A Headache for Realty as DLF Fined 600 Crore

CCI SAYS REALTOR ABUSED MARKET DOMINANCE

The Competition Commission of India, or CCI, has slapped a . 630-crore fine on DLF, threatening to turn an isolated dispute between flat buyers and India's largest builder into a full-blown headache for the industry grappling with soaring interest costs and dwindling buyers. 
In a 237-page order, unprecedented in its scope and scale of punishment, the anti-monopoly watchdog accuses the Gurgaon-based firm of unfair practices, abuse of market dominance and "brutal disregard of consumer right". 
DLF, the CCI adds, rode roughshod over buyers' interests and signed sale agreements that were hopelessly one-sided. 
The commission found DLF guilty of beginning work on a residential project, The Belaire, in Gurgaon Phase V, without approvals, increasing the number of floors mid-way through the project, delaying completion, and forfeiting the booking amount of some buyers. The fine, more than half of DLF's 2010-11 profit, has been calculated on the basis of a percentage of the average of the firm's last three year sales. 
The move is likely to have wider implications for an industry where the practice of one-sided agreements is common and where builders routinely delay or modify projects, increasing the costs for consumers. 
"The CCI's findings against DLF open the door for other property owners to approach the CCI and complain about unfair or discriminatory practices adopted by real estate companies in different parts of the country," says Sameer Gandhi, competition law partner, Economic Laws Practice. 
Rajeev Talwar, group executive director of DLF, said, "We are reading the order and will examine all our options with our legal experts. We believe we have a strong case." The company is likely to appeal against the order. 
The case relates to a complaint filed by The Belaire Owners' Association in Gurgaon against DLF in May 2010. The residents had complained of delay in possession and alleged arbitrary changes in the building plan and structure by the builder. The project was started in 2006, and DLF increased the number of floors to 29 from 19, increasing the number of apartments to 564 from 384. DLF promised to complete it in 2009, but more than two years later, buyers are yet to get possession. Harsh Sehgal, president of the DLF Park Place RWA, which jointly fought the case with the Belaire owners, said DLF sold flats on 10 new floors of the expanded project at a lower price than what the earlier buyers had paid. 
Hard Blow 
THE IMPLICATIONS Sale agreements for houses by most builders could come under the spotlight 
Lawyers say aggrieved buyers across the country can legally challenge builders for not sticking to deadlines etc 
This will open up a Pandora's Box as a number of projects are running behind schedule 
CCI has called for a real estate industry regulator at the central and state level. Builders have been opposing it so far 
DLF may get a stay or get the order modified. But it has come at a bad time 
The fi ne is more than half its FY11 net profi t; its shares crashed by 6.5% on Tuesday After Order, DLF Shares Slump 6.5% 
The company refused to compensate us for the extra amount being paid by us, he said. After the CCI order was announced, DLF shares slumped 6.5% to . 187.10. The shares have declined 19.56% in the past month compared with a 9.6% loss for the Sensex. Earlier this month, Motilal Oswal downgraded DLF's FY12 profit estimates due to higher interest costs. The company also had a negative net cash position at the end of the June quarter. "Some builders do have one-sided agreements with buyers. After this order, other aggravated buyers might explore the option of filing complaints with CCI against their builders," said Saroj Jha, partner at SRGR Law Offices. The danger for the real estate industry is the government, egged on by public reaction to the order and clamour of buyers singed by delays and higher costs, may resort to some kind of regulation.