The Competition Commission of India’s recent order exonerating Jaypee Associates Ltd, Jaypee Infratech Ltd and Jaypee Greens from allegations of abuse of dominance in the market for the sale of residential apartments in Noida and Greater Noida has shocked not only complainants but also market analysts observing the real estate sector. At the same time, two members of the Commission, in their dissenting order, have imposed a penalty of Rs 666 crore on the Jaypee Group. This has generated a debate on the moot issue as to in what circumstances can a real estate developer be considered a dominant player over its competitors and whether this order of the CCI is the final word for the real estate sector?
In a recent case, the Competition Commission of India (CCI) inter-alia noted that the Jaypee, a real estate group, cannot be considered dominant in the “relevant market” which was determined by its majority order as the market for “Development and sale of residential apartments in Noida and Greater Noida regions” in terms of three identifiable indices viz. the number of projects of residential apartments developed/launched, the land reserves held and the financial resources.
The majority order notes that with its 25.09% market share in terms of the number of projects launched/developed, the Jaypee was behind its near competitor, Amrapali, with a 27.32% market share during the 2009-2011 period and that the availability of a number of other major players such as Supertech Ltd with a 16.18 % market share, the 3C with an 8.33% market share and Unitech with a 6.82% market share is sufficient to provide a competitive constraint on the Jaypee Group to prevent any exercise of market power.
The determination of a dominant position or market power in India under the Competition Act, 2002 does not depend solely on market shares held but on more economically sound factors such as the capability of an enterprise to be able to act independently of competition in the market, which is very subjective and requires a detailed analysis backed by statistical evidence. The other most important premise is that the dominant position is always to be seen in the context of the “relevant market” in which the enterprise accused of any violation of the Act operates. The relevant market as defined under the Act has further to be seen in terms of both market for the product or service, which in turn depends upon the degree of substitutability with other similar products or services in terms of price, characteristics and end-use, offered for sale, as well as the geographical region in which such offer is made.
IMPORTANCE OF RELEVANT MARKET
Significantly, the order against the Jaypee Group aptly underscores the importance of relevant market towards the outcome of any anti-trust litigation. The order is both interesting and striking! It is interesting because the majority order overruled the final findings of the Director General (DG), the investigating arm of the CCI, recommending that the Jaypee being dominant in the relevant market (interestingly, the findings of the DG also changed over a period of one year viz. whereas in the first report of December 2013 it found the Jaypee not dominant and in the supplementary report of December 2014, it found it dominant) has abused its dominance, based on the same evidence though differing with the DG on the substantial definition of the relevant market, which is on what the dissent is made, which is the striking aspect .
The striking aspect of the CCI order is the dissent on not only the delineation of the “relevant market” but also the way the evidence on the other two indices, land reserves and financial resources of the Jaypee, has been analysed.
On the “relevant market”, the majority order follows an earlier decisional practice. The order decides the relevant market as the one for the sale of residential apartments to analyse the dominant position of the Jaypee Group as being not dominant. However, the minority order narrows down the product market to the market for the sale of residential units in integrated townships. The narrower market consequently results in the finding of the Jaypee Group enjoying a dominant position and resultantly an abuse of its dominant position due to its “unfair” and “one-sided” conditions in flat buyer agreements leading to the imposition of penalty as aforementioned.
In the present Jaypee case, the DG in its supplementary report of December 2014, defined the market as a market for residential apartments in integrated townships. The DG was of the view that an integrated township and standalone residential apartments are two distinct products and are not similar enough for consumers to switch from one another.
The majority CCI order notices the ever-changing landscape of demand and supply substitutability and recognizes the fact that the concept of “integrated township” is of recent past only but finds it to be a nebulous and evolving concept at this stage of development of markets. The order holds that it cannot be said with certitude that all so-called “integrated townships” constitute a separate market product. Thus, the majority order of the CCI shows its disinclination to accept the idea of “integrated townships” as a separate product market, at least at present.
The minority order, on the other hand, concurs with the finding of the DG and considers residential apartments in integrated townships as a separate product market. Thus, according to the minority order, residential apartments in integrated townships offer premium residential experience to their residents and hence should be considered a distinct and separate product market in itself.
A MORE DETAILED OUTLOOK
The majority order could have given a more detailed outlook at the distinction between standalone apartments and apartments in integrated townships before arriving at the delineation of the relevant market. The CCI considered that the geographic regions of Noida and Delhi are distinct from the consumer point of view since there are considerable price differences in the properties located in Noida/Greater Noida and Delhi. A small increase in the price of an apartment in Noida would not make a person shift his preference to Delhi. This vital test, in anti-trust parlance, is referred to as the Small but Significant Non-Transitory Increase in Price (SSNIP) test. However, the CCI abandons this very test when it comes to defining the product dimension of the relevant market.
Another particular omission from the Jaypee order is the disregard of the “Wanadoo Test”. A generic Internet search reveals that there exists a significant price difference in the per sq ft rates of the same type of apartments in the standalone projects as compared with those in the integrated township. For instance, a 3 BHK apartment in an integrated township is available for sale at Rs 5,800 sq ft whereas a 3 BHK apartment in a society costs Rs 4,400 sq ft. Now the question is: Will a buyer switch to a 3BHK apartment in an integrated township available at a much higher price just because of the attendant amenities and facilities available? Maybe yes, maybe no. Consequently, the situation presents a ripe case for segmenting the market on the basis of the buyer’s inclination to pay premium prices in return for the premium services available with the product—something which is generally referred to as “Wanadoo Test”.
Incidentally, the same Wanadoo Test was considered by the Competition Commission in determining the relevant market in the 2011 DLF decision. However, the CCI in its wisdom decided against applying it in the Jaypee case.
The CCI order in the Jaypee case shows that an analysis of “relevant market” is yet to evolve to an extent to lay down a settled jurisprudence for the determination of dominant position for the real estate sector. Nevertheless, the order serves a warning signal for large real estate players to be more cautious before continuing to impose the same set of unfair and one-sided terms and conditions in flat agreements on prospective buyers.