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On August 12, the Competition Commission of India dropped a bombshell that shattered the illusion that all was well with listed realty stocks. It fined market leader DLF Rs630 crore for duping homebuyers using its monopoly power.

Among other things, the CCI accused DLF of beguiling and entrapping homebuyers ‘through false solicitations and promises.’ Thus the CCI threatened 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 accused DLF of unfair trade practices, abuse of market dominance and ‘brutal disregard of consumer right.’

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 midway through the project, delaying completion, and forfeiting the booking amount of some buyers.

The project was started in 2006, and DLF increased the number of floors to 29 from 19, and 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.

The CCI hinted that the rest of the realty sector must have been following the same arbitrary rules that DLF did by taking advantage of the buyers’ weak bargaining power. This is why the CCI has taken suo motu note of ‘unfair competitive practices’ in the realty sector and is set to give its director general a go-ahead to conduct further investigations.

Pointing out DLF’s ‘draconian and one-sided clauses’, the commission’s report said: ‘There are clauses that give DLF sole discretion in respect of change of zoning plans, usage patterns, carpet area, alteration of structure, etc. In case of change in location of the apartment, PLC (preferential location charge) determined at the discretion of the builder and, if a refund is due, no interest is paid. No rights have been given to the buyers for raising any objections.

‘Further, even if the buyer has paid the full amount, the builder can raise subordinate mortgage on the property for finances raised for its own purpose and the consumers are subjected to this mortgage. Despite knowing that necessary approvals were pending at the time of collection of deposits, DLF inserted clauses that made exit next to impossible for the 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 years’ 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 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.

However, it is no one’s case that DLF is the only offender. The CCI is now spreading its tentacles further and has focused its attention of several Delhi builders who may have done a DLF or worse.

Shocked with what it found with DLF, the CCI has begun a reality check on other builders in and around the National Capital Region where the courts recently had to force builders to hand over land taken through dubious means.

The CCI director-general has begun to collect information on major realty companies who have allegedly used ‘unfair’ means to lure customers to buy apartments and then enter into one-sided contracts that favoured the builder.

But informed sources say an investigative team was busy collecting samples of builder-buyer agreements of many big builders in the NCR region. Among them: Unitech and Emaar-MGF in Gurgaon, Jaypee, Amrapali, Supertech and Lotus in Noida.

Strengthened by a crack team that has been deputed from the law ministry and market watchdog Sebi, the CCI has formed a task force to check out major realtors in the NCR before focusing on Mumbai, Kolkata, Chennai, Bangalore and Hyderabad.

— The author is former Member Consumer Disputes Redressal
Commission, UT Chandigarh