Suo Moto Case No. 07 of 2020, In Re: Cartelisation amongst HP India and its resellers in the sale and supply of Personal System Products in India

Background

The CCI examined allegations of cartelisation among HP India, an OEM of personal system products (laptops, desktops, workstations, thin clients, and related accessories), and 10 of its Tier-2 resellers in relation to GeM tenders in the Delhi region for the supply of personal system products exceeding INR one crore in value. The case originated from a lesser penalty application filed by HP India itself under Section 46 of the Act pursuant to which the CCI formed a prima facie opinion and directed the DG to investigate the matter.

The DG’s investigation analysed 60 GeM tenders, shortlisted 41 that met the prescribed criteria, and further narrowed the examination to 30 tenders in which HP India and/or its resellers participated. Incriminating email evidence was found in respect of seven GeM tenders establishing collusion among HP India and its resellers. The modus operandi involved HP India communicating bid prices to designated resellers, restricting the issuance of MAFs to limit participation, and directing resellers to submit support/cover bids thereby manipulating the reverse auction process on GeM to enhance its own chances of emerging as the lowest bidder (‘L-1’).

CCI Findings

At the threshold, a common ground was raised by resellers regarding their relation with HP India is vertical in nature and not horizontal thereby meaning that Section 3(3) of the Act is not applicable. The CCI rejected the same and held that both HP India and its resellers participated as competing bidders in the same GeM tenders and emerged as L-1 in various instances. Further, while bidding for a particular tender, the OEM and resellers ‘stepped into the shoes of competitors’ and were in a competing horizontal relationship.

The CCI found that HP India was at the centre of the entire collusive arrangement as it used its control over MAFs and transfer prices both essential for reseller participation in any GeM tender to dictate bid prices, restrict reseller participation by withholding MAFs on the pretext of ‘tagged accounts’, and direct resellers to upload documents and quote specific prices. In tenders where HP India participated directly, it was already aware of the resellers’ prices (having communicated them itself), giving it a decisive advantage to manipulate bid outcomes.

With respect to individual resellers, the CCI undertook a granular, evidence-based assessment of each party’s role. It found contravention against five resellers, where evidence demonstrated either admissions of submitting bids on HP India’s directions, email communications dictating bid prices (as distinct from transfer prices), or participation in tenders on OEM instructions without any material to show independent price determination. Conversely, the CCI exonerated the remaining five resellers on the grounds that, either the communications were limited to routine business inquiries for transfer prices and MAFs, the resellers had quoted prices independently of HP India’s suggestions, or there was insufficient evidence to establish that they acted in concert with HP India.

On the question of AAEC, the CCI rejected the contention that the presumption under Section 3(3) stood rebutted on account of inter-brand competition from other OEMs such as Dell, Acer, and Lenovo. The CCI observed that HP India’s control over transfer prices and MAF issuance enabled it to regulate and enhance participation of its resellers in a given tender, thereby distorting the price discovery mechanism. Neither the monetary threshold set out in the prima facie Order nor the MSME status of certain resellers could serve as a defence, clarifying that there is no monetary threshold safeguard under the provisions of the Act.

In view of the foregoing, the CCI held HP India and five  of its resellers to have acted in contravention of Section 3(3)(d) read with Section 3(1) of the Act. HP India did not receive a 100% reduction in penalty, as the CCI granted only a partial reduction due to its orchestrating role. Further contravening resellers penalised at a lower rate as compared to HP India with reductions accounting for mitigating factors such as MSME status, limited role, cooperation during investigation, and first-time contravention.