Sometime ago, the competition commission of India (CCI) imposed a penalty of Rs. 630 crores on the largest real estate company of India, the DLF. This was 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 the violation as the “grossly abusing its dominant position”.
What was the issue?
There have been complaints against real estate developers over the last couple of years on incomplete projects, delays in possession, and in some cases, irresponsible responses to critical situations. This has left home buyers confused and exasperated. Some of the affected home buyers lodged a complaint with CCI regarding a project undertaken by DLF. The project was supposed to be completed in 2009 but even after 2 years past the stipulated timeline of 2009, the status was not clarified according to the home buyers.
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 the home buyers. For example, buyers will have to pay a high interest rate if buyers delay payment while DLF will pay a negligible amount if they delay possession. This condition is termed the punitive penalty clause by builders.
What this means is that if the buyer delays the payment they will have to pay with an interest rate. For example, if the buyer is supposed to pay 1L by December 28th, 2011 and delays, he will have to pay 15% charges per annum on this amount. While if the builder delays giving possession of apartment, he doesn’t pay much penalty.
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 significant judgement by CCI will have larger implications for the home buyers. DLF, in its response, said that these are industry practices and hence they cannot be singled out. Essentially what this means is that the judgement can be used by home buyers who have been forced into similar situations by other builders.
Home buyers can go to CCI for situations where builders have increased 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 unprecedented right to DLF to exit without providing adequate compensation to the home buyers. Not only this, buyers can question changing any clause which puts them at an unfair disadvantage.
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 far-sweeping changes in the real estate industry. This regulation will enforce transparency in real estate dealing, reduce unaccounted for transactions, enforce accountability and sanctity of contract, and ensure that home buyers are not taken for granted.
Together, with real estate authority bill 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.