CCI’S HP CARTELISATION ORDER: INCONSISTENCIES IN PENALTY CALCULATION METHODOLOGY

This piece is authored by Kanha Pandey Haren Digga of fourth-year, B.A., LL.B (Hons.) at the West Bengal National University of Juridical Sciences.

INTRODUCTION

On 13^th July 2026, the Competition Commission of India (“CCI”) issued an order under Section 27 of the Competition Act (“the Act”), imposing a penalty of INR 11.98 crores on HP India and a combined penalty of INR 2.30 crores approximately on its sixteen resellers, for indulging in cartelisation in sale and supply of products comprising of toner, cartridges and other consumables used with print hardware products. CCI found HP and the sixteen resellers in contravention of provisions of Section 3(3)(d) read with Section 3(1) of the Act.  In cases of cartelisation, penalty has to be levied according to three different mechanisms - Section 27(b), the cartel specific proviso to Section 27(b), and the Competition Commission of India (Determination of Monetary Penalty) Guidelines, 2024 (“Penalty Guidelines”). This piece examines CCI’s penalisation mechanisms in cartelisation cases to show the persistent lack of consistent application of the penalty framework under the Act and the Penalty Guidelines.

PENALTY MECHANISM UNDER THE ACT AND THE PENALTY GUIDELINES

Section 27 of the Act empowers the CCI to impose remedial measures in cases involving anti-competitive agreements, whether horizontal or vertical, as well as abuse of dominant position. These measures include cease-and-desist orders, as in the Muthoot Finance Limited case, and the modification of agreements, as in the PF Digital Media case. Importantly, for the purposes of this article, Section 27(b) specifically empowers the CCI to impose penalties for such contraventions, including cases involving anti-competitive agreements, as well as in abuse of dominant position cases. This article deals with the former.

Under this section, CCI can impose a penalty of 10% of the average turnover for the last three preceding financial years on each enterprise party to anti-competitive agreements under Section 3. Prior to the Competition (Amendment) Act, 2023 (“the Amendment”), CCI in multiple orders such as UP Soil Testing Bid-Rigging, In Re: Chief Materials Manager, North Western Railway Vs. Moulded Fibreglass Products and Others, In Re: Alleged cartelisation in supply of LPG Cylinders interpreted ‘average turnover’ under the provision to mean relevant average turnover, largely following the Supreme Court judgement in Excel Crop Care. However, the Amendment added Explanation 2 to the provision, whereby it was specified that ‘turnover’ under this provision means “global turnover derived from all the products and services by a person or an enterprise”. Basically, the legal cap on penalty stands to be 10% of the global turnover of the company. In effect, the amendment partially overrode the interpretation of ‘turnover’ given in the Excel Crop Care ruling.

However, specifically for cartelisation matters, the proviso to Section 27(b) states that the CCI may impose a penalty of “up to three times of its profit for each year of the continuance of such agreement or ten per cent of its turnover or income, as the case may be, for each year of the continuance of such agreement, whichever is higher” upon every entity engaged in the cartel.

With the introduction of Penalty Guidelines in 2024, clarity was provided regarding the application of penalties. For instance, Guideline 3(1) provides that the ceiling of the base of the assessment of CCI’s penalty calculation is 30% of the average relevant turnover, which will be adjusted according to the multiple factors listed in the guidelines, and can be increased if it does not provide sufficient deterrence as per Guideline 3(7). Subsequently, Guideline IV prescribes the methodology for determining penalties under the proviso to Section 27(b). It states that, where the contravention pertains to a cartel, the penalty “may” be imposed under the proviso. Paragraph 2 clarifies that the reference to profits under the proviso means profits after taxation. It also provides that while assessing penalties under this guideline, the factors enlisted under Guideline 3(2), such as duration of contravention and repeated contraventions, must be taken into consideration.

THE INCONSISTENCIES IN APPLICATION

Even after the introduction of the Penalty Guidelines, CCI’s penalty calculation in cartelisation cases has shown no settled methodology. There remains no clarity on which mechanism CCI will apply, and in what circumstances, when it finds a Section 3 cartel. This inconsistency manifests in three related ambiguities, discussed below.

A.    INVOCATION OF THE CARTEL PROVISO

In the recent Ulink Agritech Private Limited case, the CCI noted that “considering the nature of the organisations involved in the contravention, deems it appropriate to not invoke the proviso of Section 27(b) of the Act.” Furthermore, even in the HP Cartelisation order, for instance, the CCI only considered the text of the main provision of Section 27(b), and expressly declined to invoke the proviso citing “the peculiar nature of the cartel between OEM (HP India) and its resellers” without explaining why the proviso was inapplicable or, more generally, the circumstances in which the CCI will or will not invoke it. A similar pattern appears in the case of UP Soil Testing Bid-Rigging, where the CCI imposed penalty under Section 27(b) after noting that the proviso permits a penalty of up to three times profit or ten percent of turnover for each year of continuance, whichever is higher, but did not invoke it. By contrast, in Cartelisation of Shipping Lines, penalty was imposed under the proviso, again without any stated reason for exercising discretion in that direction. The Essel Shyam order, the Dry Cell Batteries case, and the Cement Manufactures Cartelisation order follow the same pattern as Shipping Lines, invoking the proviso without recording why that course was taken as opposed to proceeding under the main provision.

This unexplained exercise of discretion matters because penalties differ substantially depending on which mechanism is applied.

First, unlike the main provision, the proviso computes penalty over the entire timeline of the cartel's continuance rather than over the three years preceding the violation. This distinction is significant in practice: the Dry Cell Batteries case levied penalty over seven financial years of continuance, while it was only 2 years in the Essel Shyam case. Therefore, there can be stark contrasts in the timeline of turnover considered for computation of penalty which can lead to extremely varied penalty amounts.

Second, Section 27(b) calculates penalty as a percentage of average turnover across the relevant years, whereas the proviso calculates a percentage for each year of continuance and adds these together, typically producing a higher aggregate penalty. The same logic applies to penalties computed on profit under either mechanism.

Given how substantially outcomes vary between the two, the absence of any reasoning for applying one mechanism and not the other creates real uncertainty for parties in predicting their penalty exposure. The exercise of discretion in invoking the proviso is not inherently objectionable, but some articulated basis is needed for when it will be invoked and when it will be not.

B.    LACK OF CLARITY OVER APPLICATION OF GUIDELINE 3 OF THE PENALTY GUIDELINES

In the HP decision, the CCI referred to the Penalty Guidelines only to the extent of adopting the three-year timeline for computing average turnover, without applying Guideline 3’s mechanism of starting from thirty percent of average relevant turnover. This is contrary to what was noted by the CCI in the KKK Mills case, wherein it was stated that, “…the first step is determination of ‘relevant turnover’. Thereafter, the Commission would consider an amount up to thirty percent of the average relevant turnover of the enterprise for the purpose of determination of penalty to be imposed on an enterprise under Section 27(b) of the Act. The amount so determined would be adjusted, subject to the mitigating and aggravating factors applicable to a given case.” [emphasis added].

Even in Pune Municipal Corporation Solid Waste Processing Tenders, CCI again worked through the Guideline 3 framework, but adapted it: several cartel participants were cover bidders with no relevant turnover in the solid waste processing market at all, so applying Guideline 3(1) would have produced a nil or an inequitable penalty. CCI resolved this by invoking Guideline 3(6) to fallback to global turnover rather than abandoning the Guideline 3 structure altogether. That order, therefore, treats Guideline 3 as applicable to cartels in principle, with global turnover substituted for relevant turnover only once the latter cannot be ascertained, and it reached the global turnover figure only after first attempting, and failing, to determine relevant turnover under Guideline 3.

The wording of the Penalty Guidelines suggests that the CCI retains discretion to impose penalties either under Section 27(b) or under its proviso. The use of the word “may” in Guideline 4(1), which governs the invocation of the proviso, indicates that the CCI may choose between the two routes, namely, imposing a penalty under the main provision by following the methodology under Guideline 3, or invoking the proviso and proceeding under Guideline 4. However, the Guidelines do not clarify how the CCI should determine the appropriate route in a given case, or what reasons would justify a departure from the ordinary methodology.

The decisions in KKK Mills and Pune Municipal Corporation Solid Waste Processing Tenders suggest that the methodology under Guideline 3(1) should ordinarily serve as the starting point for calculating penalties under the main provision of Section 27(b). In KKK Mills, the CCI expressly described the determination of relevant turnover, followed by consideration of a penalty of up to thirty per cent of average relevant turnover, as the first step in the calculation. In Pune Municipal Corporation, the CCI retained the Guideline 3 framework but adapted its application because certain cartel participants had no relevant turnover in the market concerned. Rather than abandoning the framework, it resorted to global turnover under Guideline 3(6) after relevant turnover could not be ascertained. Neither order, therefore, suggests that the CCI can dispense with the ordinary methodology without explanation.

The stand-out point from HP, KKK Mills, and Pune Municipal Corporation is that all these orders, while address how the main provision interacts with Guideline 3 in a cartel context, no two adopt the same view of whether the guideline must be gone through at all.

The difficulty with the HP order is that, although the CCI proceeded under the main provision of Section 27(b), it did not apply the thirty per cent starting point under Guideline 3(1), or explain why it departed from the approach followed in KKK Mills and Pune Municipal Corporation. The CCI attributed its decision to the invocation of the proviso to the “peculiar nature” of the cartel between HP India and its resellers, but did not clarify whether those same features also justified departing from the Guideline 3(1) methodology. Given that the arrangement between an original equipment manufacturer and its resellers may differ from a conventional horizontal cartel, the CCI could have considered whether its peculiar features warranted a different approach. However, without an explanation connecting those features to the penalty calculation, it remains unclear why the methodology, ordinarily applicable under the main provision, was not followed. The inconsistency, therefore, in the HP order is the unexplained departure from the approach reflected in the earlier decisions.

C.    RELEVANT TURNOVER OR GLOBAL TURNOVER

The 2023 Amendment clarified that “turnover” under Section 27(b) means global turnover, not relevant turnover, a change that has been challenged by Apple before the Delhi High Court, where the company argues that computing penalty on worldwide revenue for conduct tied to a narrow portion of business is disproportionate. Read holistically with Guideline 3, the position that appears to follow is that penalty calculation starts from thirty percent of relevant turnover, subject to the statutory ceiling of ten percent of global turnover.

The HP order does not apply this post-Amendment position. The CCI computed penalty using relevant turnover, expressly rejecting global turnover and instead relying on the pre-Amendment Excel Crop Care principle, without explaining why Explanation 2’s global turnover standard does not govern, or why Excel Crop Care, a judgment interpreting the pre-Amendment provision, should continue to control after the text it interpreted has since changed.

One explanation for this may be the defence raised by HP in Para. 13.14 of the judgement, that the amended Section 27 could not be applied retrospectively as these provisions are penal in nature. While the CCI ultimately adopted the relevant turnover route, it did not make a holding with regards to HP’s temporal argument. Instead, it merely stated;

“It is also averred by the parties that pursuant to 2023 amendment in Section 27 of the Act, the Commission ought not to consider the global turnover for imposition of penalty. In this regard, the Commission is cognisant of the rationale laid down in Excel Crop Care that penalty must bear nexus with the actual infringing product or service.”

Furthermore, it confined its conclusion to the determination of penalty on the relevant turnover solely by relying on the Turnover Regulations, 2024 and the principles laid down in Excel Crop Care [Para. 116]. HP’s retrospectivity argument, therefore, offers a possible explanation for the CCI’s approach, but does not conclusively resolve the basis on which it adopted relevant turnover.

This sits alongside the second ambiguity, since HP also proceeded without the thirty percent of relevant turnover [Guideline 3(1)] starting point that KKK Mills treated as mandatory.

Read together, the ambiguities mean that a cartel respondent cannot even be certain of the three regimes that will govern its penalty: the proviso, the main provision as applied with the Guideline 3(1) starting point, or the main provision as applied without it, as HP shows can happen.

IMPLICATIONS AND WAY FORWARD

This inconsistency has consequences at every stage of a cartel matter. At the investigation and leniency stage, a party weighing whether to approach the CCI under the Lesser Penalty Regulations, cannot meaningfully estimate its own penalty exposure if it is unclear whether the applicable base will be relevant turnover, global turnover, or profit, and whether, the ceiling will be computed on an average-of-three-years basis or a year-by-year aggregate basis for the entire, sometimes decade-long, life of the cartel (as in Dry Cell Batteries). At the adjudication stage, it leads to concerns of arbitrariness, since two enterprises engaged in materially similar cartel conduct, and could face penalties computed on entirely different bases with no order-level reasoning distinguishing them. Institutionally too, guidelines that are followed selectively are barely distinguishable from a respondent’s vantage point, from no guidelines at all.

The way forward requires CCI to make that discretion visible on the face of its orders. First, CCI could use its residuary power under Guideline 8(1) and 8(2), which already requires reasons to be recorded for any divergence from the general methodology, as the vehicle for stating explicitly why the proviso is or is not being invoked in a given cartel matter, tying that choice to the nature of the cartel rather than resting on a conclusory phrase like “peculiar nature.” Second, CCI could clarify, either through an amendment to Chapters II and III of the Guidelines or through a clarificatory circular, whether Guideline 3(1)'s thirty percent starting point is a mandatory first step even where the Commission ultimately proceeds under the main provision in a cartel case, resolving the inconsistency the HP order has now introduced against KKK Mills. Third, appellate scrutiny before the NCLAT has a role to play from outside the Commission: where an order departs from a comparable prior order on the invocation question or the Guideline 3 question, the absence of a reasoned distinction can itself be treated as a ground of challenge.

CONCLUSION

In several of the cases discussed here, the framework has produced workable, if divergent, outcomes, and CCI has clearly used the Guidelines to structure its reasoning in orders like KKK Mills and Pune Municipal Corporation. However, the interaction between Section 27(b)’s proviso and Guideline 3 in cartel cases is a question CCI has not yet answered the same way twice, and HP, the most recent order to engage with it, departs from both prior approaches without addressing either. This fault line is likely to keep surfacing in future cartel orders until CCI resolves it directly, whether through a clarificatory amendment to the Guidelines or through more careful, order-specific reasoning on why a given cartel matter is or is not proceeding under the Guideline 3 framework.