DLF penalty in Gurgaon apartment case

The Competition Commission of India (CCI) today slapped a Rs 630-crore penalty on real estate giant DLF for trampling on the rights of apartment allottees — the single-largest amount slapped by any regulatory watchdog in the country. DLF has been accused of ripping off those who bought into Belaire — a tony, high-rise condominium in Gurgaon. The company has been charged with unilaterally changing the scope of the project midway, raising money from clients without statutory approvals and denying customers the right to equitable compensation while slipping on delivery schedules. The commission, which formally started work only last year, upheld the charge that DLF had abused its position of dominance in the country’s real estate market by foisting provisions in the buyers’ agreement that were loaded against its clients. The commission chose an interesting way to decide on the penalty. It calculated the penalty at 7 per cent of the average turnover of DLF in the three preceding years. The average for the three years between end-March 2009 and 2011 was estimated at Rs 9,006.27 crore. Seven per cent of this sum came to Rs 630 crore. The CCI had imposed a penalty for similar abuse of market dominance on the National Stock Exchange a month ago. However, the penalty then was only Rs 5 crore. This is a hefty penalty and a strong statement from CCI. The Belaire project was floated in August 2006 and initially supposed to have five towers of 19 floors each with a provision for 368 residential units. The project, spread over 6.6 acres, was to have been completed in 36 months. The apartments — each costing well over Rs 2 crore — aren’t likely to be handed over before October this year. Without consulting the apartment allottees, DLF arbitrarily raised the number of floors at Belaire to 29 from 19, which inordinately delayed the project. The numbers of floors were raised by compressing the common area. The allottees were denied the right to claim any reduction in the price on that account. DLF also included in the buyers’ agreement Clause 32 that permitted it to “abrogate all that has been promised to the allottee”. This clause allowed DLF to amend or change annexure to the buyers’ agreement. The abuse of its dominant position in the real estate industry — an aspect covered by clause 4 of the Competition Act - became a nub of contention. DLF argued that there were many competitors in the market and it, therefore, could not be accused of abusing its dominance. The commission, however, used a variety of statistics and assertions that DLF itself had made in several documents, including its annual report, to establish that it straddled the totem pole in the real estate business. The DLF stock plunged almost 6 per cent to Rs 189 on the Bombay Stock Exchange yeterday.