New Delhi:In a consumer-friendly move, India’s antitrust body, the Competition Commission of India (CCI), imposed a penalty of 7% of average turnover of last three years on DLF Ltd.
This penalty, estimated at around Rs 630 crore, was imposed for misuse of its dominant position to treat homebuyers unfairly.
In its second order on dominant position—the first was against the National Stock Exchange of India Ltd (NSE)—CCI has signalled its tough approach to antitrust activities and also set out the broad contours on how it will interpret the competition law.
The order was signed by all four members—R. Prasad, Geeta Gouri, Anurag Goel, M.L. Tayal—and acting chairperson H.C. Gupta. However, Prasad has inserted a supplementary note articulating his views on dominant position in this instance.
The complaint against DLF Home Developers Ltd, a DLF group company, dates back to 2008 and pertains to delays and the firm increasing the number of units being built in the same area. In May 2008, director general, CCI, started investigating the case based on a complaint filed by Belaire Owners’ Association.
DLF Belaire and DLF Park Place, the two projects in question in this case, are expected to have 2,142 flats collectively. Apartments in these projects are priced between Rs 1.5 crore and Rs 3 crore and are likely to be delivered this year against the original deadline of end-2009.
A key complaint against DLF was that it decided to raise the number of floors from 19 to 29 in Belaire, which led to the number of apartments increasing to 564 from 384 on the same land area without the consent of the allottees.
“CCI agreed with our views,” said M.L. Lahoty, counsel for the petitioners.
“We had four main points where we felt that DLF has violated norms. First, the company did not inform the buyers about the changes in the number of floors; second, as the project is already delayed by a year, there is no word on the delivery of the project till date; third, the company had unilaterally decided to charge buyers for the modification in apartments’ size, and fourth, the company brought changes in the apartments without any notice to buyers of the project,” he said.
Rajeev Talwar, group executive director of DLF Ltd, said: “We’re reading the order, consulting experts for the options available. We believe we have a strong case.”
According to the Competition Act, the company has got around 60 days to appeal against the ruling to the Competition Appellate Tribunal (Compat).
“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,” said the order.
The 237-page order adds: “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.”
This is the second case of abuse of dominant position imposed by CCI.
Earlier, in the case of NSE in June, in which CCI imposed a penalty of Rs 55 crore, two members took a differing view on the alleged attempt by the exchange to abuse its dominant position in the currency derivatives market as claimed by rival MCX Stock Exchange Ltd.
Prasad elaborated on CCI’s actions against DLF in a separate note. “In this particular case, when a buyer enters the market, he has the choice of going to a large number of builders for the purpose of purchase of a flat. There is large competition in the market. But when a consumer makes a choice and enters into an agreement with a builder, he is bound by the agreement and even if he wants to switch to another builder, he has to pay high switching costs,” he said.
Samir R. Gandhi, partner at Economic Laws Practice, feels CCI has enough jurisprudence on what can be called a dominant position.
“Internationally, several cases exist where respective competition authorities have looked into the question of what actually is abuse of dominance. And CCI has increasingly looked at such precedents to precisely define the term,” said Gandhi.
He added that the buyers can also claim compensation when they approach Compat.