A company may have indulged in unfair trade practices and yet if it does not dominate the market, then the competition commission of India (CCI) is not the right body to take action against it. That is what the investigation report of CCI’s director general (DG) has concluded after probing a complaint from a group of flat owners against the real estate major Jaypee Group.

Following the submission of the DG’s report, the complainants have been summoned by the Commission today (August 21) to file their objections, if any.

“It is contended that the opposite party does not have the position of strength that could enable it to operate independent of competitive forces prevailing in the market... It has been found that several of the allegations on unfair trade and practice were true. However, the investigation reveals that the imposition of unfair conditions did not emanate out of its dominance. These unfair conditions are prevalent in the market... The unfair practice of opposite party thus does not stand covered under section 4 of the Act,” the DG, the investigation arm of the competition watchdog, has observed in its final report.

The DG submitted its final report on June 18 after the CCI directed it to probe two Jaypee Group firms; Jaiprakash Associates Limited (JAL) and Jaypee Infratech Limited (JIL) in December 2011.

While the DG has found most of the allegations made by the aggrieved flat owners valid, it has let the company off the hook on the premise that it only owns 25.99 percent market share whereas its nearest competitor Amrapali leads with 28.3 percent. This, the DG submits, isn’t a fit case of “abuse of dominance” under the Competition Act, 2002.

The figures were calculated on the basis of dwelling units sold by some 14 developers in the Noida-Greater Noida region. In addition, other parameters including sales figures, size and resources, economic capacity etc were also considered. “It (Jaypee Group) does not have the position of strength that could enable it to operate independently of competitive forces prevailing in the relevant market or to affect its competitors or consumers in its favour,” the DG said in its report.

The question that arises now is that does one really need numbers to understand that a name like Jaypee does in fact enjoy a dominant position in the Noida and Greater Noida region? And even if it is not a dominant player, is it possible for the regulator to overlook its own admission that the unfair trade practices which are rampant across the industry could perhaps be a case of cartelisation?

The group diversified into the real estate business through its Golf Course project in Noida in 2003 and then shot to fame after being awarded the contract to develop the Yamuna Expressway.

“The DG has agreed to all the substantive allegations by the complainants. This by itself poses an ethical question before Jaypee. Further, the DG has used a metric for defining the market position of Jaypee that is bound to be questioned by both the informer and hopefully the CCI,” said Rohit Bansal, chief executive and co-founder of India Strategy Group, Hammurabi & Solomon Consulting.

Dhanendra Kumar, former chairman of the CCI and founder chairman of Competition Advisory Services, points out that in order to analyse market dominance one has to go beyond the metric of market share. “While I am not aware of the facts of the case, I would just say that for determining whether or not an enterprise enjoys a dominant position under section 4 of the Act, one has to consider numerous factors and take a holistic view. These factors may include apart from market share of the enterprise, its economic powers including commercial advantages over rivals, vertical integration, etc.”

He further says, “It is frequently seen that many a developer emerge as market leaders in the perception of the common man despite a number of fragmented competitors.” These groups, being well-known and powerful, become the preferred choice for consumers and the trade practices adopted by them, even though unfair, become the standard trade practice of the industry, he adds.

While the DG has agreed that Jaypee has been engaging in unfair trade practices, it has pointed in its report that Jaypee has been doing so not because of its dominant position but because it is a common industry practice. “That is a bizarre argument. In that case, instead of just letting them escape by not calling them a dominant player, the DG should have increased its scope of probe to see if there is a possibility of cartelisation,” said a CCI source.

In 2011, flat owners of Jaypee Greens Noida project had approached the commission accusing the Jaypee Group of taking undue advantage of their dominant position in the market and introducing dubious clauses in the builder-buyer agreement. The agreements, the flat owners claimed, are lopsided favouring the builders and have arbitrary clauses, some of which include the right to cancel allotment without providing for reasons, no clauses to compensate buyers in case of delays, constructing additional floors exceeding the number stated in the agreement, etc. which in no way take into account the interests of the flat owners. Having found a prima facie case of abuse of dominance, the regulator had ordered a director level investigation against the company.

The complainants will be filing their objections, if there are, to the DG’s findings following which the company will get a chance to file its reply.

Seven months after the regulator ruled against the realty major DLF for abusing its market dominance and thus, modified the builder-buyer agreement, it will be interesting to see its stand in this case where its investigating arm has pointed at unfair practices but then generalised it as an industry practice.