Competition Commission penalty on DLF highlights the need to correct the system
Moneylife Digital Team 19 August 2011

CCI order sparks off debate over problems of property buyers as well as issues that affect developers

Property buyers will welcome the decision by the Competition Commission of India to (CCI) punish DLF, the country's leading realty firm, with a fine of Rs630 crore for abusing its dominant market position, to engage in unlawful activities in disregard of consumer interest.

If this order over the company's Belaire project in Gurgaon has surprised the market, there could be more shocks in store for the industry as the CCI is reported to be also investigating complaints with regard to at least three other projects by DLF, and if the company is found guilty it would have to pay further penalties amounting to Rs900 crore.

Some 10 other cases involving other real estate players are also pending before the CCI, and this highlights the need to correct the loopholes in the system. "The decision will act as a deterrent for developers, who usually have the upper hand in the bargain," said an analyst.

Echoing the sentiment, an industry representative said, "The decision implies that the builders can no longer take customers for granted."

However, some developers are already questioning the authority of the CCI in this matter. "I never knew such a body existed in the first place," said a Mumbai-based developer. "I am not sure what it has to do with the realty sector."

Former CCI chief Vinod Dhall's statement in a television interview also suggests that the CCI has acted as a proxy for a real estate regulator. "The absence of a regulator is a vacuum and you can say that the Competition Commission, sort of, has stepped in to fill an existing vacuum. It is possible that there may be more such applications filed in CCI, but it also has to be wary and should not allow itself to be converted or treated as a consumer court."

Other experts have raised doubts about the capability of a real estate regulator to be fair. One industry representative said there is no guarantee that the regulator will not abuse his position or succumb to industry pressure.

The issue of delays that developers have to face must also be carefully looked into, industry representatives say. Developers complain that getting approvals often takes years, which pushes up costs and consequently the prices.

"Sometimes, delays happen due to things that are beyond the developer's control, and he may also have to make some structural changes," says Pankaj Kapoor, managing director, Liases Foras. "In that case, he must be provided with guidelines. But if the developer starts selling before getting necessary approvals or sits on the project after getting all necessary clearances, he must be fined."

CCI found that DLF had registered bookings for flats between August and November 2006, whereas the application for approval was submitted in December, and the clearance was obtained only in April 2007.

Instances of violation of customer rights are rampant, and home buyers across the country will identify with the buyers in the DLF case. But while in the DLF case customers can approach the Competition Appellate Tribunal to seek compensation from the builder, in most such cases, customers usually have to pursue their complaints before consumer courts, where they have to go through a lengthy process and they may not always be successful.

"What we need is transparency," Mr Kapoor, says. "We already have laws, and if government makes all the records and documents-from land records to project completion certificates-available to the public to see, a lot of ills will disappear. But they don't want to, because the officials themselves benefit from the opaque mechanism."

In the absence of other methods of grievance redressal, the best and the most effective thing that a customer can do is to read the contract carefully before signing it. "It is a tiresome thing to do, but the contract tells you exactly what you have been handed over," a property lawyer pointed out. "Many future complications can be avoided, and one can challenge the developer if there is an unfair clause, and can even negotiate with him on the spot. Once the contract is signed, one can always approach the court, but it is a long and exhausting process."

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