The Competition Commi-ssion of India (CCI) has imposed a penalty of `630 crore on the country’s largest real estate company DLF. This has been hailed as a landmark judgement. CCI is an institution created to ensure that no institution
or company exploits its dominant position to create a monopolistic situation in the market by unfair means. CCI has taken a serious stand against DLF and termed its violations as “grossly abusing its dominant position”.
What was the issue?
There have been complaints against real estate developers over the last couple of years about incomplete projects, delays in possession and in some cases, irresponsible responses to critical situations. This often left home buyers confused and exasperated.
Some of the affected home buyers lodged a complaint with CCI regarding a project undertaken by DLF. Buyers complained that the project was supposed to be completed in 2009 but even two years after the deadline its the status was not clarified. The second deviation that buyers indicated was that of DLF indulging in increasing the number of floors. This has resulted in more number of apartments in the same area. This is very common to many developers, who promise something but deliver a completely different product.
Apart from these violations, there were many terms and conditions, which were unfair to home buyers. For example, buyers will have to pay a high interest rate if they delay payment while DLF would pay a negligible amount if they delay possession. This condition is termed as punitive penalty clause by builders. What this means is that if the buyer delayed an instalment they would have to pay with a higher interest rate of upto 15 percent per annum. The same does not apply to the builder if he delays possession.
The CCI, in its judgement, has also clarified that they can issue penalties against other developers if found guilty on similar violations. This has opened up other cases as well and CCI is actively looking into such cases.
Implication for
home buyers
This is a significant judgement by CCI, which has larger implications for all home buyers. Essentially, what this means is that the judgement can be used by home buyers, who have been forced into similar situations by other builders. DLF, in its response, said that these are industry practices and hence they cannot be singled out.
Home buyers can now go to CCI for situations, where builders have incr-eased the number of apartments than what is promised originally. They can also question the builders on changing the super area and charging extra. Home buyers can question the exit clauses for them and for the builders. The exit clause is usually not in favour of the home buyers. In the case of DLF, the exit clause gave an unprecedented right to DLF to exit without providing adequate compensation to the home buyers.
What is next?
After this judgement, CCI has been studying other cases, where such violations have happened. Since DLF has made it clear that these are industry practices, CCI is conducting a thorough check on builders who follow the same practice. This will provide relief to home buyers, who have not got their units as promised.
There is another regulation to be discussed in the Parliament very soon. The Real Estate Authority Bill envisages sweeping changes in the real estate industry. This regulation will enforce transparency in real estate deals, reduce unaccounted for transactions, en-force acco-untability and ensu-re the sanctity of contract, and protect home buyers against being taken for granted. Together, with the Real Estate Authority Bill, the CCI judgement against DLF will have a big impact in the realty segment. This will encourage serious players in real estate, discourage unscrupulous practices, and attract foreign players which will help the industry as a whole. And most importantly, it will give rights to buyers who have been at the receiving end of unfair practices by developers.
(The writer is the CEO of bankbazaar.com)