India's
competition regulator - the CCI - has rejected two complaints alleging
abuse of dominance against property developer DLF and energy company Tata
Power. The CCI's reasoning in these cases contains some
interesting insights into the authority's approach. As
competition authorities in Europe maintain their competition law scrutiny
of both sectors the cases merit a close reading.
In the first case, the complainant alleged that India's largest property developer DLF had abused its dominant position in the commercial real estate sector by making unfair changes to the way in which payments were made to lease units in a new commercial property development in New Delhi. It was alleged that DLF unilaterally changed the payment method, terminated the reservation and then asked the customer to pay a penalty to have the space reallocated. The CCI investigated the claims. It found that the relevant market was the "provision of services for development and sale of commercial/office space in Delhi". Within that market the CCI found that there were several large players and DLF could not be considered dominant within the market. As a result, it dismissed the complaint and did not go on to consider the issue of abuse.
The CCI may well be right to rule out dominance in this case. However, this is not the end of the matter. DLF is continuing to challenge the CCI before the Supreme Court where it seeks to overturn the authority's finding that it had abused a dominant position in the residential real estate sector. The CCI imposed a fine of 6.3 billion rupees (close to 95 million euros) which represents the highest fine imposed on a single company under India's competition law which came into force in 2009. While the CCI has thrown out the current case against DLF on the basis that no dominance was established it is disappointing that it has not grappled with the question of whether the practices at issue could be abusive (if engaged in by a dominant company). The pattern of conduct at issue is remarkably similar to that alleged in the previous competition cases involving DLF. This raises the question of whether these cases should be treated as competition cases at all? My own view is that competition law is not the right instrument to deal with the practices at issue. The allegations expose more fundamentally the limitations of Indian law in terms of consumer protection and unfair contract terms; issues that have been obscured by the issue of dominance and its abuse.
A separate complaint involved Tata Power. It was accused of abusing its dominant position as a transmission licensee and generator by terminating supply to Brihan Mumbai Electric Supply and Transport (BEST). The CCI accepted that Tata Power had a dominant position on the basis that it had the largest transmission network in Mumbai. However, it rejected the case on the basis that the issue relates to "transmission of electricity only" and was a licensing and contractual issue that was governed by the regional electricity regulator. This reasoning begs many questions. The Indian Competition Act 2002 applies to the regulated sectors in the same way that it does to industries that are not subject to sector regulation. The sector regulator can make references to the CCI and the CCI may refer cases to the sector regulators where the matter relates more properly to the jurisdiction of the other. Yet there is no embargo on the CCI applying its competition law powers in a case which is subject to sector regulation. In fact, many of the European Commission's high profile abuse of dominance cases in recent years have related to the energy sector and have involved similar allegations of foreclosure on the part of a distributor as were alleged in the Indian case.
The cases will no doubt be received well by the parties under investigation. What is less encouraging is the CCI's reasoning for its decisions. In the real estate case the CCI has not fully addressed the question of characterisation of abuse. In the energy case the CCI has relied on a sweeping generalisation on the relationship between sector regulation and competition law which may hamper the CCI in its enforcement efforts in the future.
Suzanne Rab is the author of “Indian Competition Law, an International Perspective” (first published by Wolters Kluwer, May 2012; with a supplement of cartel regulation published in January 2013). The book is the first-of-its-kind international comparative analysis of the Competition Act 2002 published contemporaneously with the coming into force of Indian competition law and merger control.
In the first case, the complainant alleged that India's largest property developer DLF had abused its dominant position in the commercial real estate sector by making unfair changes to the way in which payments were made to lease units in a new commercial property development in New Delhi. It was alleged that DLF unilaterally changed the payment method, terminated the reservation and then asked the customer to pay a penalty to have the space reallocated. The CCI investigated the claims. It found that the relevant market was the "provision of services for development and sale of commercial/office space in Delhi". Within that market the CCI found that there were several large players and DLF could not be considered dominant within the market. As a result, it dismissed the complaint and did not go on to consider the issue of abuse.
The CCI may well be right to rule out dominance in this case. However, this is not the end of the matter. DLF is continuing to challenge the CCI before the Supreme Court where it seeks to overturn the authority's finding that it had abused a dominant position in the residential real estate sector. The CCI imposed a fine of 6.3 billion rupees (close to 95 million euros) which represents the highest fine imposed on a single company under India's competition law which came into force in 2009. While the CCI has thrown out the current case against DLF on the basis that no dominance was established it is disappointing that it has not grappled with the question of whether the practices at issue could be abusive (if engaged in by a dominant company). The pattern of conduct at issue is remarkably similar to that alleged in the previous competition cases involving DLF. This raises the question of whether these cases should be treated as competition cases at all? My own view is that competition law is not the right instrument to deal with the practices at issue. The allegations expose more fundamentally the limitations of Indian law in terms of consumer protection and unfair contract terms; issues that have been obscured by the issue of dominance and its abuse.
A separate complaint involved Tata Power. It was accused of abusing its dominant position as a transmission licensee and generator by terminating supply to Brihan Mumbai Electric Supply and Transport (BEST). The CCI accepted that Tata Power had a dominant position on the basis that it had the largest transmission network in Mumbai. However, it rejected the case on the basis that the issue relates to "transmission of electricity only" and was a licensing and contractual issue that was governed by the regional electricity regulator. This reasoning begs many questions. The Indian Competition Act 2002 applies to the regulated sectors in the same way that it does to industries that are not subject to sector regulation. The sector regulator can make references to the CCI and the CCI may refer cases to the sector regulators where the matter relates more properly to the jurisdiction of the other. Yet there is no embargo on the CCI applying its competition law powers in a case which is subject to sector regulation. In fact, many of the European Commission's high profile abuse of dominance cases in recent years have related to the energy sector and have involved similar allegations of foreclosure on the part of a distributor as were alleged in the Indian case.
The cases will no doubt be received well by the parties under investigation. What is less encouraging is the CCI's reasoning for its decisions. In the real estate case the CCI has not fully addressed the question of characterisation of abuse. In the energy case the CCI has relied on a sweeping generalisation on the relationship between sector regulation and competition law which may hamper the CCI in its enforcement efforts in the future.
Suzanne Rab is the author of “Indian Competition Law, an International Perspective” (first published by Wolters Kluwer, May 2012; with a supplement of cartel regulation published in January 2013). The book is the first-of-its-kind international comparative analysis of the Competition Act 2002 published contemporaneously with the coming into force of Indian competition law and merger control.
Suzanne is also co-author of "Media Ownership and Control: Law, Economics and Policy in an Indian and International Context" (Hart Studies in Competition Law, 2014).
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