Suo Moto Case No. 08 of 2020, In Re: Cartelisation amongst HP India and its resellers in the sale and supply of Supplies Products in India

Background

The CCI examined allegations of cartelisation among HP India Sales Private Limited (‘HP India’), an OEM, and 16 of its Tier-2 resellers in relation to GeM tenders in the Delhi region for the supply of HP Supplies Products (ink and toner cartridges and other print consumables) exceeding INR 20 lakhs in value. The case originated from a lesser penalty application filed by HP India under Section 46 of the Act, followed by a separate application by Mr. Manoj Grover, a former HP India official. Based on these disclosures, the CCI formed a prima facie opinion and directed the DG to investigate the matter.

The DG’s investigation found evidence of collusion in respect of 29 GeM tenders meeting the prescribed criteria, relying on emails, WhatsApp communications from two dedicated groups (i.e., Delhi Gem Group Chat and Gem Tender Group), video clippings of a physical meeting held on May 14, 2019 between HP India officials and resellers, and recorded statements. The modus operandi involved a system of Most Valuable Customer (‘MVC’) accounts whereby specific Government departments were allocated to designated resellers supported by HP India’s selective issuance of Manufacturer’s Authorisation Forms (‘MAFs’) to restrict participation, communication of bid prices and discount limits, facilitation of support/cover bids among resellers, and use of sister entities to meet minimum participation requirements and give a façade of competition. The collusive practices encompassed bid rigging, cover bidding, price fixation, and customer allocation during the period 2017-2020.

CCI Findings

On the threshold question of applicability of Section 3(3) to an OEM-reseller relationship, the CCI consistent with its ruling in the companion case (see below) held that HP India and its resellers participated as competing bidders in the same GeM tenders and were therefore in a horizontal relationship while bidding. The argument that Section 3(3) could not apply due to the vertical OEM-reseller chain was rejected. The CCI also rejected the contention that the 2023 amendment to Section 3(3) (which expressly brought hub-and-spoke arrangements within its scope) was required to be applied prospectively, noting that the conduct was already amenable to Section 3(3)(d) under the pre-amendment framework given the participation of parties in identical trade while bidding.

On merits, the CCI found HP India to be central to and the ultimate beneficiary of the entire collusive arrangement. HP India played a ‘very prominent role’ by issuing sales targets to resellers, selectively issuing MAFs only to designated resellers and those who agreed to provide support bids, controlling and limiting discounts offered by resellers, and organising physical meetings to allocate Government department accounts among resellers. The CCI noted that resellers who deviated from directives by offering discounts or participating in tenders mapped to other resellers faced retaliatory action including debarment and revocation of authorisation. Additionally, certain resellers operated sister entities to meet minimum participation requirements and create a façade of competition in tenders.

With respect to individual resellers, the CCI undertook a party-wise assessment and found all sixteen resellers to have acted in contravention of Section 3(3)(d) read with Section 3(1) of the Act. The evidence against individual parties varied from admissions of seeking and providing support bids, WhatsApp communications coordinating participation, attendance at the May 14, 2019 meeting, to email exchanges requesting MAF restrictions against other resellers. The CCI held that non-winning of a tender or technical disqualification did not absolve a party if the purpose of participation was to meet minimum bidding requirements and create an impression of competition. Similarly, collusion in tenders below the INR 20 lakh monetary threshold did not absolve parties, as there is no monetary threshold defence under the provisions of the Act.

On HP India’s request for 100% reduction in penalty as the first lesser penalty applicant, the CCI specifically rejected this claim. The CCI observed that taking into account HP India’s prominent role in devising the arrangement, facilitating the same over a long duration from 2017 to 2020 and being the key beneficiary of the collusive arrangement, complete reduction in penalty would defeat the objectives of the Act. Referencing international practice, the CCI noted that under both the US Department of Justice Corporate Leniency Policy and EU competition law, complete immunity is denied to an entity that was the ringleader, instigator, or that coerced other undertakings into joining or remaining in the cartel though such entities may still receive reduced penalties. HP India was accordingly granted only a partial reduction in penalty.

In view of the foregoing, the CCI held all parties including HP India to have acted in contravention of Section 3(3)(d) read with Section 3(1) of the Act for the period 2017-2020. HP India was subjected to the highest base penalty rate given its orchestrating role, with a partial reduction granted on account of its lesser penalty disclosures, cooperation, and first-time contravention. The resellers were subjected to a lower base penalty rate with further reductions for mitigating factors including MSME status, limited role, cooperation, and first-time contravention.