Realty major DLF suffered a major setback when the Competition Appellate Tribunal (COMPAT) recently held that the Company was guilty of abusing its market dominance in the case of three residential complexes – viz. Belaire, Park Place and Magnolias. COMPAT upheld the Rs 630 crores penalty that had been levied by the Competition Commission of India (CCI), adding a 9 per cent interest. This is the first major CCI ruling that has been upheld by the Tribunal. While DLF said that it would appeal against the order in the Supreme Court, the buyers and their RWAs have warmly welcomed the decision. The COMPAT order said that the CCI order as well as its judgement would help ameliorate the conditions of all the buyers; and that if they, as customers, are being exploited, then the builder cannot expect any help from the State. COMPAT also said that, being the dominant player and market leader, DLF had a special responsibility to follow the law in letter and spirit. The apartment owners, led by their associations, say that this is a very positive development not only for them but also for buyers across the country. They have decided that they will fight the case in the Supreme Court and take it to its logical conclusion. They will also file a compensation claim with the CCI, for the loss of their rights due to the wrongful practices adopted by the Company. Sanjay Bhasin, President of the Belaire Owners’ Association, tells Friday Gurgaon that this judgement (and penalty thereof) would ensure that builders like DLF do not take buyers for granted, and rules and regulations cannot be subverted at will. “The builder added additional floors without any permission from the authorities, and with no consent from the owners. The projects were delayed and DLF did not share any building plans, or other information about the projects,” says Bhasin. The Apartment Buyers’ Associations of Belaire, Park Place and Magnolias are also hoping that the land on which these projects were promised to be developed would now be delivered to them, along with the common areas and facilities, which must be commensurate with the increase in the number of apartments.
The penalty, upheld by COMPAT, was levied by the CCI in August 2011, on DLF, for abusing its dominant position in the ‘high-end residential apartments’ category. It had also asked DLF to ‘cease and desist’ in another case. The CCI took into the account the ‘one-sided’ buyer agreement, which gave sole discretion to the builder with respect to any change in zoning plans, carpet areas, usage or changes in structure. The penalty was ordered after the two flat buyers’ associations of Belaire and Park Place complained to the CCI regarding the abuse of dominance in the sale of apartments, and the subsequent delay in construction, change of plans and ‘unauthorised’ construction – which was not approved by any authority. DLF had asserted that the CCI had no jurisdiction in the case, that the relevant market and geography had not been correctly calculated, and that the sale of apartment could not be considered either as a product or a service. However, all the arguments put forth by the builder and its illustrious team of lawyers could not stand good in the CCI, which upheld the Rs 630 crores penalty. While the CCI order even called for changes in the builder-buyer agreement, COMPAT has perhaps tried to do a balancing act, stating that while the CCI could suggest changes in the Agreement, it was beyond the purview of the Commission to suggest point by point changes - as these were voluntary and had not been signed under duress. Sanjay Sharma, MD, Qubrex, who had submitted a report on behalf of the buyers’ associations, says that DLF has been rightly determined as a dominant player in the high-end apartments category. «This order will pave the way for more builders to be brought to CCI, as market dominance can be established in the case of different market and product categories. It needs thorough professional analysis to establish whether a builder is dominant or not,» says Sharma. Harsh Sehgal, President of Park Place Flat Owners’ Association, says that the stand taken by the buyers has been vindicated in both CCI and COMPAT. He says that this order will bring sanity to the Real Estate market and ensure that builders do not take customers and the rule of law for a ride. “DLF had no permission to build when the project was launched, and the construction started late - by when 35% of the total payment due had already been made,” asserts Sehgal. It is also being expected that if DLF were forced to change its buyers’ agreement, it would impact the entire industry, as a majority of builders follow the Company. Col BK Dhawan, President Emeritus of the Silver Oaks Apartment Association, says that the order is correct in letter and spirit, but the apartment buyers should not rest, as the builders are very slippery customers and they use all their resources to somehow wriggle out of this situation. Dhawan and his Association have been stung badly in the Silver Oaks’ case where, much to the surprise of the buyers, the Supreme Court had recently ruled in favour of DLF in the case involving the definition of an apartment and the ownership of common areas. Dhawan alleges that there is complicity between the builder and the State authorities, which ensures that the correct information is not made available to the courts. This puts the buyers in a weak position - often causing failure. “We have submitted a review petition in the Supreme Court and also filed a criminal case, as we believe that false information was furnished to the Court,” says Dhawan. In his opinion, this COMPAT decision could prove seminal for the Real Estate industry, provided the builder is not allowed to get away on some technical point. Dhawan adds that the key issue is that DLF has used its dominance to dictate the Apartment Buyers’ Agreement (ABA) and imposed unilateral clauses. He points out that while the ‘time is essence’ clause is applicable to the buyers, it is not enforceable in equal measure against the builder; the penalty to be paid by a buyer, in case of delay in payment, is calculated at 18 per cent, while the builder needs to pay only 5 per cent in case of a project delay. The CCI was told that DLF had excluded itself from any obligations and liabilities, while the buyers were forced to sign on the dotted line. The CCI, on the basis of these complaint, framed four major issues that needed to be considered while deciding the case: the applicability of the Competition Act to this case, the definition of ‘relevant market’, whether DLF was a ‘dominant’ player, and whether it has ‘abused’ it’s dominant position in the ‘relevant market’. Real Estate and legal experts say that the reason that the CCI order has been upheld by COMPAT is that all these issues was studied deeply by CCI and all aspects of the law and Real Estate regulations were taken into account. Dhawan says that DLF is buying time and, barring a technical point, the Company now cannot escape punishment.
To assess whether a sale of apartment was to be considered as a service, the CCI took into account the decisions of MRTP and Supreme Court judgements, and concluded that housing was to be defined as a ‘service’. CCI held that ‘it is clear that the meaning of ‘service’ as envisaged under the Act is of a very wide magnitude and is not exhaustive in application, thereby including the activities undertaken by DLF within its ambit’. It also considered whether that this Act could be applied retrospectively (to earlier agreements). The Commission held that even though the agreements (in question) were signed before the Act came into operation, since these were operational after the said date, they could be examined under the Act. It also held that industry practice couldn’t be used as a defence, as the case was of DLF being the market leader and dominant player in the said categories. To determine what was the relevant market, the CCI referred to a DG report, which was based on CMIE data. It held that ‘high-end’ is not a function of just size, but a complex mix of size, reputation of location, quality, actual buyers and capacity to pay. It also held that Gurgaon is a relevant market, as a decision to buy a flat here cannot be substituted (by buying) in any other geographical location. The CCI went through reports by JLL, Genesis and Qubrex before taking its decision. Sanjay Sharma of Qubrex says that the concept of ‘active stock’ put forth by the builder was rejected, as it was clear that Company had almost 45 per cent market share and was having a big land bank in the City. It was also an early mover, an industry leader, and had financial strength much beyond the competitors. As a result of all this data and information, CCI concluded that DLF was ‘dominant’. Finally, the decision whether DLF had ‘abused’ the market, was based on the ‘unfair’ buyer’s agreement - which left little options to the buyer, as it was totally one-sided (in favour of the builder). The Commission held that unilateral changes in the (terms of the) agreement by the builder, without any right to the allottees, were evidence of an unequal bargaining power between the parties. DLF’s ‘right’ to change the layout plan, without taking consent from the allottees, and the discretion of DLF to quite simply change an area for a different use (residential or commercial), without even informing the allottees, were considered further instances of inequality. There were instances when allottees paid Preferential Location Charges up-front (as demanded), but when they were not allotted the desired location, they only received the refund/adjustment of amount at the time of the last installment - that too without any interest. The proportion of land on which an apartment was situated, and on which allottees would have ownership rights, was decided by DLF at its sole discretion. DLF continues to enjoy full rights on the community buildings/sites/ recreational and sporting activities - including their maintenance. The allottees have no rights in this regard. CCI used all these clauses as evidence of unequal bargaining power between the parties. The other ‘abusive’ clauses included: DLF has sole discretion to link one project to another, with its consequent impact on ambience and the quality of living, with the allottees having no right to object; allottees are liable to pay External Development Charges, without an amount being disclosed in advance and even enhanced later; allottees have no exit option except when DLF fails to deliver possession within the agreed time (and even then the allottee gets a refund of only monies paid, without interest, and only after the sale of the said apartment by DLF to someone else!). There also was arbitrary forfeiture of amounts paid by allottees in many situations. DLF’s ‘exit clause’ gives them full discretion, including that of abandoning the project, without being liable for any penalty. DLF has the sole authority to make additions/alterations in the buildings, with all the benefits flowing to DLF. Third party rights can be created without the allottees’ consent, to the detriment of their interests. The CCI was clear that DLF had ‘abused’ it’s ‘dominant’ position in the ‘relevant market’. It also recommended that the Central Government and various State Governments should come out with Real Estate regulations that would ensure overall consumer welfare and discourage the unfair trade practices prevalent in the sector.
While COMPAT has upheld the penalty against DLF, it has also been circumspect in ordering changes in the builder-buyer agreement, despite the abuse by the builder being established. Experts opine that while this order might send a strong message to builders, it is unlikely to form a legal precedent for now, as DLF is going to challenge this order in the Supreme Court. Legal experts say that in case the Supreme Court directs all the builders to modify their buyer’s agreements, or agrees to suggestions made by CCI, it could impact the industry in a big way. They however suggest that CCI cannot be expected to correct all the ills plaguing this industry. It would also be difficult and onerous to try and separately pin various (even big) builders as being ‘dominant’, and to establish ‘relevant’ products and geographic markets. An empowered Real Estate Regulator is the need of the hour. It’s time for the sham and scam builders to vanish; it’s now time for developers and development.
In the case between DLF Limited and Competition Commission of India (CCI), the Competition Appellate Tribunal (COMPAT) has come down heavily on the institutions of the State government, particularly the DTCP (Director Town & Country Planning) Haryana. DTCP has allowed builders to revise their building plans without issuing any notice or providing any information to the allottees. “We are surprised and shocked that, at least in case of Magnolia, the DTCP Haryana allowed the increase in height and the addition of floors, without a public notice – or without even providing a notice to the allottees individually,” said the Commission. It further said that the abuse of dominance does not stop here, as the inordinate increase in the number of apartments has created issues related to ‘Super Area’ – which includes the proportionate ‘share’ of the residents in the common areas. The Commission added that it was on record and established that the construction of all the three residential housing schemes, particularly the construction of the additional floors, was going on in full swing without any approval of a plan or a revised plan by the relevant authorities. “We are surprised that no actions were taken against the builder, and the civic authorities remained blissfully ignorant about the on-going unauthorised constructions. We did not expect a responsible leading and number one real-estate company in the world (in their own words) to flout various provisions of DTCP, Haryana and relevant statutes in this regard. Indeed there cannot be any justification in constructing anything in the proportion as the builder did, without the proper approvals or finalisation of the sanctions of the revised plans. We are simply shocked to read all this and then to find that a certificate of validity has been given from the DTCP Haryana as well as the State of Haryana. Since the increase of the height of the building was complained of by the allottees, who were clamouring for the finalised plans, we have touched upon this subject. Therefore, one thing is certain – that, till the final approval came somewhere in the year 2009, any construction beyond the 19th floor (in case of Park Place by two floors and in case of Belaire by 10 floors) was wholly illegal or at any rate unauthorised. It is very significant that in the whole written submission by the State of Haryana, there is no reference to the density norms. Under the circumstances we feel that the government authorities ignored and misinterpreted the various provisions, particularly in respect of the requirement of the necessary approvals by the DTCP Haryana, while constructing the additional floors,” the Commission asserted in its Order.