This Article has been written by Abhinav Khadikar, from NMIMS Kirit P Mehta School of Law, Mumbai.

Introduction

Competition is an incredibly important phenomena in a marketplace. It can be defined as a rivalry between enterprises or group. A healthy competitive environment is beneficial to consumers as it gives them an opportunity to choose from a wide range of products. It ensures that the products are being sold at affordable prices as much as possible. It creates an environment of innovation and productivity wherein the enterprises are encouraged to use scarce resources as efficiently as possible to create the best output. Essentially, a healthy competitive environment is beneficial to the economy.

The Competition Act, 2002 was legislated with an intention to protect this healthy competitive environment. There are various threats to competition wherein one threat is the abuse of dominant position. The article provides an overview of what constitutes an abuse of dominant position and how the Competition Act safeguards against said abuse of dominant position and how the DLF Case stands as a prime example of application of the law.

Steps to Determine an Abuse of Dominant Position:

The Competition Commission of India (Hereinafter “CCI”) may conduct inquiries on whether there has been an abuse of dominant position as per section 19 of the Competition Act, 2002 (Hereinafter “The Act”). In such inquiries, three steps are taken. The first step is determination of the relevant market. The second step is determination of existence of a dominant position in said relevant market. The third step is determination of an existence of an abuse of dominant position.

These steps help in determining whether there has been an abuse of dominant position in the relevant market or not. On such determination, the CCI may pass any order or direction as it may deem fit as per section 27 of the Act or even pass an order under section 28 of the Act for division of an enterprise to prevent said enterprise from continuing abuse of its dominant position.

Determination of Relevant Market:

Relevant Market as per section 2(r) of the Act is divided into two parts which are relevant geographical market and relevant product market. It is necessary to identify the relevant market as without the existence of such market, it is difficult to ascertain whether any enterprise possesses a dominant position. The CCI may determine the relevant market with reference to either one of the types of relevant market or both the types of relevant market.

Relevant Geographical Market is defined under section 2(s) of the Act wherein it is a market comprising in an area comprising the area in which the conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogenous and can be distinguished from the conditions prevailing in the neighbouring areas. When determining the relevant geographical market, the CCI takes into consideration any or all the eight different factors mentioned in section 19(6) of the Act which are:

1. Regulatory trade barriers;
2. Local specification requirements;
3. National procurement policies;
4. Adequate distribution facilities;
5. Transport costs;
6. Language;
7. Consumer preferences;
8. Need for secure or regular supplies or rapid after-sales services.

Relevant Product Market is defined under section 2(t) of the Act wherein it is a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use. When determining the relevant geographical market, the CCI takes into consideration any or all the six different factors mentioned in section 19(7) of the Act which are:

1. Physical characteristics or end-use of goods;
2. Price of goods or service;
3. Consumer preferences;
4. Exclusion of in-house production;
5. Existence of specialised producers;
6. Classification of industrial products.

Determination of Existence of Dominant Position:

It is explained under section 4 of the Act that dominant position is a position of strength possessed by an enterprise or group in the relevant market which enables them to either operate independently of competitive forces prevailing in the relevant market or affect its competitors or consumers in said market in its favour. Essentially, they are in such a comfortable position where they are not really affected by competition and hold significant power in the relevant market.

The Competition Commission of India while determining whether an enterprise or group has a dominant position in the relevant market must take into consideration any or all the 12 factors mentioned under section 19(4) of the Act some of which are market share, size, and resources of the enterprise, size and importance of the competitors, size and structure of the market of the enterprise, dependence of consumers on the enterprise, economic power of the enterprise, etc. However, CCI may take into consideration any other factor that may be considered necessary.

Determination of Existence of Abuse of Dominant Position:

It is nowhere written that such a dominant position is illegal or not allowed but section 4(1) of the Act clearly prohibits abuse of such dominant position. Section 4(2) of the Act gives five different situations which constitute an abuse of dominant position by an enterprise or group which are:

1. A direct or indirect imposition of unfair or discriminatory conditions or pricing in purchase or sale of goods or services unless such condition or pricing has been adopted to meet the competition.
2. Limitation or restriction on production of goods or provision of services or restriction on technical or scientific development in relation to goods or services to the prejudice of consumers.
3. Practice or practices resulting in denial of market access.
4. Making of conclusion of contracts subject to acceptance of supplementary obligations by the other parties which do not have any connection to the subject of such contract.
5. Usage of dominant position in one relevant market to enter or protect another relevant market.

Essentially, abuse of dominant position can be classified into two separate practices. An enterprise can be said to be abusing its dominant position in the relevant market through exploitative or exclusionary practices.

The DLF Case:

The case of Belaire Owners Association vs DLF is a prime example of proper application of the Competition Act, 2002 to prevent abuse of dominant position. In this case, they took consideration of all the three steps to determine the existence of an abuse of dominant position in the relevant market.

Step 1: Does a relevant market exist?

The CCI made a reference to existence of relevant product market as well as to the existence of a relevant geographical market. First, it was held that a relevant product market does exist. This is the market of high-end residential accommodation. Essentially, a comparison was made between high-end residential accommodations with general or lower end residential accommodations. A consideration of various factors like quality of construction, size, reputation of the location, multiple facilities available, etc. It was held that high-end residential accommodations constitute a relevant product market as customers are willing to pay a higher price for the luxuries that come with such product. As for the existence of a relevant geographical market, it was held to be Gurgaon. Reason for this was given as there exist certain unique factors that make Gurgaon a sought-after location for residence. The average citizen, when looking to purchase a residential property would not buy a residential property in a different location at lower rates as such property has no value to the purchaser.

Step 2: Does DLF hold the status of dominant position in the relevant market?

The CCI held that DLF indeed held the status of dominant position in the relevant market. Factors such as market share of the DLF Group, size and resources of the group, size and importance of their competitors, countervailing and buyer powers, etc were taken into consideration. An emphasis was made on the fact that DLF possessed more than half the market share (45%) than the nearest competitor (19%). DLF also was a clear market leader and possessed clear mover’s advantage. Due to such reasons, it was held that DLF clearly possessed a dominant position in the relevant market as they are afforded an environment of operating independently of competitive forces and influencing consumers in its favour.

Step 3: Has DLF abused their dominant position in the market?

DLF had imposed sixteen conditions in the Apartment Buyers Agreement such as DLF’s right to change the layout plan without consent of allottees, 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, Total discretion of DLF regarding arrangement for power supply and rates levied for the same, etc. Essentially, these conditions favoured DLF at the expense of allottees to the extent of denying the allottees certain rights. A big issue was that DLF had already accepted certain security deposits from the allottees. The allottees had no right to suggest or make any alterations or modifications in the agreement and if they refused to sign the agreement, their deposit money stood forfeited. Basically, there was no free exit option as the allottees would have to incur substantial financial loss if they did not sign the agreement. This along with certain other factors resulted in holding DLF accountable as they were held to be abusing their dominant position.

Decision of CCI:

DLF was held to be in contravention of the Competition Act, 2002 as they were abusing their dominant position in the relevant market of high-end residential accommodations in Gurgaon, and for the same, a penalty of Rs. 630 Crores was imposed.

The Appeal:

DLF appealed the order of the CCI before the Competition Appellate Tribunal (Hereinafter “The Tribunal”) in the case of DLF vs CCI, the tribunal agreed with the CCI on its reasoning and position in the issue of whether DLF has a dominant position in the market or not. The tribunal also agreed with the amount of penalty imposed because the tribunal agreed that DLF has indeed abused their dominant position in the relevant market. However, the reasoning was different and the tribunal even held that CCI was never in a position to examine the apartment buyer’s agreement as the agreement was put forward to the allottees when section 4 of the Act was not enacted. It also was held that the clauses under the agreement were not one-sided, unfair, or highly in favour of DLF. Instead, DLF was held to be in contravention of Section 4 of the Act due to the following reasons:

1. Silence on part of DLF to reveal to the allottees the number of additional floors they planned to construct.
2. Breach of the Apartment Buyers Agreement on account of decrease in common areas due to increase in number of floors which only became possible as allottees had to sign the agreement or else face substantial costs.
3. Discretion residing on part of DLF whether to allow the movement of allottees to higher floors or not.
4. Unilateral increase in holding charges and the threatened consequence amounts to rewriting of the contract and is an unfair condition.
5. Unauthorised construction of additional floors.

Conclusion:

There exist various scenarios and circumstances where enterprises or groups such as DLF find themselves in a dominant position in their respective relevant markets. While competition is highly encouraged due to its positive impact on the economy and lifestyle of the consumers, it is nowhere mentioned or written that holding a dominant position in the relevant market is illegal or discouraged even. They can continue with their business if they do not use their position in contravention of the Competition Act, 2002. If they end up in contravention of the Act, they will have to face the wrath of CCI and deservedly so. The DLF case is highly relevant because the DLF group is still under the limelight for allegedly being in contravention of the Act in a completely different case. No other enterprise knows the consequences of abusing their dominant position better than DLF.

References:

• Belaire Owners Association vs DLF, Case No. 19 of 2010.
• Competition Commission of India, Introduction to Competition Law (CCI, 2016)
• Divyesh Patel, FCS and Dr (Prof.) Naresh Patel, “Demystifying the Competition Implications of ‘Abuse of Dominance’ (Concept and Compliances)” 53(05) Chartered Secretary: The Journal for Governance Professionals 42-45 (2023).
• DLF vs Competition Commission of India, MANU/TA/0012/2014.
• Dr. Souvik Chatterji, “Treatment of Abuse of Dominance in Various Countries” 8 Global Antitrust Review 69-86 (Queen Mary University of London, 2015).
• Kajal Dhiman, “Abuse of Dominant Position under Competition Act, 2002”, Manupatra, June 20, 2022,
• The Competition Act, 2002 (Act 12 of 2003).