SHILPA SHAH analyses the impact of the DLF judgement on Indian realty and examines how enforcing the Regulatory Bill will improve relations between buyers and developers.
The emerging real estate sector of India has been ranked amongst the top 20 real estate investment markets in the world. This implies that the real estate industry is contributing substantially towards the growth of the Indian economy. Although competition is vital in all sectors, it becomes imperative in a sector like real estate as it has the inherent ability to affect other sectors of the economy. As long as we continue to appreciate its contribution towards the GDP of the country and overlook other intricacies, we cannot imagine the loopholes in the system, the lack of adequate regulations resulting in loss of faith in the sector.
Over the years, this sector has transformed itself from a frivolous business to a more dynamic and organised sector. However, the pressing need to identify, analyse and address problems encountered most often by investors or buyers or consumers still remains. Any disparity in the system is a matter of concern for investors as well as developers in real estate, considering the interdependency between buyers and the sellers.
The landmark judgement of the Competition Commission of India (CCI) in Belaire Owners' Association v/s DLF and others created ripples in the industry. Acting on a complaint filed by the owners' association of the DLF building 'Belaire' in Gurgaon, the CCI pronounced DLF guilty for grossly abusing its dominant market position in the concerned relevant market and imposing unilateral and one-sided clauses unfair to the buyers who entered into this agreement.
The provisions for sale of apartments to consumers were found in contravention of the provisions of the Competition Act 2002. Further, the CCI imposed a penalty of Rs 630 crore, which forms 7 per cent of the average turnover of DLF in three previous financial years, and issued a 'cease and desist' order against DLF for imposing such unfair conditions in its agreements with buyers.
But what overrides the penalty imposed by the commission is the order passed by the CCI to suitably modify unfair conditions on its buyers in the agreement within three months from the date of receipt of the order.
The DLF judgement has paved the way for the rest of the players in the industry as well. The Deputy General of CCI rightly remarked that the judgment will send out 'strong signals to the real estate market'.
As DLF itself contends, the company simply followed practices that have existed for long in the industry.
This has resulted in the commission keeping a close watch on the sector in order to nip in the bud any signs of abuse of dominance in the industry.
After this judgement, a first in India, the competition law has been seen to cover the exploitative nature of abuse of dominant position. This has drawn a definite line for other players in the industry who dread coming even close to it. It is time for them to be vigilant for the rest of their course of business. This judgement has been an eye-opener to both developers and end users, as it has an impact on them.
The bigger picture
CCI addresses all issues, whether it is unilateral or one-sided agreements, or undue delay in delivering possession of property, or unjustified exit clauses or simply delay in obtaining permission from the concerned authorities. The commission now conducts a strict and thorough check on builders following the same practice. The impact of the judgement is not just to put an end to unpleasant instances in the realty sector but make it more conducive for buyers to gain confidence in the industry and its affairs.
As CCI rightly opined in the DLF judgement, 'though there is a plethora of laws, there is no proper regulation for the real-estate sector (particularly the housing sector)'. The absence of any 'single sector specific regulator' - one that will regulate the sector in totality, ensure adoption of transparent and ethical business practices, and protect consumers - has only made the situation worse.
Hope is at hand though.
The Government has introduced the Real Estate Regulation and Development Bill to protect buyers and increase transparency. Once passed, the enacted law will ensure accountability, fair practice, and fast-track dispute resolution. There is also a proposal to set up a Real Estate Regulatory Authority in every state. This is a Bill to enforce accountability and ensure sanctity of contract in real estate dealings. The law must be made more stringent and effective to protect buyers' interest.
Once the existing bill is passed and law is enacted, the effects will be numerous. A full-fledged regulation for the real-estate industry will benefit both buyers and developers. This move will undoubtedly serve to remove fear and hesitation from the minds of both buyers and investors.
With effective provisions laid down in the Bill and a fast dispute resolution cell and exclusive regulator set up for the sector, the consequences encounte¡red in the DLF case are most likely to be avoided in future. In fact, this will definitely reduce any scope for litigation between buyers and developers.
Moreover, taking this a step forward, other underlying changes may be on the anvil. Builders will no longer focus on unfair competition; instead they will concentrate more on other important aspects such as quality, design and efficient execution of projects. With less exploitation and greater clarity and transparency in agreements and transactions, the developer will be able to avail easy access to bank loans to fund projects and execute them efficiently. By safeguarding the interests of buyers, the Bill also aims to build a healthy relationship between buyers and developers, and between developers themselves.
The last word
This landmark judgement will serve as a precedent for all instances of unfair trade practices in the realty sector. It will reassure every consumer who is apprehensive about the realty sector while enabling the sector's growth. The DLF case is an unforgettable chapter for the industry - and heralds a brighter future. It is crucial to note that, as expected, the judgement had been challenged by DLF before the Competition Appellant Tribunal (COMPAT) where the tribunal has stayed the recovery of penalty imposed by CCI - but it directed DLF to submit the draft of the modification to the con¡tentious terms of the agreement.
About the Authors:
Shilpa Shah, Senior Partner, Singhania & Partners heads the Bengaluru practice of the firm. With over 29 years of rich experience and pronounced expertise in litigation, JVs and M&A in infrastructure, real estate and project finance and much more, she has been advising the World Bank for the past five years, and the Organisation for Economic Co-operation and Development (OECD) for its yearly reports on 'Doing Business in India', and updates them regularly on the changing scene of FDI in India.
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