New Delhi, Aug. 16: Real estate giant DLF is examining its legal options to contest the Rs 630-crore penalty imposed on it by the Competition Commission of India (CCI).

“We are reading the CCI order and are consulting legal experts to examine the options available. We believe we have a strong case,” said Rajeev Talwar, executive director of the DLF group.

The hefty penalty was imposed because the CCI believed DLF had abused its dominant market position — an aspect covered by clause 4 of the competition act.

DLF had challenged the dominance claim by arguing there were many competitors.

The CCI, however, used statistics and assertions that DLF itself had made in several documents to establish its dominant status in real estate.

The competition watchdog found DLF guilty of breaching laws regarding unfair pricing and imposing discriminatory conditions of goods and services (residential flats).

The order was issued after an investigation upheld the contentions that the Belaire Owners’ Association in Gurgaon had made out in a complaint lodged in May last year.

“The commission considers it appropriate to impose penalty at the rate of 7 per cent (totalling Rs 630.43 crore) of the average of the turnover for the last three preceding financial years on DLF,” the CCI order said.

It reckoned that DLF Limited — the country’s largest real estate player — had an average turnover of Rs 9,006.27 crore over the past three years.

Vinod Dhall, former chairman of the CCI, told The Telegraph that this was the first time that the CCI had imposed such a huge penalty.

The CCI officials said the percentage and duration of penalty is based on “the size and resources of DLF and the duration during which this abuse continued, which is 3 years from the date of completion of the project”.

In 2006, DLF had issued an advertisement for a residential project in Gurgaon called “The Belaire”. The project was to be completed within 36 months by 2009.

However, not only are buyers yet to get possession of the flats but DLF has also arbitrarily changed the number of floors and the total number of apartments in the project.

“Consequently, not only the areas and facilities originally earmarked for the apartment allottees are substantially compressed, but the project has also been abnormally delayed,” said the CCI order.

It added that the “fallout of the delay is that the hundreds of apartment allottees have to bear huge financial losses”.

The CCI also noted that “there are clauses that give DLF sole discretion in respect of change of zoning plans, use patterns, carpet area, alteration of structure etc”.

Keeping these facts in mind, the watchdog has also asked 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 three months of the date of receipt of this order”.

Negative impact

Analysts said the CCI order would have a negative impact on the overall real estate sector which was already reeling under the effects of high inflation and increased home loan rates, which had dampened demand from home buyers.

“There are many projects where delays are beyond the control of developers and if regulators start imposing stringent measures, the sector will be negatively impacted,” said Abhishek Goenka, partner real estate, BMR Advisors.

In its order, the CCI has also urged the government to bring in a code of conduct for the real estate sector. Analysts, however, felt the move would only stifle the sector.

The CCI said the examination of this case had brought forth several areas of concern pertaining to India’s housing sector.

The watchdog noted that realtors issue advertisements for projects without the land in question being actually purchased or registered and without taking prior approval of competent authorities.

They also do not specify the total area of the house indicating clearly the carpet area and utility area nor the date of delivery and consequential remedies available to the consumer in case of delay.

Moreover, the amount collected from the allottees against a particular project is not deposited in a designated escrow account and utilised only for the construction of the concerned building.

“The commission therefore makes a strong recommendation to the central government and all states to come out with real estate regulations to ensure consumer welfare and to discourage unfair trade practices that seem prevalent in the sector,” the CCI order said.