The Competition Commission of India (CCI) recently held that the Haryana Urban Development Authority (“HUDA”) is covered under the definition of ‘enterprise’ under section 2(h) of the Competition Act, 2002 and is not guilty of abuse of dominant position as alleged by the Informant.[1]
Background
The Informant is an association registered under the Haryana Registration and Regulation of Societies Act, 2012 of individual allottees/purchasers of institutional plots in the city of Gurgaon.
HUDA is a statutory body constituted under Haryana Urban Development Authority Act, 1977 and is responsible for planned development of urban estates in the State of Haryana and is an exclusive supplier of institutional plots in the sectors of urban estates developed by it. It is alleged that HUDA enjoys monopoly status and dominant position in the market for supply and sale of institutional plots in urban estates in the State of Haryana.
The Informant
- It is submitted that HUDA issued brochures inviting offers for purchase of institutional plots in Sectors 32 and 44 of Gurgaon, Haryana on a free-hold basis on first come first served basis.
Thereupon, the allottees submitted their offers to purchase the institutional plots put on sale by HUDA.
- The members of the Informant were allotted institutional plots in various sectors of urban estates in Gurgaon ‘on freehold basis’.
- Thereafter, the said allottees paid the entire consideration as demanded by HUDA in the allotment letters and completed construction of buildings on the plots allotted to them. Further, it was stated that upon payment of complete consideration, the allottees became entitled to all rights, interests, and title of the institutional plots in their favour, as the allotment was done on freehold basis.
- However, when the allottees approached HUDA for execution of conveyance deeds, HUDA allegedly imposed additional illegal terms and conditions for execution of conveyance/sale deed in favour of the allottees. It was stated that HUDA imposed an ex facie illegal and void condition manipulating the terms and conditions of the allotment which was contrary to the statutory provisions, thereby restricting the rights of the allottees to further sell, mortgage, lease out the plots purchased and buildings constructed by them.
- It was alleged that HUDA has abused its dominant position by incorporating illegal terms and conditions, and supplementary obligations in contravention of the statutory provisions and had, inter alia, violated the provisions of Section 4(2)(b), 4(2)(c), 4(2)(d) and 4(2)(e) read with 4(1) of the Competition Act, 2002.
DG’s Observations and findings
The Director General (DG) analysed the nature of allotments made by other urban development authorities like Delhi Development Authority, Greater Noida Industrial Development Authority, etc. and the permissible usage of ‘institutional plots’ allotted by such authorities.
It noted that institutional plots allotted by HUDA as well as other authorities are for a pre-defined specific purpose and thus, such institutional plots are neither interchangeable nor substitutable with any other type of plots.
The relevant product market was thus defined as – market for provision of services for development and sale of institutional plots.
It was observed that the institutional plots allotted by other developers in the residential projects are for providing community facilities such as school, dispensary, post office, etc as per the approved layout of the residential projects and these institutional plots have to be allotted within the premises of residential projects itself whereas the maximum number of institutional plots allotted by HUDA were being used as corporate office, training centres, research & development centres, etc.
Accordingly, it was concluded that the institutional plots provided by builders/developers in residential projects were not substitutable with institutional plots provided by HUDA and other government agency in terms of size. Hence an alternate relevant product market suggested was – the market for provision of services for development and sale of institutional plots (other than in residential projects).
A comparative analysis was made between HUDA and government agency as well as private developers and was concluded that HUDA had advantage over its competitors. Thus, based on the factors of market share, size and resources of the enterprise, size and importance of competitors, dependence of consumers and regulatory provisions, etc. the DG concluded that HUDA is dominant in the said relevant market as well as the alternate relevant market.
On the issue that the Informant has absolute ownership over the institutional plots allotted by the HUDA on freehold basis, for which entire consideration had been paid, the DG relied upon the decision of the Supreme Court[2] which held that the allottee is bound by the terms and condition under which allotment has been made and the allotting agency is well within its rights to prescribe certain terms and conditions attached to the allotment. Thus, it was concluded that the right of the allottee to that extent is not absolute and the contention of the Informant that it has absolute ownership over institutional plots allotted by HUDA on freehold basis is not tenable.
Submissions by Informant
- The comparison between HUDA and HSIIDC is not legitimate as they are under the functional and financial control and influence of the Government of the State of Haryana and they do not function separately and independent of each other. In fact, they form a cartel and share the same resources of the Government of Haryana among themselves and engage in identically same and similar unfair, discriminatory, restrictive, and dominant trade practices.
- The Informant stated that the DG has erroneously opined that the members of the Informant/allottees do not acquire absolute ownership over the institutional plots allotted (sold) to them by HUDA on freehold basis, for which entire consideration amount has been paid upfront; and HUDA while acting as the seller and executing conveyance deed on freehold basis can, in exercise of its statutory power to regulate use of and construction of buildings, impose conditions restraining the allottee/buyer of freehold plot from parting with or alienating or disposing his interest in the plots and the building constructed thereupon by him, without seeking prior permission from HUDA.
Commission’s Observations and Analysis
- While examining whether an entity is an ‘enterprise’ according to the Act, the functional aspect of the entity is to be looked into rather than its form or constitution. HUDA is a statutory authority thus mandated to perform certain statutory and regulatory functions, within the ambit of such Act. However, all its functions may not be classifiable as statutory functions more so of a sovereign nature, especially when it allots various types of plots to third parties for a consideration.
- In the present case, the allotment of institutional plots is undertaken in the State of Haryana, even by private developers. Thus, such an activity is not an inalienable function of the State of Haryana, relatable to a sovereign function, merely because such an activity is being undertaken by HUDA under the statute passed by the state legislature.
- It was further observed that similar authorities of other states have been looked into by the Commission for the alleged contravention of the provisions of the Act.[3]
- The Commission held that all statutory or regulatory functions performed by HUDA, within the mandate of the HUDA Act, cannot be classified as sovereign functions. That the exception claimed by HUDA requires a closer examination on a case-by-case basis and based on the facts and circumstances in the present case, HUDA is undoubtedly an enterprise.
- With regards to the allegation of abuse dominant position by HUDA, the Commission noted that neither the Informant nor HUDA have joined issues either on the delineation of the relevant market, or that HUDA is dominant in such market as has been done by the DG in its detailed analysis in the investigation report.
- On the alleged one sided “Arbitration clause” in the conveyance deed, the Commission notes that the Informant has not placed any significant emphasis on the same while advancing its arguments.
- Thus, it held that HUDA cannot be said to have contravened the provisions of Section 4 of the Act.
Conclusion
The another important observation of the Commission in the matter is outlining the definition of an ‘enterprise’ with regard to the purposes of the Act. It emphasised the importance of looking into the functional aspects of an entity rather than its form or constitution, so as to determine whether it can be qualified as an ‘enterprise’.
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