After DLF, who's next? CCI targets Delhi builders first

On 12 August, the Competition Commission of India (CCI) dropped a bombshell that shattered the illusion that all was well with listed realty stocks. It fined market leader DLF Rs 630 crore for essentially duping home buyers using its monopoly power. Among other things, the CCI accused DLF of beguiling and entrapping home buyers “through false solicitations and promises.”

However, it is no one’s case that DLF is the only offender. The CCI is now spreading its tentacles further and has focused its attention of several Delhi builders who may have done a DLF or worse.

Shocked with what it found with DLF, the CCI has begun a reality check on other builders in and around the Delhi National Capital Region (NCR) where the courts recently had to force builders to hand over land taken through dubious means.

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The office of the CCI Director-General has begun to collect information on major realty companies who have allegedly used “unfair” means to lure customers to buy apartments and then enter into one-sided contracts that favoured the builder.

When Firstpost sought confirmations on the builders who were under scrutiny, CCI officials declined to comment. But informed sources said an investigative team was busy collecting samples of builder-buyer agreements of many big builders in the NCR region. Among them: Unitech and Emaar-MGF in Gurgaon, Jaypee, Amrapali, Supertech and Lotus in Noida.

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Strengthened by a crack team that has been deputed from the Law Ministry and market watchdog Sebi, the CCI has formed a task-force to check out major realtors in the Delhi NCR before focusing on the other metros of Mumbai, Kolkata, Chennai, Bangalore and Hyderabad.

In Delhi, two builders who have reportedly been taken for scrutiny are Supertech and Amrapali, both of whom issued newspaper advertisements even before they got the land on which they were to build their apartments.

In the case of Supertech, the advertisement inviting buyers was published on 3 March 2010, while in the case of Amrapali the ad came on 19 March. While Supertech got its land allotment on 19 March - 16 days after the ad was published - Amrapali got its land the day the ad was carried by newspapers in Delhi. Since ads have to be released to the print media at least a day in advance, it is clear that Amrapali had jumped the gun at least by one day.

Both the builders are top names in Noida and Amrapali has used cricketers MS Dhoni and RP Singh as its brand ambassadors.

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The CCI investigative team has apparently collected copies of newspapers advertisements which were issued even before the Greater Noida Administration allotted Supertech and Amrapali their land.

Firstpost was first to report on both the cases - Amrapali and Supertech - in its story on the Noida Extension scam .

But the CCI’s entry into the picture has changed the nature of the game for real estate players. As already pointed out in the DLF verdict, the Commission is looking into major violations by builders in doing contracts with home buyers.

In its verdict on the DLF’s group Belaire housing project in Gurgaon, Haryana, the CCI had hinted that the rest of the realty sector must be following the same arbitrary rules that DLF did by taking advantage of the buyer’s weak bargaining power. This is why the CCI has taken suo motu note of “unfair competitive practices” in the realty sector and looks set to give its Director General a go-ahead to conduct further investigations.

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In DLF’s case, the Belaire housing complex was supposed to be a conglomerate of five 19-storied buildings with 368 apartments. It was to be constructed in three years. DLF took crores of rupees from the allottees, even before the first brick was laid. Later, DLF unilaterally changed its plans to construct a 29-floor building.

“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.''

Pointing out the “draconian and one-sided clauses” of DLF, the Commission’s report said: “There are clauses that give DLF Ltd sole discretion in respect of change of zoning plans, usage patterns, carpet area, alteration of structure, etc. In case of change in location of the apartment, PLC (preferential location charge) determined at the discretion of the builder and, if a refund is due, no interest is paid. No rights have been given to the buyers for raising any objections.

“Further, even if the buyer has paid the full amount, the builder can raise subordinate mortgage on the property for finances raised for its own purpose and the consumers are subjected to this mortgage. Despite knowing that necessary approvals were pending at the time of collection of deposits, DLF Ltd inserted clauses that made exit next to impossible for the buyers.”

The other violations and abuse of consumer rights, according to the CCI, are:

• They (builders) issue advertisements for launching projects without the land being actually purchased, registered in their names and possession taken and without taking prior approval of competent authorities.

• Builders don’t specify the total area of the plot/flat/house, indicating clearly the carpet area and utility area.

• They don’t specify the date of delivery and consequential remedies available to the consumer in case of delay.

• They don’t deposit the amounts collected from allottees against a particular project in a designated escrow account that will be utilised only for the construction of the concerned building.

• They don’t inform buyers about the progress of works and status of account of each allottee in a transparent manner.

• They don’t inform buyers of built-in hidden costs other than the initial set price.

• They don’t post all the relevant information on the internet and make them available in the public domain. There is no transparent and participatory mechanism put in place to deal with price escalations, if any.

• In cases of inordinate delays, there is no provision for the payment of pre-determined penalties to buyers.

• There is no fair, participatory and transparent mechanism to tackle any substantive and major changes in the project mid-way, before taking approval of the authorities for the revised scheme and commencing construction thereon.

• The agreements don’t include ‘changes’ in FAR, or density per acre, or some common facilities in the category of ‘substantive’ or major changes.