Belaire Owners' Association v. DLF Ltd., Competition Commission of India, 2011

The first major abuse of dominance order under the Act, and still the standard illustration of unfair conditions under Section 4(2)(a)(i). Apartment buyers in a Gurgaon project complained that the builder's standard apartment buyers' agreement was one-sided and that the builder had unilaterally altered the project after taking their money. The Commission defined a narrow relevant market, found the builder dominant in it, held the agreement to be an abuse, imposed a penalty of six hundred and thirty crore rupees and directed the offending clauses to be modified.

1. The Facts

The association represented buyers of apartments in a residential complex developed by DLF in Gurgaon. The complaint was that after bookings had been taken and substantial payments made, the developer increased the number of floors in the towers from the number originally represented, altered the layout and the super area, and delayed possession, while the apartment buyers' agreement gave the buyer no remedy. The agreement had been offered on a take it or leave it basis, at a stage when the buyer had already paid an initial amount, and it could not be negotiated.

2. The Relevant Market

The Commission defined the relevant market as the services of a developer or builder in respect of high-end residential accommodation in Gurgaon. Three steps produced that definition. The product market was confined to high-end residential accommodation, because buyers of such apartments do not regard ordinary housing as a substitute, the amenities, location and price being materially different. The geographic market was confined to Gurgaon, because the conditions of competition there, in proximity to Delhi, in infrastructure and in the profile of buyers, were distinguishable from neighbouring areas, and a buyer seeking accommodation in Gurgaon would not treat a project elsewhere in the National Capital Region as an alternative. And the relevant date was the time at which the buyers committed themselves, since it is then that the choice is made.

3. Dominance

The Commission applied the factors in Section 19(4) and found the developer dominant on the basis of its market share in the defined market, its size and resources, its economic power and commercial advantages including its brand and its land bank, its early entry and established position in Gurgaon, the dependence of consumers who had already committed payments and could not practicably switch, and the barriers facing any new entrant, principally the cost and difficulty of assembling land. The competitors were present but smaller and not positioned to constrain it in that segment.

4. The Abuse

The contravention found was of Section 4(2)(a)(i), the imposition of unfair conditions in the sale of services. The Commission examined the apartment buyers' agreement clause by clause and identified the asymmetries.

• Unilateral alteration of the project. Power in the developer to change the layout, the number of floors, the super area and the specifications, without the consent of the buyer and without any corresponding right in the buyer to withdraw.
• Asymmetric remedies for default. Heavy interest and forfeiture on a buyer who delayed payment, against a nominal sum payable by the developer for delay in delivering possession.
• Forfeiture of earnest money and of amounts paid, on a buyer's exit, in circumstances where the exit was caused by the developer's own alterations.
• No exit right. The buyer could not terminate without penalty even where the project as delivered differed materially from what was represented.
• Discontinuance and abandonment. Terms permitting the developer to abandon the project or to alter the arrangement, with the buyer's remedy limited to a refund without adequate compensation.
• Unilateral termination and possession. Terms permitting the developer to cancel on the buyer's breach while leaving it substantially free of consequence for its own.

5. Unequal Bargaining Power

The developer argued that the buyers had agreed to the terms and were bound by their contract. The Commission's answer was that consent means little where the terms are offered on a standard form, by an enterprise dominant in the market, to buyers who have already committed money and cannot negotiate. That is the link between contract and competition law: the ordinary law asks whether there was consent, while Section 4 asks whether a dominant enterprise imposed the terms, and imposition is established by showing that the buyer had no practical alternative. It is for the same reason that the conditions were treated as unfair notwithstanding that they appeared in a signed agreement.

6. The Order

1. A penalty computed at seven per cent of the average turnover of the preceding three financial years, amounting to about six hundred and thirty crore rupees.
2. A direction to cease and desist from the unfair conditions.
3. A direction to modify the offending clauses of the apartment buyers' agreement.

The order was carried in appeal and the litigation continued for several years through the appellate forums, so the current status of the penalty should be checked before the case is cited for anything beyond the Commission's reasoning. What has not been displaced is the analytical framework: a narrow market, dominance on the Section 19(4) factors, and unfairness established by the asymmetry of the standard form terms.

7. Why the Case Is Cited

• Market definition. The clearest illustration of a narrow product and geographic market determining the outcome.
• Unfair conditions. The leading example of Section 4(2)(a)(i) applied to a standard form contract, and the source of the approach later applied to other consumer-facing industries.
• Unequal bargaining power. The reasoning that consent to a standard form offered by a dominant enterprise does not answer a complaint of imposition.
• The reach of the Act. Confirmation that competition law applies to real estate and to contractual terms with consumers, in addition to and not in derogation of the consumer protection legislation.

8. Related Topics and Provisions