SC ruling on DLF: consumers are the real victors

SC ruling allows the buyers to assert their rights and demand more transparency in the sector.

For years, real estate buyers have felt victimised on being severely penalized even if they missed a single monthly payment while the builders go scot-free despite years of delay and arbitrary change in design. Supreme Court’s judgment on DLF has come as a huge personal victory not just for the petitioners in the case but even for consumers in general.

 

Supreme Court directed the country’s largest real estate player, DLF, to deposit Rs 630 crore in the registry within three months out of which Rs 50 crore is to be deposited within three weeks. It rejected the company’s request for a stay on the Competition Commission of India’s (CCI’s) order in a case related to abuse of market dominance. 

 

Though the final court order is yet to come, Supreme Court’s directive is likely to shake the real estate sector, especially from the consumers point of view. Anyone who has bought a residential property directly from a builder knows that the agreement is clearly one-sided and is in favour of the builder. Buyer of the property is subjected to all the risk including delays in delivery on part of the builder and any new construction subsequently taken by the builder. The directive which is based on the CCI ruling allows the buyers to assert their rights and demand more transparency in the sector.

 

CCI chief Ashok Chawla in an interview to CNBC-TV18 said that the ruling had set into motion a move where real estate developers will have to closely look at the arrangements they have with buyers. “We want to make sure such practices do not get entrenched and do not get part of the landscape for all times to come,” Chawla said. “… the objective that we have in mind is that the DLF order takes the case of the leader and should set right the distortions in the real estate market pending the arrival of real estate regulators, which we believe is part of the policy framework which is on the anvil.”

 

The case goes back to 2010, when the flat buyers’ associations of three DLF developments in Gurgaon – DLF Park, Magnolias and Belaire approached CCI alleging delays in the projects and construction of more floors than what was planned earlier among many other violations. CCI after studying the case passed an order in 2011 saying that DLF was ‘abusing its dominant market position’ by imposing an ‘unfair and discriminatory’ terms on its buyers through apartment buyers agreements.

 

It is likely that after the Supreme Court’s final order is issued, we may see a number of similar complaints against other builders. The moment has already started in pockets. A Business Standard report says that due to rise in consumer agitation, many developers are making changes to their agreements with buyers. They are extending delivery deadlines in order to minimise legal liabilities. The purchase agreements also include revised penalty norms against failure to deliver on time, aimed mainly at instilling confidence among buyers.

 

Sanjay Sharma, managing director of Qubrex, a real estate consultancy firm, has been quoted in the Business Standard article saying “Buyers are active like never before. With such a strong online medium, an increasing number of buyers are joining hands to protest against developers’ tyranny, especially when the developer has no explanations for delayed deliveries.”

 

As for DLF, the order could not have come at a more inopportune moment. The company has been selling its non-core assets to bring down its debt of nearly Rs 19,000 crore. Commenting on the event, Morgan Stanley says imminent cash outflow will hurt DLF's already stretched balance sheet and the year-end net debt target of Rs 18,500-19,000 crore will likely worsen, adding given a lack of new launches, the company is running negative cash flow from operations on a quarterly basis. UBS expects debt levels of the company to rise to Rs 20,000 crore by December 2014 versus Rs 19,000 crore in June.