The Story

The Competition Commission of India recently passed a contravention order against HP and some of its resellers for cartelisation in government tenders. The Commission imposed a cumulative penalty of ~INR 128 crores on the parties for rigging tenders available on the Government e-Marketplace (GeM) portal since its inception and ordered the companies to run a competition compliance programme.

What were the allegations?

HP filed a leniency application before the Competition Commission of India for cartelisation. The DG analysed a total of 60 tenders floated on GeM portal out of which it was able to find a case of collusion in seven cases. Collusion, under competition law, refers to any kind of coordination between the participating entities in a tender to rig the natural competitive outcome of the process.

What did the Respondents submit?

Since this was a case where the respondents admitted contravention upfront, they mostly pleaded mitigating circumstances so as to minimize the amount of penalty imposed. Some of the core submissions revolved around Respondents being MSMEs, absence of AAEC analysis by the DG and authorised dealers and resellers operating at different levels of supply chain than the OEM (HP). HP,in specific, mentioned that the impact of cartelisation is only on intra-brand competition and that it is a first-time offender and regularly conducts competition compliance programmes.

What did the CCI say?

The Commission held that both HP and the resellers have participated as bidders in the GeM tenders thereby acting horizontally (same level of supply chain). This brings them under the ambit of cartelisation. On evidence, the leniency application has itself brought to the fore admission of the parties that they have colluded I'm multiple tenders to restrict the natural competitive process. It, therefore, passed a contravention order against HP, Delphi, Digital Computers, Orbit, Hind Technoware and Krishna Computers and duly accounted for respondents being MSMEs while imposing a penalty.

What are the implications of this order?

Cartelisation is one of the most pernicious violations under competition law. The monetary penalty imposed by the Commission should ideally be tested against the profit earned by the parties during the time of contravention for it to act as an effective deterrent for other players to resist cartelisation. Apart from the penalty, such a contravention may also negatively affect the brand value and goodwill of a company more specifically for a global company like HP. The government agencies who eventually floated tenders and bore the brunt might also put a follow-on claim for compensation/ damages for the loss in the appropriate court caused due to such a conduct.

The respondents might also file an appeal against the order. The Commission has penalised five companies and it is not clear whether all of them filed a leniency application. Even if a party has filed for leniency, it could still appeal the amount of monetary penalty imposed on the same. The CCI was able to conclude this case in around six years which is approximately four years higher than the median time taken to dispose of a case wherever a DG investigation is conducted.

Takeaways

The decision adds to a consistent jurisprudence churned by the CCI on cartelisation. This case was comparatively easier as the most difficult part which is to bust such a formation in the first place was provided upfront by one the contravenors. The message from the order should be clear that there is a distinction between regular business conduct and discussing commercially sensitive information such as prices, distribution and applicable supply chains. The intervention by the CCI further puts a spotlight on the significance of running a competition compliance programme which could act as a mitigating circumstance in such a situation.