DLF may approach Compat next week against CCI order

The company is considering challenging the order on the basis of the CCI's classification of DLF as a 'dominant player' in the Gurgaon market, as well the competition watchdog's jurisdiction over the matter

New Delhi: Realty giant DLF may approach the Competition Appellate Tribunal (Compat) next week to challenge a Competition Commission of India (CCI) order to pay a Rs630 crore penalty for abuse of dominant market position, reports PTI.

The company is considering challenging the order on the basis of the CCI's classification of DLF as a 'dominant player' in the relevant market, as well the competition watchdog's jurisdiction over the matter.

In its order dated 16th August, the CCI found the company guilty of abusing its dominant market position and asked it to pay a penalty of Rs630 crore. After the CCI order, DLF had said that it would examine all options, including an appeal before Compat, to contest the penalty.

Sources said DLF is likely to challenge the order next week before Compat, wherein it would also question why the CCI did not serve a show cause notice before passing the order, as was the case with another recent order passed against the National Stock Exchange (NSE).

DLF was found to be market leader based on a third-party analysis of the overall country-wide turnover of companies present in the Gurgaon real estate market.

However, DLF is contending that market position should be determined on the basis of the number of housing units sold in the entire NCR region, after taking into account secondary market housing sales and not just the primary market or units sold directly by developers, sources said.

"There is enough competition in the Gurgaon market in each category of the residential segment. There is no entry ban for any developer and there is no cartelisation," a source said, while asserting that the company did not violate the competition regulations.

To buttress its case of not being a dominant player, DLF is also arguing that it was given only 6% of the total land development licences issued by the government in the Gurgaon region between 2002 and 2009, they added.

DLF had engaged leading property consultant Jones Lang LaSalle to conduct an analysis on its and other players' market share in the NCR region, wherein the company was found to have a market share of only 2.13% in 2007, and then 3.6% in 2008.

DLF's market share rose to 4.8% in 2009, but fell to just 0.4% in 2010-when it was not even among the top-50 developers of NCR region, the report said.

The CCI had passed the order against DLF on a complaint filed by Belaire Owners' Association, a group of buyers at the company's Belaire housing project in Gurgaon.

In May last year, the association complained to CCI that DLF had promised to complete the residential project in 2009, but the buyers were yet to get possession.

Besides, it alleged that DLF "imposed highly arbitrary, unfair and unreasonable conditions on the apartment allottees of the housing complex, which has serious adverse effects and ramifications on the rights of the allottees".

It also alleged that DLF had announced the project before getting necessary conditions and clearances.

However, the company claims to have already compensated the buyers for the delay in form of a higher penalty clause and provide certain additional amenities for the homes without any extra charge.

On the complaints related to the company increasing the number of floors to 29 from 19 originally proposed, the company is contending that the application forms provided for such changes in the project.

Days after its penalty order in the Belaire matter, CCI had also passed a 'cease and desist' order against DLF for the company's Park Palace housing project in Gurgaon.

In the second order, the company was asked to stop formulating and imposing unfair conditions in its agreements with home buyers, but the CCI did not impose any fine in this case.

After this order also, DLF had said it would be "filing an appeal with the Competition Appellate Tribunal shortly, as the company continues to believe that it has a strong case".


Nomura expects RBI to hike rates further at mid-September policy review

With inflation continuing to remain high, the apex bank is likely to continue with tightening measures despite weakening domestic and global demand that has hurt manufacturing activity

Notwithstanding the economic slowdown, the Reserve Bank of India (RBI) is likely to hike the repo rate by a further 25 basis points as inflation continues to remain elevated, according to Nomura Financial Advisory and Securities (India). However, the central bank may keep policy rates on hold thereafter, it said in a report published this week.

A dip in the Purchasing Managers Index to 52.6 in August this year, from 53.6 in the previous month, reflected lower domestic and new export orders. But core infrastructure sector output growth rose to 7.8% y-o-y in July, from 5.2% in June, indicating a slight pick-up in infrastructure investment activity.

With interest rates and inflation likely to remain up for some months more, Nomura suggested that consumption growth could moderate further, even as export orders are on the decline due to weakening global demand.

But it's not all bad news. There has been good rainfall this monsoon season which could have a positive effect on the festive season underway and this could lead to an improvement in domestic demand from the rural sector that could give an impetus to the economy as a whole.

Among the major sectors, cement, steel and electricity recorded double-digit growth, but natural gas and fertilisers continued to see negative year-on-year growth. The pickup in infrastructure sector output growth suggests that investment activity is improving and this should help ease supply-side inflation pressures over time.

According to K R Choksey, challenging macro-economic factors (interest rate hikes and rising fuel prices) continued to impact automobile manufacturing volumes. The major impact was seen in passenger car companies which have reported a y-o-y decline in volumes.

Commodity prices have started to show some stability but high cost of ownership is negatively affecting the demand sentiment, especially in the passenger car segment.

Overall, data released over the past few days indicates that the economy is slowing further, as both domestic and external demand is weakening, even though investment seems to be picking up.

The export orders component of the manufacturing PMI fell further to 45 in August 2011, from an already low level of 49.2 in July 2011. The trade deficit widened to $11.1bn in July from $7.7bn in June, as import growth accelerated to 51.5% y-o-y in July from 42.2%. Non-oil imports also continued to rise in July 2011, which further suggests strong momentum in infrastructure investment activity.

On the price front, CPI (Consumer Price Index) inflation eased marginally to 8.4% y-o-y in July 2011 from 8.6% in June 2011, above Nomura (brokerage house) expectations of 7.7%. Meanwhile, the input price index of the manufacturing PMI rose to 65.6 in August from 64.3 in July 2011, suggesting that input cost pressures remain strong, although the output price index eased slightly to 55.6 from 56.0. These price-related PMI prints suggest that core WPI (wholesale price index) inflation is likely to stay elevated.

The slowdown is not limited to manufacturing, but it has also affected real GDP growth. The moderation in GDP growth has been largely due to weaker final consumption, resulting from elevated prices, high interest rates and lower government spending. The government is likely to reduce spending on subsidies to meet its fiscal deficit target.

Real GDP growth eased to 7.7% y-o-y in the second quarter of 2011 from 7.8% in the first quarter of the year 2011, largely in line with its expectations, Nomura said. It is expected that growth will remain below 8% in the next few quarters because of high interest rates and elevated prices, leaving the GDP growth forecast for the financial year 2011-12 unchanged at 7.7% y-o-y.


AI move to acquire 111 planes a recipe for disaster: CAG

Terming the move for acquiring a 'large number' of planes as 'risky', the CAG said the aircraft acquisition had 'contributed predominantly' to the airline's massive debt liability of Rs38,423 crore as on 31st March last year

New Delhi: The Comptroller and Auditor General of India (CAG) has come down hard on the civil aviation ministry over the decision to acquire 111 planes for Air India through debt, calling it 'a recipe for disaster' and also on the merger of the two erstwhile state-run carriers.

The merger of Air India and Indian Airlines was described as 'ill-timed' by the CAG which said this exercise was undertaken "strangely from the top (rather than by the perceived needs of both these airlines), with inadequate validation of the financial benefits".

Terming the move for acquiring a 'large number' of planes as 'risky', the CAG said the aircraft acquisition had 'contributed predominantly' to the airline's massive debt liability of Rs38,423 crore as on 31st March last year.

In its latest report tabled in Parliament on Thursday, the government auditor said, "The entire acquisition (for both Air India and Indian Airlines) was to be funded through debt (to be repaid through revenue generation), except for a relatively small equity infusion of Rs325 crore for Indian Airlines.

"This was a recipe for disaster ab initio and should have raised alarm signals in ministry of civil aviation, Public Investment Board and the Planning Commission," the report said.

The CAG felt there is a need for some 'harsh decisions' to improve the health of the airline.

"The airline is in a crisis situation. Salary payments and ATF obligations are becoming difficult. If the airline has to survive, the management and employees will have to set personal interests aside and undertake some harsh decisions, till the health of the airline improves," it said.

Significantly, the CAG recommended, among other measures, "a total hands-off approach (by the government) with regard to the management of the airline".

The CAG also took the civil aviation ministry to task for liberalising the bilateral air traffic entitlements with other countries in a manner which "did not provide a level playing field to AI (and to a lesser extent other Indian private airlines)".

The report dealt with several aspects of the ailing national carrier's losses, fleet acquisition, merger, huge debt burden, delay in joining the global airline grouping Star Alliance and its financial and operational performance.

On merger, the CAG said this was also carried out "without adequate consideration of the difficulties involved in integration (notably in terms of HR and IT, among other areas)".

Though Air India had 'inherent strengths', it said "there was no evidence of civil aviation ministry having provided it with positive support in the last few years".

Noting that the fleet acquisition process took an 'unduly long time', the CAG said the initial proposal was made in December 1996 and its examination continued 'in fits and starts' till January 2004 when a plan was made to buy 28 planes, which was revisited and later a decision taken to acquire 68 aircraft.

It said the revised plan saw 'a dramatic increase' in the number of planes to be purchased and maintained that the sequence of events up to November 2004 clearly demonstrated that the pre-merger AI 'hastily reworked' its earlier plan.

Observing that many assumptions for the revised plan were 'flawed', the CAG said the negotiation process was "irregular and adversely affected the transparency of the process".

Maintaining that 'no benchmarks' relating to comparable prices and commercial intelligence were set, it said, "Consequently, in the absence of such benchmarks, the effectiveness and efficacy of negotiations and the reasonableness of the price arrived at is difficult to ascertain."

Other factors responsible for the 'critical' state of affairs in AI were "chronic operational deficiencies, a weak financial position, grossly inadequate equity capital and undue dependence on debt funding providing little or no cushion for the financial shock when it came". Besides, high fuel prices and global recession also hit the airline hard.



Shadi Katyal

5 years ago

AI is already on death bed and what is the GOI going to do with new purchses. Where are the funds going to come or is the Parliament members going to acquire a jet for themselves. What a joke?
Who bought these and how much he was paid by the manufacturer. Need frull investigation .
Will GOI rent these to other nations?
Air India as it is now is very sick and will never recover as long as the Staff learns manners and courtsey plus all unions are abolished and hundreds of unwanted employees are packed.

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