DLF under Continuous Scanner for Abusing Competition

Anti-monopoly watchdog CCI has again accused India's largest real estate firm DLF of abusing its dominant market position and imposing unfair conditions on home buyers, this time in its high-end residential project Magnolia in Gurgaon. The order was came up on a complaint filed by Magnolia Flat Owners' Association against DLF Universal, Haryana Urban Development Authority and the Director Town and Country Planning, Haryana, with the Competition Commission of India (CCI).

DLF is a big name and holding the dominant position in the sector for development and construction of residential and commercial complexes in Gurgaon Region of Haryana, which CCI took as the relevant or geographical market for determining the dominant position in terms of the provisions of the Competition Act.

It was found on report of DG that DLF issued allotment letters and apartment buyer’s agreements were signed even before it got approvals from the town planner. The builder also revised the building plans and applied for increasing the height of the towers after collecting 90% of the money from the buyers. The report also pointed out that there has been an inordinate delay in handing over possession of the project and change in the floor area ratio of the project due to change in number of floors.

DLF was also accused by the Competition Commission of India earlier for its projects namely Belaire and DLF Park Place for carrying on unfair practices, abuse of market dominance and disregard for consumer rights. In Belaire Project Case, the first one decided by CCI, a penalty for the amount of Rs. 630 crore was imposed as 7% on the average of past three years turnover with a direction to suitably modify the terms of the agreement which are unfair, arbitrary and one sided.

While establishing the dominant position and its abuse, the competition watchdog has considered many factors like relevant market, business activity, market share, number and position of other competitors, market sentiments including the concept of ‘after market abuse’ relying on the decision of the Supreme Court of United States in the case of Eastman Kodak Co. v. Image Tech. SVCS (1992), in which the concept called “after market abuse” was applied. The concept of ‘after market abuse’ says that even though there is large competition in the market but when a consumer makes a choice and enters into an agreement with a builder and is bound by the agreement based on information asymmetry and high switching costs therein, the abuse of dominance is established.

In the instant (Belaire) case, the DLF made the flat buyers to sign the Flat Buyers Agreement containing arbitrary, unfair and lopsided clauses, after taking huge amounts of earnest money, which is threatened to be forfeited in case they refuse to sign the Agreement and proceed with it. Therefore by applying the above concept of ‘after market abuse’ and provisions of the Act, the DLF was concluded to be abusing its dominant position.

But however the penalty imposed by the competition watchdog was stayed by the Competition Appellate Tribunal (COMPAT) on appeal before it as a temporary relief to DLF but with the direction to sign an undertaking to deposit the entire penalty amount with 9% interest if DLF finally looses the case. 

The order of fair trade watchdog, CCI was challenged before the COMPAT on various grounds, including the jurisdiction of the case, the basis for determining relevant market and dominant position and the company not being served with show-cause notices before passing the orders.

Moreover apart from number of complaint against DLF, several cases were also filed against other real estate developers on similar grounds for abuse of their position and imposing unfair conditions in the flat buyer’s agreement which mandatorily have to be accepted by the consumers to proceed with after paying off the earnest money otherwise to get their money forfeited. To name few are Re Eastman and Forge case, Balabhadra Residency case, Re Kuldeepak Mittal Case, Re Praveen Kumar Sodhi Vs Omaxe, Naresh Grover Vs. Parsvanath Developers and Neelam Sood Vs. Raheja Properties but these complaints were turned down by the Commission on the ground that these developers are not holding dominant position in the relevant market and advised the informants to approach the consumer forums, which is the long and even annoying process to be followed by the consumers for seeking remedy. 

Thus splurge of the unfair practices carried on by real estate developers including the dominant players calls for the need of more deterrent measures by the legislature so as to prevent them from curbing competition, imposing unfair conditions and affecting consumer interest. In this context the recent announcement by the President, Smt .Pratibha Patil, for the bill for regulation and management of realty sector, is a welcome step. The Bills aims to bring in more accountability and transparency in land and home transactions and requires the Builders to register themselves before launching housing projects, stick to the approved plans and refund money to homebuyers in case they default and also liable to be imprisoned. 

The COMPAT with which the DLF’s appeal against the CCI order is pending should also fastrack its disposal and more importantly upholding the CCI’s punitive order against DLF so as to restrain the abuse by DLF and also as a deterrence measure to other real estate players.