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Amid calls for fairer buyer pacts, DLF launches in face of CCI order

Source : BUSINESS_STANDARD
Last Updated: Wed, Dec 05, 2012 21:50 hrs
Man cycles past the construction site of a residential apartment building by Indian property developer DLF Ltd. in Gurgaon

As the largest real estate player, DLF plans to launch projects on 8.5 million sq ft in Gurgaon by March. Analysts and lawyers argue the 'cease and desist' order of the Competition Commission of India (CCI) might prove a hurdle. DLF said the order did not bar it from launching a project.

In August last year, CCI had had given the order to DLF that prevented it from selling further units using the same buyer-builder agreement. A buyers' association of DLF Bellaire and DLF Parkplace, two residential complexes in Gurgaon, had moved the CCI over "abuse of dominance" by the realtor, and alleged the buyer-builder pact was in favour of DLF. Then, CCI imposed a penalty of Rs 630 crore. Though this got a stay order from the competition appellate tribunal, it was status quo for the 'cease and desist' order. The final hearing in tribunal began November 29.

Lawyers say if DLF goes ahead with the launches, it needs to tweak buyer-builder clauses, else buyers' money could be at risk. "The CCI's order is clear and if DLF launches the project with the same agreements, it will not be in buyers' interest", said Meenakshi Arora, partner, Hemant Sahai Advocates.

CAN AN ORDER HAMSTRUNG DLF?
What's 'cease and desist'?
It is an order to halt an activity (cease) and not to take it up later (desist), or else face legal action.
The round-up
The Competition Commission of India (CCI) in August 2011 gave a cease and desist order to DLF, finding it guilty of abusing its dominant position in the Gurgaon market. The competition appellate tribunal , while staying the Rs 630-crore penalty on the realtor, had said the cease and desist order would remain in place. This implies DLF cannot have one-sided buyer-builder agreements anymore.
For and against
CCI's order is clear and if DLF launches the project with the same set of biased agreements, it will not be in the interest of buyers
MEENAKSHI ARORA, partner, Hemant Sahai Advocates

DLF may be working on moulding the current buyer-builder agreement, but needs to get a CCI clearance before it sells units

SRINIVAS KOTNI, managing partner, Corporate Lexport

I feel a company as big as DLF is sensible enough to make changes in the agreements and then sell the project
PRADEEP S MEHTA, secretary general CUTS International

Cease and desist does not bar us from launching a new project. If need be, we will conceptualise and modify the buyer-builder agreement
ASHOK TYAGI, CFO, DLF

DLF launched two projects - Regal Gardens and Primus - in March and sources say the it would launch more till March, as CCI was the one to suggest changes in the clauses.

Ashok Tyagi, CFO, said, "if need be, we will conceptualise and modify the buyer-builder agreement".

The company has not launched a big-ticket project this year, but has said at least two big launches are set this quarter and early next. "We will launch at least 8.5 million sq ft between now and March in Gurgaon," Tyagi had said in November.

Compat in its November 2011 hearing had noted, the CCI is required to direct in a given case the extent and the manner of modification of the agreement. Keeping that statutory requirement, we direct that without prejudice to the claims involved, the parties shall within a period of eight weeks submit the draft modified terms. "This is made clear the submission of such draft shall not be construed as concession on the part of the parties on any point involved in the present appeal", said the Compat order.

According to sources, CCI had to submit the modification in buyer-builder agreement by December 5.

Pradeep S Mehta, Secretary General CUTS (Consumer Unity of Trust Society) International, told Business Standard, that DLF can surely launch new project, but it cannot sell any units to buyers using the same agreement." But I feel that a company as big as DLF is sensible enough to make changes in the agreements and then sell the project".

He added that in India there is a need for Unfair Terms of Contract Act, which has been recommended by the Law Commission.

There is no stay from Compat, Supreme Court, or any other body on the cease and desist ordered by CCI, so this activity also may delay the construction of apartments, thus opening them to even further damages, said Sanjay Sharma, managing director, Qubrex, a real estate consultancy.

There are 15-20 changes in the clauses that the builder needs to modify.

Lawyers say that DLF needs to make 100 per cent modification in the clauses before it goes to sell apartments.

Srinivas Kotni, managing partner, Corporate Lexport, said that DLF may already be working on moulding the current buyer builder agreement, but it needs to get CCI clearance before it sells units.

The Competition Act states that "if any person contravenes, without any reasonable ground, any order of the Appellate Tribunal, he shall be liable for a penalty of not exceeding rupees one crore or imprisonment for a term up to three years or with both as the Chief Metropolitan Magistrate, Delhi may deem fit."

Company's income from operations (sales) dropped 19 per cent during the quarter to Rs 2,039 crore, compared to Rs 2,532 crore last year same quarter. It is even lower than the first quarter sales of Rs 2,197 crore. According to DLF, launch of 'high impact' projects may have positive impact on its financials this fiscal.


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