CCI slaps a fine of Rs 630 crore on DLF for unfair trade practices

Published on:

17 Aug 2011, 6:59 am

4 min read

The Competition Commission of India has imposed a penalty at the rate of 7 percent of the average of the turnover for the last three years on real estate giant DLF Ltd. The penalty amounting to Rs. 630 crore has been imposed for abuse of dominant position by drafting one sided agreement and imposing unfair conditions on the home buyers.

CCI has directed DLF to ‘cease and desist’ from formulating and imposing such unfair conditions in its agreements with buyers in Gurgaon and to suitably modify unfair conditions imposed on its buyers within 3 months of the date of receipt of this order.

CCI in its order said, “The abuse of dominant position in this case is in respect of the basic necessity of housing. The earlier deliberation on the elements and extent of abuse make it clear that DLF has been grossly abusing its dominant position, and that too against a vulnerable section of consumers, who have little ability to act or organize against such abuse. The penalty, therefore, has to be commensurate with the severity of the violation through such blatant abuse of dominance”.

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.

The case relates to a complaint filed by the Belaire Owners’ Association in Gurgaon against DLF in May 2010. The complaint was filed for delay in possession and violating building restriction norms by increasing the number of floors to 29 from 19 and increasing the number of apartments to 564 from 384. DLF was building 2,230 apartments in buildings known as Belaire and Park Place in Gurgaon. The Association alleged that DLF has charged exorbitant late fees and interest, for delayed payments made by the buyers and the agreement between the apartment owners and DLF was also extremely one sided.

The Director General (DG) in charge of investigations at CCI, on investigating the complaint had found that DLF had abused its dominant position, building two Gurgaon based projects, without acquiring required approvals or seeking clearance from the Haryana Government for changes that were made to the original plans.

Senior Advocate Ashok Desai appeared for DLF and was briefed by Advocate Ravinder Narain of Rajinder Narain and Co.

The Commission while examining this case has observed that although there is a plethora of laws, there is no proper regulation of the real estate sector, particularly the housing sector. The Commission has therefore made a strong recommendation to the Central Government and all State Governments to come out with real estate regulations at the earliest for ensuring overall consumer welfare and to discourage unfair trade practices that seem prevalent in the sector.

Speaking to Bar & Bench on CCI order Advocate M. L. Lahoty, Counsel for Belaire Owners’ Association said, “These types of abuses are common and invariably this is being done by old real estate developers. The authorities are not taking any action and that is why specific directions have been given by CCI to control such abuses”.

Lahoty further said, “So far as DLF is concerned, we have seen how they have deduced their one sided clauses in the agreement which I termed as ‘culpa grave’. The order passed by CCI is quite satisfying. This petition was filed in May 2010 and what pleased me is that the proceedings were over by June 2011 though DLF had tried to delay the proceedings by going to High Court and COMPAT intermittently but we were able to see the conclusion of the matter in June”.

Speaking to Bar & Bench, Economic Laws Practice Partner Samir Gandhi said, “The CCI’s decision to impose a record Rs. 6.3 billion fine on DLF is a clear indication of its intent to use the considerable fining powers available to it under the Competition Act. The CCI has also used the occasion to point out a number of ‘other concerns’ that it has about the real-estate sector at large and has called for greater government regulation. The decision shows that the CCI continues to be willing to rely on international case law and jurisprudence while deciding cases but there remains some ambiguity on the methodology used by the CCI for the computation of the penalty. If the CCI is to impose high fines such as this, then it must do so based on clear and well-defined fining guidelines, which is the practice followed in many other jurisdictions”.

The penalty on DLF is the highest-ever imposed on any company by CCI. Earlier, the Commission had asked National Stock Exchange to pay a penalty of Rs. 55.5 crore.

DLF has the option to appeal against the order in the Competition Appellate Tribunal (COMPAT), which according to media reports DLF is planning to do.

The copy of the order is available here.