The recent judgment of the Competition Commission of India (“CCI”) in Belaire Owner’s Association vs DLF Limited has created ripples in the real estate sector. The news has come as another dampener for a sector that is already reeling under the impact of hike in interest rates, dwindling buyers and a looming recession in the US. However, the judgment has come as a shot in the arm for home buyers, who were, till now, at the mercy of builders due to their inordinate delay in executing projects and the one-sided arbitrary clauses used by realty firms. In an unprecedented order in terms of scope and scale of punishment, the anti-monopoly regulator had imposed on DLF Ltd a hefty penalty of 7 per cent of the average of the turnover for its last three preceding financial years amounting to Rs 630 crore for abusing its dominant position in the market by holding out false representations and resorting to unfair and abusive trade practices for undue economic gains. CCI has further directed DLF Ltd to desist from formulating and imposing unfair conditions in its agreements with buyers in Gurgaon and to suitably modify existing unfair conditions imposed on the buyers. This article seeks to analyse the judgment and its impact on the real estate sector particularly when the promised amenities, facilities or returns are not delivered, false representation is given and of course the expectations of the investors are not met.
Belaire Owners’ Association approached the CCI under Section 19(1) (a) of the Competition Act, 2002 (the “Act”) against DLF, alleging that by abusing its dominant position in the market, the realty firm had imposed highly arbitrary, unfair and unreasonable conditions on the apartment allottees of the housing complex ‘the Belaire’ in DLF City, Guragaon, which had serious adverse effects and ramifications on the rights of the allottees. It was also alleged that the Haryana Urban Development Authority ‘the HUDA’ and the Department of Town and Country Planning, State of Haryana had approved and permitted DLF to act in such an illegal manner, which is in contravention on various statutes. According to the Association, from the very beginning DLF had fraudulently concealed some essential information and being ignorant of these facts, the allottees entered into the Agreement. While the allottees booked their respective flats on the basis that there would be only 19 floors with 368 apartments, which was also represented by DLF at the initial time of allotment. However, subsequent to the initial allotment, DLF unilaterally increased it to 29 floors with 564 apartments. As a result, it was further alleged that the areas and facilities originally earmarked for apartment allottees got substantially compressed with no proportionate reduction in price, and the project also got abnormally delayed causing the apartment allottees severe losses.
The Association further pointed out that the buyers had no option but to accept in toto and give the assent to ‘Apartment Buyer’s Agreement’, though the clauses therein were onerous, arbitrary and one-sided. Among others, the agreement had vested DLF with the absolute right to reject or refuse to execute any Agreement without assigning any reason, cause or explanation, leaving no scope for discussion to vary the terms of the Agreement. It was alleged that the decision of DLF to advertise and announce the scheme, issue allotment letters, collect substantial amounts from buyers, execute the agreement, and carry out the construction without the approved layout plan had serious fallouts for which the entire liability was shifted to the allottees. The agreement also had the clauses to the effect that the apartment allottee would also not get any refund of the amounts paid if, there was any change in the super area at the time of completion of the building and issuance of occupancy certificate even though the total price was to be recalculated; that the time being the essence of the contract but only for the buyer, not for DLF. Further, DLF was not obliged to refund the amount paid by the allottee till the time the property was resold to another buyer. DLF also had the right to mortgage the land beneath the building though the apartment allottees owned the land and had paid for it.
DLF took a preliminary contention that CCI did not have the jurisdiction to try the case since the agreements were entered into prior to the coming into force of the provisions of the Act (May 20, 2009). DLF refuted the allegations and argued that in order to determine the alleged contravention of Section 4 of the Act, it was necessary to establish with evidence that it enjoys “Dominant Position” within the meaning of Explanation (a) to Section 4 of the Act. DLF also relied on market reports and surveys to show it was not a dominant player at all and that there were several other competitors for the investors to choose from. DLF contended that mere allegation of abuse was not relevant unless it is proved that the alleged unfair/discriminatory conditions were imposed by abuse of dominant position.
CCI followed a three-step process to judge if DLF abused its dominant market position. Firstly, it defined the term ‘Relevant Market’, then ascertained whether or not the company was a dominant player in the relevant market, and lastly examined whether DLF abused its dominance in the market. By a detailed order, CCI held that DLF had acted in contravention of section 4 (2) (a) (i) of the Act, by imposing unfair conditions on the sale of its services to consumers. CCI also took cognizance of the facts which were disclosed by DLF in its draft red herring prospectus regarding its dominant position in the Indian market, which CCI observed could not be denied by DLF at a later stage. The Commission also found certain other practices that were followed in the industry to be objectionable and detrimental to consumers’ interests and called upon the Central and State Governments to come out with the regulatory framework for the realty sector to protect the consumers from unfair trade practices. CCI condemned the practices followed by the realty firms issuing advertisements for launching projects even without purchasing the land, not disclosing the total area of the property, date of delivery of possession and information relating to the progress of work to the buyers. It also criticised the practice of notdepositing the money collected from buyers in an escrow account and of not making the entire process transparent in dealing with escalation of prices and approvals from competent authorities.
However, the judgment is fraught with assumptions and weaknesses which may be exposed in a likely challenge by DLF before the Competition Appellate Tribunal. CCI had failed to explain the basis of its conclusion to hold what was the concept of ‘relevant market’ in context of Section 4 and 2(r) of the Act. The concept of “luxury” or “high-end” was also nebulous and no clear guidelines emerge from the judgment for future cases.
CCI failed to consider that sometimes due to some unavoidable market conditions/circumstances the projects do get delayed and the approvals from authorities also take considerable time which is beyond the builder’s control. CCI ought to have drawn a distinction between such genuine cases from the fraudulent builders. The judgment appears to have been passed on a surmise that all builders follow unethical practices, which is not true. It is likely that this judgment will open a Pandora’s Box for greedy and unscrupulous litigants. While interests of consumers are paramount, the judicial reach should not prevent a realty firm from making honest gains.
It is pertinent to note that the judgment was delivered in the context of the Act, where the CCI has the power to check anti-competitive practices and abuse of dominant market positions. With the realty sector, in most cities, open to competition, the effect of the judgment may not be as draconian in as much the essential test of Dominant Position and abuse of that position will not be met in most cases. However, the realty firms should not take their chances. It is likely that CCI will order a probe into other developers or buyers may take the builders to Court relying on this case. The judgment will have tremendous impact on an industry that is known to practice one-sided agreements and not meet the expectations and promises made to investors in brochures. Hence, great caution and due care must be exercised while drafting brochures, prospectuses, disclosures made by Directors to investors and company websites; and to further ensure that the agreements are not lopsided and arbitrary. The buyers must be informed of all the aspects of the project such as time for completion of the project, due compliances with law and if any, alterations are being done to the original project. At all times they must act in the best interests of the consumers. The judgment has certainly come as a relief to several buyers who till now were usually left in the lurch and they need not suffer in silence for want of a platform to vent their grievance against the realty firms.
Tapas Misra is a Partner and Ashu Kansal is a Senior Associate at IndusLaw, a Delhi-based law Firm. Views are personal
