Interplay between RERA and CCI

The Real Estate (Regulations and Development) Act, 2016 (the “Real Estate Act”) and the Competition Act, 2002 (the “Competition Act”) are regulatory legislations operated through regulatory bodies namely  Real Estate Regulatory Authority (“RERA”) and Competition Commission of India (“CCI”) respectively. While the Real Estate Act aims to promote the real estate sector and protect the rights of home buyers, the Competition Act focuses on controlling and promoting fair competition among market players across all sectors. Further, while the Real Estate Act is sector specific and its rules can be framed by the State Governments, the Competition Act is applicable to all sectors and is controlled by the Central Government. This article intends to examine the interplay and common elements between the Real Estate Act and the Competition Act vis-à-vis their respective legislative domain.

Tatva Legal, Hyderabad has a specialized team of lawyers who, amongst other services, advise on real estate transactions covering various aspects of the transaction such as general corporate advisory, local, national and cross border transactions real estate transactions, title due diligence, drafting transaction documents.

1. Unfair trade practice

In order to promote fairness in the market and to protect the end customer, the Real Estate Act and the Competition Act aim to curb unfair trade practices. As per Section 7 (c) of the Real Estate Act, a promoter shall be construed to be involved unfair trade practice or irregularities, if he / she, for the purpose of promoting sale or development of any real estate project, adopts any unfair method or unfair or deceptive practice including any of the following:

• the practice of making any statement, whether orally or in writing or by visible representation which (i) falsely represents that the services are of a particular standard or grade; (ii) represents that the promoter or himself has approval or affiliation which such promoter or himself does not have; and (iii) makes a false or misleading representation concerning the services; and

• permitting the publication of any advertisement whether in any newspaper or otherwise of services that are not intended to be offered.

Section 4 of the Competition Act similarly deals with abuse of dominant position. Section 4 (a) of the Competition Act provides that there shall be an abuse of dominant position, if an enterprise or a group:

“……directly or indirectly, imposes unfair or discriminatory — (i) condition in purchase or sale of goods or service; or (ii) price in purchase or sale (including predatory price) of goods or service. Explanation.— For the purposes of this clause, the unfair or discriminatory condition in purchase or sale of goods or service referred to in sub-clause (i) and unfair or discriminatory price in purchase or sale of goods (including predatory price) or service referred to in sub-clause (ii) shall not include such discriminatory condition or price which may be adopted to meet the competition.”

Further, the power of initiating an inquiry with regard to an unfair trade practice, either on basis of a complaint or an application received by the authority or suo moto by the authority, is enshrined under the Real Estate Act and the Competition Act. While Section 35 of the Real Estate Act sets out the procedure of investigation against a promoter or an allottee or a real estate agent, Section 19 of the Competition Act deals with inquiry into agreements for abuse of dominant position.

2. Instances of Interjection by CCI in Real Estate Projects

• Belaire Owners Association v. DLF Limited, HUDA and Others[1]:

In the instant matter, DLF Limited, the developer, was in the process of constructing a housing complex in the city of Gurgaon, Haryana, comprising of 5 (five) multi-storied residential buildings, each consisting 19 (nineteen) floors. The timeline for completion of this project by DLF Limited was 36 (thirty-six) months from the date of the agreement. The agreements with the home buyers also envisaged other arbitrary and unfair terms and conditions which were favorable to the developer. Based on the bargaining power of DLF Limited in the said agreements, DLF Limited arbitrarily amended the project plan for construction of 29 (twenty nine) floors, without obtaining consent from the agreement holders / home buyers. In order to accommodate the increased area for the project, the respective area shares marked for the agreement holders / home buyers were reduced and the completion period of the project was delayed. Some of the clauses in the said development agreements inter alia included the following:

• The home buyers do not have a say in reduction of the common area facilities due to increase in floors and the developer was not obligated to take consent for the same from the home buyers;
• In case the home buyers resist from such change of the plan in the project, the developer has the right to cancel the agreement with such home buyer;
• If the developer fails to deliver the possession to the home buyer due to delay in construction, then the home buyer can give a termination notice to the developer. While the developer was not obligated to refund the amounts paid by the home buyer, however, the home buyers had the right to sell their apartment; and
• The developer reserves the right of mortgage/lien to raise finance and loan.

The Belaire Owners Association filed a case against the developer for enjoying the majority freedom to alter the provisions of the agreement between the developer and the home buyers. An application under Section 19 (1) of the Competition Act was filed by the Belaire Owners Association before the CCI alleging inter alia that the developer, DLF Limited was abusing its dominant position in the market. The Belaires Owners Association inter alia alleged that the clauses in the agreements entered by DLF Limited with the home buyers were anti-competitive and amounted to unfair conditions being imposed by the developer on the home buyers. Upon receipt of such application from Belaire Owners Association, the CCI appointed the Director General (“DG”) to carry out an investigation. The DG submitted his report and findings, based on the relevant product market and relevant geographic market[2], and accordingly it was held by the CCI that DLF Limited was liable for abuse of dominant position under the Competition Act, and thus, DLF Limited was penalized with Rs. 630,00,00,000 (Rupees Six Hundred and Thirty Crores).

• Pankaj Agarwal v. DLF Gurgaon Home Developers Private Limited[3]

The instant matter dealt with the aspect of one-sided development agreements which were favourable to the developers. CCI once again analyzed the issue of unfair terms imposed on the home buyers such as the obligation to pay additional amounts in the name of development charges and biased forfeiture clauses of the advance amounts paid by the home buyers in the event of termination of the agreements. Upon hearing the parties, the CCI held DLF Gurgaon Home Developers Private Limited liable for abusing its dominant position, with no penalty as CCI had already imposed a penalty of Rupees Rs. 630,00,00,000 (Rupees Six Hundred and Thirty Crores) on DLF Limited in Belaire Owners Association v. DLF Limited, HUDA and Others, for the same time period.

3. Conclusion

The abuse of dominant position and unfair trade practices exist in every sector. In the real estate sector, the developers possess increased bargaining power, which is often susceptible to abuse by developers through imposing their own terms and conditions relating to development and completion of the project. In order to control and curb the foregoing common objective, the Real Estate Act and the Competition Act have been promulgated, and regulatory bodies like RERA and CCI have been constituted. An example of this is illustrated in Section 38 of the Real Estate Act which empowers RERA to refer a case suo moto to CCI for investigation where an issue is raised relating to an agreement, action, omission, practice or procedure that has (a) an appreciable prevention, restriction or distortion of competition in connection with the development of a real estate project, or (b) the effect of a monopoly of market being abused resulting in adversely affecting the interest of allottees. Further, it is pertinent to note that any order or judgment passed by either of the regulatory body cannot be overruled by the other. As such, the Real Estate Act and the Competition Act co-exist in order to achieve the common objective of prevention of unfair trade practices and the abuse of dominant position in the real estate sector.

The views and opinions expressed in this article belong solely to the author and do not reflect the position of Tatva Legal, Hyderabad.

[1] Case No. 19 of 2010 before CCI dated August 12, 2011.

[2] Pratik Ranjan Das and Yamini Kumar on Decoding The Dlf Case: Dlf Ltd. V. Belaire Owners Association – Part I, Society of International Trade and Competition Law Blog accessed on September 29, 2020.

[3] Case No. 13 of 2010 before CCI dated May 12, 2015.