Tribunal upholds Rs 630 crore fine on DLF

[umesh.prabhakar1965@rediffmail.com]

Real estate major DLF will have to pay Rs. 630 crore as penalty for unfair business practices, a government tribunal has ruled. Upholding a 2011 order passed by fair trade watchdog CCI, the Competition Appellate Tribunal on Monday said India's biggest real estate company must pay up the hefty fine.

The case pertains to 2010, when a group of flat buyers in DLF's high-end Belaire project in Gurgaon, approached CCI with complaints of delayed possession and unilateral increase in the number of floors in the apartment complex.

The flat buyers had alleged that DLF "imposed highly arbitrary, unfair and unreasonable conditions on the apartment allottees of Belaire, which led to serious adverse effects and ramifications on the rights of the allottees".

In a statement to the Bombay Stock Exchange, DLF said it has successfully delivered Park Place, Belaire and Magnolia projects, which were the subject matter of the above appeals.

"The company shall be challenging the said order passed by the Hon'ble COMPAT (Competition Appellate Tribunal) in the Hon'ble Supreme Court for which COMPAT has given us 60 days," the company added.

http://profit.ndtv.com/news/corporates/ ... topstories

[umesh.prabhakar1965@rediffmail.com]

Achhe Din Aane Wale Hai.............I an sure DLF will face the wrath of hon'ble SC for the first time.

[dheerajjain]

Times of India May 20, 2014
http://timesofindia.indiatimes.com/city ... 360911.cms

GURGAON: The Competition Appellate Tribunal (Compat) on Monday upheld a Rs 630-crore fine on realty giant DLF imposed by fair trade regulator in 2011 on a complaint that it had imposed arbitrary and unfair conditions on buyers in some group housing projects in Gurgaon.

The order, relating to violations in Belaire, Park Place and Magnolia projects, sent a strong signal to builders across the country on adhering to the rulebook on super-built and common areas in residential complexes.

Compat gave DLF 60 days to pay the sum which, along with an interest of 9% per annum, would roughly amount to Rs 750 crore. DLF said it would appeal in the Supreme Court. "We have 60 days to move Supreme Court and we will not comment before we read the entire ruling," a company spokesperson said.

The 2011 ruling by the Competition Commission of India had held DLF guilty of violating Section 4 of the Competition Act, 2002 after the Belaire Owners' Association approached it alleging "abuse by a dominant enterprise". The buyers alleged DLF had delayed possession of apartments as they had changed their original plan to accommodate more floors.

In its 139-page order, in which it said abuse of dominant position must be dealt with an "iron hand", Compat ruled, "The order of CCI as well as this judgment is expected to go a long way to ameliorate all the conditions of the customers... If the consumer is exploited by a mighty builder, then such mighty builder cannot claim soft attitude from the state. We, therefore, refuse to bring down the penalty in any manner."

It added, "It was also urged that since we have found the approach of the CCI in relying on the clauses of the ABA (apartment buyer's agreement) and dealing with the same incorrectly, therefore, we should lessen the penalty. We do not agree. An abuse of dominance, whether it is on one count or on many, remains an abuse and therefore it must be dealt with iron hands."

After the ruling, DLF issued a statement, saying, "The company has respected in true letter and spirit the customer commitments made by it. In testament thereof, out of more than 2,600 total number of apartments, over 2,200 have been handed over, and more than 1,800 number of families are residing therein."

Talking to TOI, Vaibhav Gaggar, partner at law firm Gaggar & Associates who is representing the buyers' association said, "Compat found DLF abusive in its practices, especially in relation to modifying super area, common area, increasing the height of the building midway through the project and imposing holding charges. Under CCI norms, this amounts to the abuse of its position of dominance."

On March 29, 2012, Compat had asked CCI to specify the extent and manner of alteration of terms and conditions of the buyer's agreement after an appeal by DLF. The regulator clarified that DLF had flouted various rules related to the launch of the project and increasing the number of floors, floor area ratio and density per acre. It also said the developer had caused inordinate delays in completion of projects, noting that clauses in the agreement were biased in favour of DLF as they gave it sole discretion on making changes in zoning plans, usage pattern, super area, carpet area and alteration of structure.

Besides, it found that the agreement said if refund became due, no interest was to be paid by the builder and that buyers had no provisions for raising objections. As a result, buyers were virtually left with no exit plan.

Said Sanjay Bhasin, president of Belaire owners' association, "This is a huge victory for all buyers of real estate in our country who have so far felt completely helpless against dominant real estate companies."

[anuj_bansal]

http://economictimes.indiatimes.com/mar ... 994381.cms

Supreme Court asks DLF to deposit Rs 630 crore in court in 3 months

NEW DELHI: Boosting the hopes of aggrieved homebuyers across the country, the Supreme Court today rejected DLF's plea to stay the Competition Appellate Tribunal's order upholding the penalty imposed on the builder by the Competition Commission of India and asked it to deposit the penalty amount of Rs 630 crore within three months.

The apex court also directed DLF to deposit Rs 50 crore within three weeks, refusing to grant a stay on the Compat order. DLF will also have to give an undertaking that it will pay the additional amount based on 9% interest on the penalty if it fails in its appeal to the Supreme Court.

CCI had slapped a fine on DLF in August 2011 for violating fair trade practices after complaints by flat buyer associations of DLF Park Palace and The Belaire projects in Gurgaon that the builder had delayed possession of apartments, changed its original plan to accommodate more floors and that the apartment buyer's agreement was one-sided.

DLF had moved Supreme Court against the Compat order that was announced in May upholding the Rs 630 crore fine imposed by the CCI.

Apartment owners in the Belaire project in Gurgaon had alleged in their May 2010 complaint to CCI that each of the towers in the project were originally planned to have 19 floors but the builder constructed 29 floors in all the buildings, which also meant that areas and facilities got compressed.

[dheerajjain]

That is an excellent news ! Thanks, Anuj for sharing. I hope that Supreme Court will dismiss the appeal of DLF eventually. It also sends a strong message to builders who move to Supreme Court against NCDRC/CCI orders that they can't escape penalties or/and compensations ordered.

[dheerajjain]

Builders all over in real estate industry are cheating and exploiting home buyers by forcing buyers to sign one sided, exploitative and unfair buyers agreement. DLF leader in real estate also is having highly exploitative buyers agreement and CCI imposed a Rs 630 crore penalty on DLF after complaint by DLF's Belaire project buyers association.

First Post, August 28, 14

http://firstbiz.firstpost.com/corporate ... 21015.html

The Supreme Court has today directed India's real estate major to pay a fine of Rs 630 crore for exploiting its dominant position to the disadvantage of its customers in three projects in Gurgaon.

The case pertains to 2011 when the residential welfare society of DLF's Belaire project in Gurgaon filed a case against the builder for beguiling and entrapping them. The Competition Commission of India had in 2011 indicated that DLF had used this dominant position for unfair practice and imposed a penalty of Rs 630 crore which the apex court has now asked the company to pay.

The 12 August order of the Competition Commission of India (CCI) against DLF is a massive indictment of the market leader's dubious business practices and a clear rejection of the real estate industry's unfair practices. Though the order imposing a penalty of Rs 630 crore on DLF relates to only one project in Gurgaon, Haryana, it will impact future industry practices as it underscores the unequal power equation between builders and home buyers.

Labelling DLF's contracts with home buyers as "blatantly unfair, even exploitative," the CCI's observations in a complaint filed by apartment owners in Belaire project in Gurgaon amount to stinging rebuke. "The impunity with which these (unfair) clauses have been imposed, the brutal disregard to consumer rights that has been displayed in its action of cancelling allotments and forfeiting deposits and the deliberate strategy of obfuscating the terms and keeping buyers in the dark about the eventual shape, size, location, etc, of the apartment cannot be termed as fair. The course the progress of the project has taken again indicate that DLF Ltd beguiled and entrapped buyers through false solicitations and promises," the order states.

Among other things, CCI found that DLF unilaterally decided to increase the size of the building from 19 floors to 29, starting work without all permissions being in place, and delaying its completion to the extent where buyers have still not obtained possession of their flats.

So what are these clauses that CCI found abusive in DLF's Belaire project agreement? There are as many as 16 of them.

•Unilateral changes can be made by the builder without the buyers' consent

•Builder has the right to change the layout plan without buyer consent

•Building can unilaterally change inter se areas for different uses like residential, commercial, etc, without informing anyone

•Preferential location charges are paid for upfront, but if you do not get the location you ask for, you only get a refund/adjustment amount at the time of last instalment, and that too without interest

•The builder enjoys unilateral right to increase/decrease super area at his sole discretion without consulting allottees, who nevertheless are bound to pay additional amounts or accept a reduction in the area

•The proportion of land you get as your share will be decided by the builder

•The builder continues to enjoy full rights on the community buildings, sites, recreational and sporting activities, including maintenance, with you having no rights in this regard

•Builder has sole discretion to link one project to other projects, with consequent impact on ambience and quality of living, with buyers having no right to object

•You are liable to pay external development charges, without these being disclosed in advance and even if these are enhanced

•The builder has total discretion regarding arrangement for power supply and rates levied for the same

•In many situations the buyer forfeits the amounts paid

•Allottees have no exit option except when builder fails to deliver possession within the agreed time, but even in this case they get refunds without interest, and that too only after the apartment is sold

•The builder's exit clause gives him full discretion, including the right to abandon the project, without any penalty

•The builder has the sole authority to make additions/alterations in the buildings, with all the benefits flowing to the builder, and not the apartment owners

•Third party rights can be created without your consent, to the detriment of your interest.

•Punitive penalties can be imposed if you default, but not if the builder defaults.If any or all of these clauses are written into your purchase agreement with your builder, you can rest assured that these clauses are "abusive, arbitrary, unfair and unreasonable" and an infringement of your rights. Or so the CCI has held in the DLF case.The above 16 "unfair" conditions figured in DLF's group housing complex project called `The Belaire', in Gurgaon. The complex consists of five 19-storied buildings with 368 apartments and was to be constructed in three years. DLF took crores of rupees from the allottees, even before the first brick was laid. It announced changes in plans by declaring that it would construct 29 floors instead of the earlier 19, thus delaying the project. Till date, homes are yet to be handed over to many buyers.DLF contended that the conditions mentioned in the purchase agreements were not an abuse. They are "in fact, usual conditions included in the agreements in accordance with 'industry practice.'"

The complaint to the CCI was filed by the Belaire Owners' Association for abuse of their rights. They had paid 33 percent of the total amount even before construction began, and each flat cost Rs 1.5-3 crore.

On receiving the complaint, the CCI ordered an investigation by its Director General (DG) who found that DLF was the industry leader in this segment of the market, and that these clauses were indeed standard, though arbitrary.

A Firstpost story on Noida Extension had pointed out that builders were advertising flats in housing complexes even when they had not been allotted the land for it. In DLF's case, the DG report found that DLF had already commenced the structural work for all 29 floors without obtaining any approval from the competent authority.

DLF is the only builder listed in top 100 brands. Its promoter KP Singh was ranked eighth among India's top 10 billionaires in 2010. His net worth is estimated to be $9.2 billion against his nearest competitor Unitech's Ramesh Chandra ($1.86 billion). His marketshare among construction companies in Gurgaon exceeds 55 percent - which DLF has contested.

Says the DG report: "There is a huge housing shortage and buyers cannot influence the business decisions of DLF since residential units are in shortage. The consumers are dependent on DLF in Gurgaon because of its huge land reserves and projects under construction. The demand is huge while the supply is less. Thus, there is no case of countervailing buyer power in this case which has any sobering impact upon the dominance and market power of DLF."

The CCI, in its 237-page order, observes that "the allottees become captured consumers who are subject to abuse by DLF through imposition of unfair conditions contained in the agreement. Such abuse is not a one-time abuse by DLF; rather it continues throughout the span of the period of construction, and allottees are subjected, or there is a scope to subject them time and again, to newer conditions, aggravating the existing abusive conduct of DLF."



The Commission's order says: "Certain bookings were made as far back as August 2006 and substantial amounts running in several hundred thousands were taken by DLF Ltd. At that point in time, necessary approvals from agencies like the Airports Authority of India...had not been obtained by the developer. Moreover, the building was to be of 19 floors only. The application for approval was moved in December 2008 and the approval for the revised plan came only in August 2009 - a full three years after the first bookings were made."

"The revised plan did not increase the number of floors by a couple of stories but by 10 floors, that is almost by 50 percent more. The buyers' agreement gave an impression that the project would be completed in three years. However, the dates of possession kept shifting forward and even as on date, the possession is supposed to be given around October 2011."

Pointing out the "draconian and one-sided clauses" of DLF, the Commission's report says: "There are clauses that give DLF Ltd 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 Ltd inserted clauses that made exit next to impossible for the buyers."

"Similarly, in the event of delay, the builder would pay compensation at Rs 5 per square foot per month for delays beyond three years. In sharp contrast, if there is a delay on the part of the buyer, the interest charged is 15 percent per annum for the first 90 days, increasing by another 3 percent after that."

The other violations and abuse of consumer rights, according to the CCI, are:

•They (builders) issue advertisements for launching projects without the land being actually purchased, registered in their names and possession taken and without taking prior approval of competent authorities.

•Builders don't specify the total area of the plot/flat/house, indicating clearly the carpet area and utility area.

•They don't specify the date of delivery and consequential remedies available to the consumer in case of delay.

•They don't deposit the amounts collected from allottees against a particular project in a designated escrow account that will be utilised only for the construction of the concerned building.

•They don't inform buyers about the progress of works and status of account of each allottee in a transparent manner.

•They don't inform buyers of built-in hidden costs other than the initial set price.

•They don't post all the relevant information on the internet and make them available in the public domain. There is no transparent and participatory mechanism put in place to deal with price escalations, if any.

•In cases of inordinate delays, there is no provision for the payment of pre-determined penalties to buyers.

•There is no fair, participatory and transparent mechanism to tackle any substantive and major changes in the project mid-way, before taking approval of the authorities for the revised scheme and commencing construction thereon.

•The agreements don't include 'changes' in FAR, or density per acre, or some common facilities in the category of `substantive' or major changes.

In view of these transgressions, the Commission directed DLF Ltd to:

•Cease and desist from formulating and imposing such unfair conditions in its agreements with buyers in Gurgaon; and

•Suitably modify unfair conditions imposed on its buyers within three months of the date of receipt of this order.

"In the view of the Commission, the conduct of DLF in abusing its dominant position requires to be taken very seriously and thus the Commission is required to adopt a deterrent approach so that recurrence of such conduct is stopped. Keeping in view the totality of the facts and circumstances of the case, the Commission considers it appropriate to impose penalty at the rate of 7 percent of the average of the turnover for the last three preceding financial years on DLF," the report said, adding that this amount comes to Rs 630 crore.

This decision has far-reaching impact on the realty sector, because every realty company, more or less, is following the leader DLF.