Two CCI members order fine on Jaypee; chairman, others overrule

New Delhi: Raising serious concerns over unfair business practices in realty sector, two members of Competition Commission of India (CCI) have ordered ₹ 666 crore fine on JP Associates, but were overruled by the chairman and other members of the regulatory body.

The proposed penalty was overruled by 3:2 majority vote by the CCI, even as all the members pressed for immediate and urgent steps to strengthen the regulations to address the grievances of the purchasers. The commission also asked the company and other players in the real estate sector to take appropriate voluntary measures to address the concerns of the flat buyers.

CCI chairman Ashok Chawla and two members, Sudhir Mital and U C Nahta, said that JP Associates and Jaypee Infratech Ltd did not “enjoy a position of dominance in the market for provision of services for the development and sale of residential apartments in Noida and Greater Noida”.

Dissenting with the majority order, two CCI members, S L Bunker and Augustine Peter, ruled that JP Group enjoyed dominant position in this case and directed it to “cease and desist” from indulging in anti-competitive practices.

The complex order, running into 137 pages, follows CCI’s probe into alleged abuse of dominant position with regard to development and sale of residential units in JP Group’s Integrated Townships in Noida and Greater Noida. As per the majority order, the investigation by CCI’s Director General (DG) found that the market share of Jaypee Group was much less than the rival competitor and it did not have any commercial advantage over its competitors due to its economic strength or due to its size or resources.

Quoting the DG’s investigation, this order said Jaypee Group was behind Amrapali, its next rival competitor and “this clearly demonstrates that it (Jaypee) does not have the biggest market shares in the relevant market”.

The minority order, however, said that the DG found various conditions imposed on buyers, including for delay in possession and in the undertaking given with application, were one sided and “can be considered unfair”.

As per the minority order, the imposition of unfair and discriminatory condition by a dominant player has serious adverse effects on the market and on consumers. Jaypee collected several thousands of crores of rupees from the consumers on the pretext of offering residential units in ‘Integrated Townships’ and “cannot now be allowed to turn around and say that it is a ‘marketing gimmick’ when it is subjected to the scrutiny of this commission”, the two dissenting members said in their order.

The proposed penalty of ₹ 665.94 crore translates into 5% of the company’s average three-year annual turnover. There was no immediate comment from the company.

The penalty amount, if it had not been overruled, would have been the biggest imposed by CCI on a real estate player. The regulator had slapped a fine of ₹ 630 crore on DLF in November, 2012 and the ruling was first challenged in the Competition Appellate Tribunal (Compat) and is now before the supreme Court.

The dissenting members emphasised that the imposition of penalty should reflect not only the seriousness of violations but also act as a deterrent for other real estate players in order to check anti-competitive practices “perpetrated in the sector under the guise of standard industry practice”.

“Customers have suffered due to the lower common areas than what was envisaged; they were made to pay much more than what was originally agreed to; timely completion of the project was not achieved resulting in substantial consumer harm,” it noted.