COMPAT cracks whip on DLF: What lies ahead?

It's a body blow for DLF , the company has lost the second legal round against it's consumers in Gurgaon and has been directed to pay Rs 630 crore as penalty for abusing its dominant position in the city's luxury housing market. This as the competition tribunal, COMPAT upheld a 2011 order of the Competition Commission of India and dismissed DLF's three year old appeal.

Legal eagle Harish Salve is used to winning but this time around he is on losing side with DLF. The company has already said that it will move to Supreme Court but just to put all of this in perspective, Rs 630 crore penalty is a tad lower then the Rs 660 crore profit declared by the company in FY13 and higher than the Rs 550-600 crore being predicted by analyst for FY14. Moreover the company's debt stands at over Rs 20000 crore. At it's end though the markets shoved off the verdict with the DLF stock zooming over 25 percent this week.

Also Read: DLF posts Rs 219.68cr net profit during Jan-Mar qtr

The association members say they will now seek damages from DLF. Within two hours of COMPAT dismissing DLF's appeal the buyer association sent out an e-mail to 100 of its member buyers saying, ' We will now seek compensation from DLF separately. There is no question of any settlement with the realty major. We will now file a class action suit against the company as per the new Companies Act. If this actually happens it would be India's first class action suit under the new act'.

Harsh Seghal, President, DLF Park Place RWA said, "The compensation comes to us through a section called 53 in the Competition Appellate Tribunal, in the COMPAT scheme of things. So, we will have to apply for that."

At the epicenter of this fight are three residential projects of DLF in Gurgaon – The Belaire, Park Place and Magnolia on the companies Golf Course. COMPAT found DLF abusive in its practices of modifying super area, common area and increasing the height of buildings mid-way through the projects.

The buyer's main grievance has been the delay in project delivery as DLF increased the number of storey's midway. For instance, from 998 to 1500 apartments in Park Place alone.

DLF on its part says, it has respected in true letter and spirit, the customer commitments made by it. In testament thereof out of over 2600 total number of apartments, over 2200 have been handed over and over 1800 family's are already residing there in. However, is the decision by Competition Appellate Tribunal (COMPAT) a watershed moment for home buyers?

"An average builder would be extremely careful now. He will be perhaps consulting and rushing to competition law practitioners to show and tell them whether he can be held to be dominant and if he is dominant he will be extra careful. So, this awareness from both sides to the builder to be careful as well as the consumers and customers that they cannot and need not take things lying down," KK Sharma, Former Director General, CCI said.

The COMPAT in its 150 pages judgement says, DLF increased the height of the three projects and started construction of the additional storey's in absence of government sanctions. While the COMPAT ruling stops short of saying DLF colluded with the Haryana government state officials it has certainly hinted at it in several instances for example COMPAT said, 'it cannot even be imagined the District Town Country Planning of Haryana or as the case maybe, the civic authorities were not knowing about the additional constructions, which were going on in full swing without the necessary approvals and without the sanctions of the plans'.

However, it is not all bad news for DLF. In a major relief for the company, the COMPAT has disagreed with the 2011 ruling of the CCI and said DLF does not have to modify its buyer agreement. COMPAT said the Competition Act as it stands today came into force in May 2009 and cannot be retrospectively used to change agreements DLF had signed with buyers in 2006 and 2007.

The COMPAT has left a window open for consumers to demand a modification of all those agreements signed post May 2009.

"In case of DLF they have a number of cases which have come up but a number of cases have been closed as well. Good number of cases, it has been held to be dominant and on the base of the dominant position already investigation is going on before the Director General. So, those cases will become simpler now and only template order is required to be passed practically after giving the facts. So, that is going to affect many of the projects of DLF," Sharma added.