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DLF (DLFU)
Property
Stock impacted by CCI ruling. DLF’s stock has corrected 12% over the past two days
as the Competition Commission of India imposed a Rs6.3 bn penalty (likely that DLF will
appeal) for using its “dominant position” to subject its buyers to unfair conditions. We
believe that there is less risk (although can never be ruled out) of other developers
getting impacted given DLF’s relative size versus peers and a couple of other rulings
(DLF in Kolkatta). We have an ADD rating with target price of Rs270 at-par with our
March 2013-NAV.
CCI fines DLF Rs6.3 bn for using “dominant position” to impose unfair conditions
The Competition Commission of India (CCI) has imposed a penalty on DLF of Rs6.3 bn in response
to Belaire’s Owner’s Association’s allegation of unfair conditions by DLF. The penalty has been
calculated at 7% (maximum 10%) of the average turnover of DLF over the past three fiscal years
(FY2009-11). The penalty is >1.5X 1QFY12 net income and we believe it’s likely that DLF will
appeal against the same.
We believe “dominant position” was the key determinant
CCI has ruled that (1) provisions of the Competitive Act, 2002 apply in this case, (2) “high-end”
Gurgaon residential market is the relevant market, (3) DLF enjoys “dominant position” in this
market and (4) DLF has “abused” its dominant position in the relevant market. We believe the key
point is that that of enjoying a “dominant position” -- the CCI believes DLF has this given “its
position of strength in the relevant market which enables it to operate independently of
competitive forces or affect its competitors or consumers or the relevant market in its favor. ”We
do not believe DLF is the only developer with these terms and having changed project
specifications after collecting advances or midway through the project.
Unlikely to be a sector wide phenomenon
We believe that there is low risk (although it cannot be ruled out entirely) of other developers
getting impacted as (1) DLF had >3X the revenue size compared to the #2 firm (Unitech), (2) the
CCI had dismissed pleas against BPTP and Parshvanath Developers India Ltd. quoting that neither
of the two enterprises enjoyed the wide spectrum of strengths that DLF did and (3) in an order
dated 25th May 20011, in a case against DLF Commercial Complexes Ltd., the CCI ruled in favor
of the developer stating that it does not enjoy a “dominant position” in Kolkatta commercial
space.
CCI fines DLF Rs6.3 bn for using “dominant position” to impose unfair
conditions
Competition Commission of India (CCI) has imposed a penalty on DLF of Rs6.3 bn in
response to Belaire’s Owner’s Association’s allegation of unfair conditions by DLF. The
penalty has been calculated at 7% (maximum 10%) of average turnover of DLF over the
past three fiscal years (FY2009-11).
A brief background. Belaire is an under-construction residential project located in DLF City,
Phase V, Gurgaon. It was launched in 4QCY06 and the current area is 1.94 mn sq. ft.
Initially, the buildings were planned to be 19 floors and expected completion time was three
years, it has not yet been completed and DLF has increased the number of floors to 29.
Key allegations
�� As per DLF’s initial advertisement, “The Belaire” would consist of five multi-storied
buildings of 19 floors each for a total of 368 apartments and the construction would be
completed within 36 months. However, now 29 floors have been constructed and areas
and facilities originally earmarked for the apartment allottees are substantially compressed
and the project has been delayed.
�� Apartment buyers’ agreement signed months after the booking and after having paid
substantial amount, buyers had no option but to adhere to DLF’s norms.
�� Clauses favoring the developer in the agreement include (1) wide exemptions open to DLF
from meeting its three year construction commitment, (2) collection of money not
commensurate with the stage-wise completion of the project, (3) if DLF fails to deliver
possession, the allottee shall give notice to DLF for terminating the agreement and DLF
would have the right to sell the apartment and then repay the amount, (4) if allottee fails
to pay timely installment, interest charge is 15T% p.a. for first 90 days and 28%
thereafter while DLF would pay around 1% p.a and (5) allottees kept in the dark
regarding changes to the project and delays.
We present below the key arguments by DLF and CCI on the four issues that CCI considered
before imposing the penalty.
Issue 1: Do the provisions of Competition Act, 2002 apply to the facts and
circumstances of the instant case?
While DLF contended that sale of an apartment can neither be sale of goods or service and
that the agreements were signed before the relevant rule came in force, the provisions do
not apply to this case. CCI’s view is that there is ample precedence to consider this as a
service and that if the agreement is enforced post the relevant date (20th May 2009), the
provisions are applicable
Issue #1: CCI believes provisions of Competition Act, 2002 apply to this case
Respective stances of DLF and CCI
DLF stance CCI stance
Sale of an apartment’ can neither be termed as sale of goods nor sale of service,
section 4(2)(a)(ii) [of the Competition Act, 2002] is not relevant and applicable in
the present case because it can be invoked only when there is purchase or sale of
either goods or service
In several closely linked cases, the Supreme Court has time and again held that housing
activities undertaken by development authorities are service and are covered within the
definition of service given in section 2(o) of the Consumer Protection Act.
Even without taking the support of the decisions of Supreme Court in the cases referred
above, a plain reading of section 2(u) of the Act makes it abundantly clear that the activities
of DLF in context of the present matter squarely fall within the ambit of term ‘service’. It is
clear that the meaning of ‘service’ as envisaged under the Act is of very wide magnitude and
is not exhaustive in application
…. the terms and conditions of the agreement mentioned in the information
related to agreements executed in December, 2006/2007. None of the impugned
conditions can be said to have been imposed after 20.05.2009 when Section 4
came into force …..
... if any enterprise invokes the provisions of such agreement after the date of enforcement
and that action is now prohibited by the Act then that action could certainly be seen through
the lens of Competition Act.
In the present case the agreements, although entered between DLF and the allottees before
20.05.2009 when section 4 of the Act came into being, remained in operation even after the
said date and DLF proceeded with the cancellation of various allotments under the clauses of
the agreement. Therefore, if DLF acts under the clauses of the agreement, which are now
prohibited by the Act, such action can certainly be examined under the relevant provisions of
the Act.
... the alleged conditions which have been taken as abusive are in fact usual
conditions included in the agreements in accordance with “industry practice”
and, therefore, it cannot be said that such conditions are imposed by abuse of
dominant position. Further, since the impugned clauses of the agreement are
adopted by other competitors also it became necessary for the DLF to incorporate
such clauses in order to meet competition and remain competitive.
..... is liable to be rejected because in terms of the section 4 the responsibility of the dominant
player has been made more onerous and if such practices are also adopted by a nondominant
player it may not fall within the ambit of section 4. On same ground the contention
that DLF has incorporated impugned conditions to meet the competition is also not
acceptable.
Source: DLF main order by CCI (http://www.cci.gov.in/May2011/OrderOfCommission/DLFMainOrder110811.pdf), Kotak Institutional Equities
Issue 2: What is the relevant market, in the context of section 4 read with section 2
(r), section 19 (5), section 19(6) and section 19(7) of the Competition Act, 2002?
CCI has concluded that the relevant market is the market for services of developer / builder
in respect of “high-end residential” accommodation in Gurgaon.
While DLF would clearly want as wide a definition as possible, CCI believes that given paying
capacity apartments costing Rs20-25 mn would be considered “high-end” and a separate
market.
Issue #2: CCI identifies “high-end” Gurgaon market as the relevant market
Respective stances of DLF and CCI
DLF stance
.... argued, “There is no justification or basis and no evidence is placed on record to show that an apartment having a value of Rs. 2 –
2.5 crores would be relevant to determine a category to be described as Gurgaon (high-end) … There is no such criteria or bench
mark.”
CCI stance
This Commission agrees that there can be no hard and fast criteria for determining concepts like “luxury” or “high-end” but believes
that just because no specific distinguishing criteria exist, it does not mean that there is no distinction between “high-end” and
“economy” or “low-end” residential units.
Taking into account the current prices of HIG accommodation provided by these development authorities, as also the ‘demands and
paying capacity of the growing upper middle and rich classes in the society, from the cost perspective it is quite logical to accept an
apartment costing Rs. 2 – 2.5 crores [Rs20 – 25 million] as “high-end” in the Indian socio-economic reality.
........ indicate that such an array of facilities is not a common feature for residential properties in general. These features, along with
the cost-range mentioned earlier, may be broadly considered to define the characteristics of ‘high-end’ residential accommodation.
…….. Gurgaon is seen to be the relevant geographic market. A decision to purchase a high-end apartment in Gurgaon is not easily
substitutable by a decision to purchase a similar apartment in any other geographical location.
Source: DLF main order by CCI (http://www.cci.gov.in/May2011/OrderOfCommission/DLFMainOrder110811.pdf), Kotak Institutional Equities
Issue 3: Is DLF Ltd’s dominant in the above relevant market, in the context of section
4 read with section 19 (4) of the Competition Act?
CCI has concluded that DLF Ltd. is in a dominant position in the relevant market in the
context of Section 4 read with Section 19(4) of the Competition Act., 2002. CCI seems to
have based its decision on DLF’s history and track record and rejected DLF’s definition to
include only “active stock” in that particular year as the relevant benchmark.
Issue #3: CCI believes DLF is the dominant player in the “high-end” Gurgaon market
Respective stances of DLF and CCI
DLF stance CCI stance
DLF relies on a Jones La Salle Meghraj (JLLM) report and other market reports
CCI has given more weightage to CMIE and other market reports relied upon by the DG establishing market
power (and hence dominance) of DLF which it believes are objective and taken from public domain
Data relies on current turnover and "active stock" which is current trading stock; DLF did not submit sales
data as requested as per CCI
The evaluation of this “strength” is to be done not merely on the basis of the market share of the enterprise in
the relevant market but on the basis of a host of stipulated factors such as size and importance of competitors,
economic power of the enterprise, entry barriers etc. as mentioned in Section 19 (4) of the Act. This wide
spectrum of factors provided in the section indicates that the Commission is required to take a very holistic and
pragmatic approach while inquiring whether an enterprise enjoys a dominant position before arriving at a
conclusion based upon such inquiry. It is conceivable that the “dominant position” may be acquired due to
several factors even outside the “relevant market” but, “for the purpose of” section 4, this “position of
strength” must give the enterprise ability to operate independently of competitive forces” in the relevant market
or ability to “affect its competitors or consumers or the relevant market in its favour”. Thus, strengths derived
from even other markets, if they give an enterprise such abilities as mentioned above, would render the
enterprise as “dominant” in the relevant market.
as per the report published by Knight Frank who are well known reputed International real estate
consultants, in Gurgaon itself, residential apartments available during the period 2009-2011 is estimated to
be 58.23 million sq. ft. As against the total availability of residential apartments in Gurgaon, DLF had only
two existing properties being ‘The Belaire’ and ‘Park Place’, in which apartments could be offered by it for
sale. The total availability of residential apartments in these two projects from March 2009 onwards was
only about 2.7 million sq.ft. Besides the sale of apartments in the aforesaid two existing projects, no other
residential project has been launched by it in Gurgaon from 2009 onwards. DLF argued that in 2007, it has
supplied projects worth 6.7 million sq. ft. as against 16.8 million sq. ft. by Unitech and 10.7 million sq.ft.by
Parshvanath. As an argument, DLF has also stated that it has not launched any new project in the recent
past and it has been stated that the residential space offered by DLF does not constitute any substantial
portion of the total residential space offered by various developers.
As per draft herring prospectus filed by DLF Limited in the year 2007, the group had the total land bank of
10,225 acres. This far exceeds the land bank of Unitech, the nearest competitor of DLF. The turnover of DLF for
2009 was Rs. 10, 035.39 crores. This is almost 300% higher than that of Unitech and nearly 700% higher than
that of Parshvanath. The “supply” of projects in a snapshot of a single year would give a completely erroneous
picture of the comparative strengths of DLF and its competitors.
Source: DLF main order by CCI (http://www.cci.gov.in/May2011/OrderOfCommission/DLFMainOrder110811.pdf), Kotak Institutional Equities
Issue 4: In case DLF Ltd. is found to be dominant, is there any abuse of its dominant
position in the relevant market by the above party?
While CCI found abuse of “dominant position” as below, we do not believe that DLF is the
only developer with these terms and having changed project specifications after collecting
advances or midway through the project.
�� Unilateral changes in agreement and supersession of terms by DLF without any right to
the allottees
�� DLF’s right to change the layout plan without consent of allottees
�� Discretion of DLF to change inter se areas for different uses like residential, commercial
etc. without even informing allottees
�� Preferential location charges paid up-front, but when the allottee does not get the
location, he only gets the refund/adjustment of amount at the time of last installment,
that too without any interest
�� DLF enjoys unilateral right to increase / decrease super area at its sole discretion without
consulting allottees who nevertheless are bound to pay additional amount or accept
reduction in area
�� Proportion of land on which apartment is situated on which allottees would have
ownership rights shall be decided by DLF at its sole discretion (evidently with no
commitment to follow the established principles in this regard)
�� DLF continues to enjoy full rights on the community buildings / sites / recreational and
sporting activities including maintenance, with the allottees having no rights in this regard:
�� DLF has sole discretion to link one project to other projects, with consequent impact on
ambience and quality of living, with the allottees having no right to object:
�� Allottees liable to pay external development charges, without there being disclosed in
advance and even if these are enhanced
�� Total discretion of DLF regarding arrangement for power supply and rates levied for the
same
�� Arbitrary forfeiture of amounts paid by the allottees in many situations
�� Allottees have no exit option except when DLF fails to deliver possession within agreed
time, but even in that event he gets his money refunded without interest only after sale
of said apartment by DLF to someone else
�� DLF’s exit clause gives them full discretion, including abandoning the project, without any
penalty
�� DLF has sole authority to make additions / alterations in the buildings, with all the benefits
flowing to DLF, with the allottees having no say in this regard
�� Third party rights created without allottees consent, to the detriment of allottees’
interests
�� Punitive penalty for default by allottees, insignificant penalty for DLF’s default
Will it impact other developers or other DLF projects?
While this judgment seems to be only for ‘”The Belaire”, media reports indicate that ‘Park
Place” residents welfare association has filed a similar suit.
We believe that there is a low risk (although this can never be ruled out) of other developers
getting impacted CCI’s argument is based on DLF enjoying dominant market position in
Gurgaon “high-end” apartments and that fact that it is much larger real estate developer
than any other in the country. In fact, to quote the ruling: “as far as companies operating in
Gurgaon are concerned on the basis of their all India sales during Quarter ending June 2010,
market share of DLF is about 45% as compared to second largest company i.e. Unitech ,
about 19%.”
DLF had also referred to earlier orders where the commission had ruled against dominant
position and to again quote: “The reference to orders of this Commission passed in the case
of BPTP and M/s, Parshvanath Developers India Ltd. is out of context as in both cases, it was
merely a prima-facie assessment of dominant position and neither of the two enterprises
enjoyed the wide spectrum of strengths as do DLF Ltd. and its subsidiaries in the relevant
market.”
In an order dated 25th May 20011, in a case against DLF Commercial Complexes Ltd., which
largely related to delays and one-sided contracts, the CCI ruled in favor of the developers
stating that
(1) “dominant position” means a position of strength in the relevant market which enables
it to operate independently of competitive forces or affect its competitors or consumers or
the relevant market in its favor. DLF, being a new entrant in developing commercial space in
Kolkatta and having only one property related to commercial retail space cannot be treated
as a dominant enterprise …..
(2) Informant has failed to furnish any facts or figures to show that DLF enjoys dominant
position in developing commercial space in the metropolis of Kolkatta
(3) Many prominent companies such as Godrej, Infinity, Unitech, Sapponji Pallonji etc. are
major developers of office and retail space in Kolkatta and there are about 57 commercial
areas in Kolkatta
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DLF (DLFU)
Property
Stock impacted by CCI ruling. DLF’s stock has corrected 12% over the past two days
as the Competition Commission of India imposed a Rs6.3 bn penalty (likely that DLF will
appeal) for using its “dominant position” to subject its buyers to unfair conditions. We
believe that there is less risk (although can never be ruled out) of other developers
getting impacted given DLF’s relative size versus peers and a couple of other rulings
(DLF in Kolkatta). We have an ADD rating with target price of Rs270 at-par with our
March 2013-NAV.
CCI fines DLF Rs6.3 bn for using “dominant position” to impose unfair conditions
The Competition Commission of India (CCI) has imposed a penalty on DLF of Rs6.3 bn in response
to Belaire’s Owner’s Association’s allegation of unfair conditions by DLF. The penalty has been
calculated at 7% (maximum 10%) of the average turnover of DLF over the past three fiscal years
(FY2009-11). The penalty is >1.5X 1QFY12 net income and we believe it’s likely that DLF will
appeal against the same.
We believe “dominant position” was the key determinant
CCI has ruled that (1) provisions of the Competitive Act, 2002 apply in this case, (2) “high-end”
Gurgaon residential market is the relevant market, (3) DLF enjoys “dominant position” in this
market and (4) DLF has “abused” its dominant position in the relevant market. We believe the key
point is that that of enjoying a “dominant position” -- the CCI believes DLF has this given “its
position of strength in the relevant market which enables it to operate independently of
competitive forces or affect its competitors or consumers or the relevant market in its favor. ”We
do not believe DLF is the only developer with these terms and having changed project
specifications after collecting advances or midway through the project.
Unlikely to be a sector wide phenomenon
We believe that there is low risk (although it cannot be ruled out entirely) of other developers
getting impacted as (1) DLF had >3X the revenue size compared to the #2 firm (Unitech), (2) the
CCI had dismissed pleas against BPTP and Parshvanath Developers India Ltd. quoting that neither
of the two enterprises enjoyed the wide spectrum of strengths that DLF did and (3) in an order
dated 25th May 20011, in a case against DLF Commercial Complexes Ltd., the CCI ruled in favor
of the developer stating that it does not enjoy a “dominant position” in Kolkatta commercial
space.
CCI fines DLF Rs6.3 bn for using “dominant position” to impose unfair
conditions
Competition Commission of India (CCI) has imposed a penalty on DLF of Rs6.3 bn in
response to Belaire’s Owner’s Association’s allegation of unfair conditions by DLF. The
penalty has been calculated at 7% (maximum 10%) of average turnover of DLF over the
past three fiscal years (FY2009-11).
A brief background. Belaire is an under-construction residential project located in DLF City,
Phase V, Gurgaon. It was launched in 4QCY06 and the current area is 1.94 mn sq. ft.
Initially, the buildings were planned to be 19 floors and expected completion time was three
years, it has not yet been completed and DLF has increased the number of floors to 29.
Key allegations
�� As per DLF’s initial advertisement, “The Belaire” would consist of five multi-storied
buildings of 19 floors each for a total of 368 apartments and the construction would be
completed within 36 months. However, now 29 floors have been constructed and areas
and facilities originally earmarked for the apartment allottees are substantially compressed
and the project has been delayed.
�� Apartment buyers’ agreement signed months after the booking and after having paid
substantial amount, buyers had no option but to adhere to DLF’s norms.
�� Clauses favoring the developer in the agreement include (1) wide exemptions open to DLF
from meeting its three year construction commitment, (2) collection of money not
commensurate with the stage-wise completion of the project, (3) if DLF fails to deliver
possession, the allottee shall give notice to DLF for terminating the agreement and DLF
would have the right to sell the apartment and then repay the amount, (4) if allottee fails
to pay timely installment, interest charge is 15T% p.a. for first 90 days and 28%
thereafter while DLF would pay around 1% p.a and (5) allottees kept in the dark
regarding changes to the project and delays.
We present below the key arguments by DLF and CCI on the four issues that CCI considered
before imposing the penalty.
Issue 1: Do the provisions of Competition Act, 2002 apply to the facts and
circumstances of the instant case?
While DLF contended that sale of an apartment can neither be sale of goods or service and
that the agreements were signed before the relevant rule came in force, the provisions do
not apply to this case. CCI’s view is that there is ample precedence to consider this as a
service and that if the agreement is enforced post the relevant date (20th May 2009), the
provisions are applicable
Issue #1: CCI believes provisions of Competition Act, 2002 apply to this case
Respective stances of DLF and CCI
DLF stance CCI stance
Sale of an apartment’ can neither be termed as sale of goods nor sale of service,
section 4(2)(a)(ii) [of the Competition Act, 2002] is not relevant and applicable in
the present case because it can be invoked only when there is purchase or sale of
either goods or service
In several closely linked cases, the Supreme Court has time and again held that housing
activities undertaken by development authorities are service and are covered within the
definition of service given in section 2(o) of the Consumer Protection Act.
Even without taking the support of the decisions of Supreme Court in the cases referred
above, a plain reading of section 2(u) of the Act makes it abundantly clear that the activities
of DLF in context of the present matter squarely fall within the ambit of term ‘service’. It is
clear that the meaning of ‘service’ as envisaged under the Act is of very wide magnitude and
is not exhaustive in application
…. the terms and conditions of the agreement mentioned in the information
related to agreements executed in December, 2006/2007. None of the impugned
conditions can be said to have been imposed after 20.05.2009 when Section 4
came into force …..
... if any enterprise invokes the provisions of such agreement after the date of enforcement
and that action is now prohibited by the Act then that action could certainly be seen through
the lens of Competition Act.
In the present case the agreements, although entered between DLF and the allottees before
20.05.2009 when section 4 of the Act came into being, remained in operation even after the
said date and DLF proceeded with the cancellation of various allotments under the clauses of
the agreement. Therefore, if DLF acts under the clauses of the agreement, which are now
prohibited by the Act, such action can certainly be examined under the relevant provisions of
the Act.
... the alleged conditions which have been taken as abusive are in fact usual
conditions included in the agreements in accordance with “industry practice”
and, therefore, it cannot be said that such conditions are imposed by abuse of
dominant position. Further, since the impugned clauses of the agreement are
adopted by other competitors also it became necessary for the DLF to incorporate
such clauses in order to meet competition and remain competitive.
..... is liable to be rejected because in terms of the section 4 the responsibility of the dominant
player has been made more onerous and if such practices are also adopted by a nondominant
player it may not fall within the ambit of section 4. On same ground the contention
that DLF has incorporated impugned conditions to meet the competition is also not
acceptable.
Source: DLF main order by CCI (http://www.cci.gov.in/May2011/OrderOfCommission/DLFMainOrder110811.pdf), Kotak Institutional Equities
Issue 2: What is the relevant market, in the context of section 4 read with section 2
(r), section 19 (5), section 19(6) and section 19(7) of the Competition Act, 2002?
CCI has concluded that the relevant market is the market for services of developer / builder
in respect of “high-end residential” accommodation in Gurgaon.
While DLF would clearly want as wide a definition as possible, CCI believes that given paying
capacity apartments costing Rs20-25 mn would be considered “high-end” and a separate
market.
Issue #2: CCI identifies “high-end” Gurgaon market as the relevant market
Respective stances of DLF and CCI
DLF stance
.... argued, “There is no justification or basis and no evidence is placed on record to show that an apartment having a value of Rs. 2 –
2.5 crores would be relevant to determine a category to be described as Gurgaon (high-end) … There is no such criteria or bench
mark.”
CCI stance
This Commission agrees that there can be no hard and fast criteria for determining concepts like “luxury” or “high-end” but believes
that just because no specific distinguishing criteria exist, it does not mean that there is no distinction between “high-end” and
“economy” or “low-end” residential units.
Taking into account the current prices of HIG accommodation provided by these development authorities, as also the ‘demands and
paying capacity of the growing upper middle and rich classes in the society, from the cost perspective it is quite logical to accept an
apartment costing Rs. 2 – 2.5 crores [Rs20 – 25 million] as “high-end” in the Indian socio-economic reality.
........ indicate that such an array of facilities is not a common feature for residential properties in general. These features, along with
the cost-range mentioned earlier, may be broadly considered to define the characteristics of ‘high-end’ residential accommodation.
…….. Gurgaon is seen to be the relevant geographic market. A decision to purchase a high-end apartment in Gurgaon is not easily
substitutable by a decision to purchase a similar apartment in any other geographical location.
Source: DLF main order by CCI (http://www.cci.gov.in/May2011/OrderOfCommission/DLFMainOrder110811.pdf), Kotak Institutional Equities
Issue 3: Is DLF Ltd’s dominant in the above relevant market, in the context of section
4 read with section 19 (4) of the Competition Act?
CCI has concluded that DLF Ltd. is in a dominant position in the relevant market in the
context of Section 4 read with Section 19(4) of the Competition Act., 2002. CCI seems to
have based its decision on DLF’s history and track record and rejected DLF’s definition to
include only “active stock” in that particular year as the relevant benchmark.
Issue #3: CCI believes DLF is the dominant player in the “high-end” Gurgaon market
Respective stances of DLF and CCI
DLF stance CCI stance
DLF relies on a Jones La Salle Meghraj (JLLM) report and other market reports
CCI has given more weightage to CMIE and other market reports relied upon by the DG establishing market
power (and hence dominance) of DLF which it believes are objective and taken from public domain
Data relies on current turnover and "active stock" which is current trading stock; DLF did not submit sales
data as requested as per CCI
The evaluation of this “strength” is to be done not merely on the basis of the market share of the enterprise in
the relevant market but on the basis of a host of stipulated factors such as size and importance of competitors,
economic power of the enterprise, entry barriers etc. as mentioned in Section 19 (4) of the Act. This wide
spectrum of factors provided in the section indicates that the Commission is required to take a very holistic and
pragmatic approach while inquiring whether an enterprise enjoys a dominant position before arriving at a
conclusion based upon such inquiry. It is conceivable that the “dominant position” may be acquired due to
several factors even outside the “relevant market” but, “for the purpose of” section 4, this “position of
strength” must give the enterprise ability to operate independently of competitive forces” in the relevant market
or ability to “affect its competitors or consumers or the relevant market in its favour”. Thus, strengths derived
from even other markets, if they give an enterprise such abilities as mentioned above, would render the
enterprise as “dominant” in the relevant market.
as per the report published by Knight Frank who are well known reputed International real estate
consultants, in Gurgaon itself, residential apartments available during the period 2009-2011 is estimated to
be 58.23 million sq. ft. As against the total availability of residential apartments in Gurgaon, DLF had only
two existing properties being ‘The Belaire’ and ‘Park Place’, in which apartments could be offered by it for
sale. The total availability of residential apartments in these two projects from March 2009 onwards was
only about 2.7 million sq.ft. Besides the sale of apartments in the aforesaid two existing projects, no other
residential project has been launched by it in Gurgaon from 2009 onwards. DLF argued that in 2007, it has
supplied projects worth 6.7 million sq. ft. as against 16.8 million sq. ft. by Unitech and 10.7 million sq.ft.by
Parshvanath. As an argument, DLF has also stated that it has not launched any new project in the recent
past and it has been stated that the residential space offered by DLF does not constitute any substantial
portion of the total residential space offered by various developers.
As per draft herring prospectus filed by DLF Limited in the year 2007, the group had the total land bank of
10,225 acres. This far exceeds the land bank of Unitech, the nearest competitor of DLF. The turnover of DLF for
2009 was Rs. 10, 035.39 crores. This is almost 300% higher than that of Unitech and nearly 700% higher than
that of Parshvanath. The “supply” of projects in a snapshot of a single year would give a completely erroneous
picture of the comparative strengths of DLF and its competitors.
Source: DLF main order by CCI (http://www.cci.gov.in/May2011/OrderOfCommission/DLFMainOrder110811.pdf), Kotak Institutional Equities
Issue 4: In case DLF Ltd. is found to be dominant, is there any abuse of its dominant
position in the relevant market by the above party?
While CCI found abuse of “dominant position” as below, we do not believe that DLF is the
only developer with these terms and having changed project specifications after collecting
advances or midway through the project.
�� Unilateral changes in agreement and supersession of terms by DLF without any right to
the allottees
�� DLF’s right to change the layout plan without consent of allottees
�� Discretion of DLF to change inter se areas for different uses like residential, commercial
etc. without even informing allottees
�� Preferential location charges paid up-front, but when the allottee does not get the
location, he only gets the refund/adjustment of amount at the time of last installment,
that too without any interest
�� DLF enjoys unilateral right to increase / decrease super area at its sole discretion without
consulting allottees who nevertheless are bound to pay additional amount or accept
reduction in area
�� Proportion of land on which apartment is situated on which allottees would have
ownership rights shall be decided by DLF at its sole discretion (evidently with no
commitment to follow the established principles in this regard)
�� DLF continues to enjoy full rights on the community buildings / sites / recreational and
sporting activities including maintenance, with the allottees having no rights in this regard:
�� DLF has sole discretion to link one project to other projects, with consequent impact on
ambience and quality of living, with the allottees having no right to object:
�� Allottees liable to pay external development charges, without there being disclosed in
advance and even if these are enhanced
�� Total discretion of DLF regarding arrangement for power supply and rates levied for the
same
�� Arbitrary forfeiture of amounts paid by the allottees in many situations
�� Allottees have no exit option except when DLF fails to deliver possession within agreed
time, but even in that event he gets his money refunded without interest only after sale
of said apartment by DLF to someone else
�� DLF’s exit clause gives them full discretion, including abandoning the project, without any
penalty
�� DLF has sole authority to make additions / alterations in the buildings, with all the benefits
flowing to DLF, with the allottees having no say in this regard
�� Third party rights created without allottees consent, to the detriment of allottees’
interests
�� Punitive penalty for default by allottees, insignificant penalty for DLF’s default
Will it impact other developers or other DLF projects?
While this judgment seems to be only for ‘”The Belaire”, media reports indicate that ‘Park
Place” residents welfare association has filed a similar suit.
We believe that there is a low risk (although this can never be ruled out) of other developers
getting impacted CCI’s argument is based on DLF enjoying dominant market position in
Gurgaon “high-end” apartments and that fact that it is much larger real estate developer
than any other in the country. In fact, to quote the ruling: “as far as companies operating in
Gurgaon are concerned on the basis of their all India sales during Quarter ending June 2010,
market share of DLF is about 45% as compared to second largest company i.e. Unitech ,
about 19%.”
DLF had also referred to earlier orders where the commission had ruled against dominant
position and to again quote: “The reference to orders of this Commission passed in the case
of BPTP and M/s, Parshvanath Developers India Ltd. is out of context as in both cases, it was
merely a prima-facie assessment of dominant position and neither of the two enterprises
enjoyed the wide spectrum of strengths as do DLF Ltd. and its subsidiaries in the relevant
market.”
In an order dated 25th May 20011, in a case against DLF Commercial Complexes Ltd., which
largely related to delays and one-sided contracts, the CCI ruled in favor of the developers
stating that
(1) “dominant position” means a position of strength in the relevant market which enables
it to operate independently of competitive forces or affect its competitors or consumers or
the relevant market in its favor. DLF, being a new entrant in developing commercial space in
Kolkatta and having only one property related to commercial retail space cannot be treated
as a dominant enterprise …..
(2) Informant has failed to furnish any facts or figures to show that DLF enjoys dominant
position in developing commercial space in the metropolis of Kolkatta
(3) Many prominent companies such as Godrej, Infinity, Unitech, Sapponji Pallonji etc. are
major developers of office and retail space in Kolkatta and there are about 57 commercial
areas in Kolkatta
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