of Sections 198, 269, 309, 314 and 295 are not applicable in the 

proposed contract 

(iv) The company and its Directors have complied with the provisions of Sections 

173, 287, 299, 300, 301 and other applicable provisions of the Companies Act, 

1956 with regard to the proposed contract. 

The application will be processed online and approval of Central Government shall 

also be made available to the applicant company online on the basis of declarations 

made by the company and certifications by the professionals given in the e-form. 

If any of the information or declaration given by the company or certificate given by 

the professional in the e-form is found to be wrong, then the applicant company, its 

Directors and professional shall be liable for penal action under Sections 297 and 

628 of the Companies Act, 1956 in addition to penal action prescribed in regulations 

of the respective professional institutes. 

It may be noted that the Ministry of Corporate Affairs has been receiving 

representations form various stakeholders to simplify the approval processes under 

Section 297 of the Companies Act, 1956. 

200 


Guidelines for Contributors 

About CompLR 

Manupatra Competition Law Reports is a bi-monthly law journal which started in January 2008. It is the only journal in the subject in 

India that publishes articles from eminent jurists, lawyers and academicians on competition law, including new developments in 

India, US, UK, European Union and various other jurisdictions. Apart from this we are having sections of national and international 

news and notes on international cases. 

Inviting Contributions 

Manupatra is providing a forum through its reports to the practitioners to express their views and share them with our readers. 

We invite contributions from qualified persons-both private practitioners and academicians on 

• Any of the topic in the Competition laws. 

• The Articles should illuminate legal problems or issues currently confronted by Governments, International organisations, 

private enterprises etc., by setting them within their general legal, economic or political context. 

• Contributions may be either in the form of Articles or comments. 

• Except in special circumstances, the Editorial Board will not consider Articles published or to be published elsewhere. Authors 

are requested to confirm that their typescript is not and will not be so published, or to explain the relevant circumstances. 

Word Limit 

Articles should typically be around 3000-5000 words, although Articles up to 10,000 words will be considered for publication. 

Copyright in submissions 

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Manupatra site and CD Roms). 

• The author warrants that the submission is an original work, that the submission has not been previously published, that the 

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existing copyright, moral right or other right of any person, that the submission does not contain any scandalous, libellous or 

unlawful matter, or anything that is an invasion of privacy, and that the author has the right to give these warranties. 

• Publication in another journal will require permission from and acknowledgment of the Publisher and the copyright holder 

Manupatra Information Solutions Pvt. Ltd. 

General terms and conditions 

• Delivering a manuscript does not automatically lead to publication of the manuscript. The editor and Manupatra will review the 

manuscript and will determine whether it is suitable for publication. Manuscripts accepted for publication in the journal will be 

subject to editorial review (both linguistic and content editing) and revision. The publisher and the editorreserve the right to 

make amendments which may be appropriate prior to publication. As is the case world wide the publisher shall have the ultimate 

right of choosing which Article has to be published. Authors may be asked to revise their Articles before final acceptance. 

• Title and author of the Article should be clearly indicated together with the brief personal description (max 50 words) that the 

author would wish to see appear. 

• Contributors are asked to provide the abstract of the Article describing the contents of their article in one or two lines 

(max 100 words). 

• Contributors are asked to use the approved form of citation of legal materials common in their own country. 

• Footnotes should be numbered from 1 to 99 and should be as concise as possible. 

• All materials should be submitted as a Word document via e-mail. 

• The author should supply his or her contact details for further correspondence. 

• Articles for inclusion in this journal should be sent to clr@manupatra.com. 

About Manupatra 

Manupatra Information Solutions Pvt. Ltd. is the India’s largest and most comprehensive onlinelegal publishing house, which 

revolutionised the way in which people do legal research in India. The Company started its operation in the year 2001 and since then 

have come a long way in being the pioneers in online legal research in India, with offices across 15 cities in India. Apart from the 

online publishing the company in 2005 has started its Print Department with an objective of being a full fledge law publishing house. 

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