2014 (8) TMI 1251 - AT - Companies Law

Imposition of penalty on NSE - Abuse of dominant position by NSE - violation of Section 4 of the Competition Act, 2002 on the part of NSE or not - introducing predatory pricing by waiving transaction fee altogether in the newly established Currency Derivatives Segment (CD) - also alleged that NSE was using its dominance in the non-CD segments to enter into and protect its position in the CD Segment and was also causing denial of market access by promoting MCX SX, Financial Technologies of India Ltd. (FTIL) from offering its software ODIN for the use of its CD Segment. HELD THAT - The CCI has thoroughly discussed all the arguments, which were placed before it. The appreciation of the material put before the CCI is quite satisfying. The uncertainty in the application of law was also pressed into service like it was done before the CCI. The CCI is agreed upon in its observations about these aspects. It was tried to be said that there were benefits of zero pricing and that there was no denial of market access. The CCI is agreed upon, for the reasons given for rejecting these contentions and for the same reasons, these contentions are rejected. Much was made about penalty levied @ 5% of the average turnover. The case of M/s. Excel Crop vs. CCI 2017 (5) TMI 542 - SUPREME COURT was pressed into service to suggest that the relevant turnover should alone be considered for the sake of penalty. All these arguments of relevant turnover should fall to the ground in the wake of finding that the relevant market in this case IS the services of stock exchange in all the segments. In M/s. Excel Crop's judgment, there were well defined distinct markets and it was a multi-commodity company. That is not a case here. Then, it was pointed out that the relevant turnover on account of the zero transaction fees policy was also zero. So, it was asked to adopt a notional turnover figure. It is pointed out that the NSE was making tons of profits from the relevant market on account of its services in the other segments. Therefore, there can be no justification for taking any lenient view, nor is it necessary to consider the concept of notional turnover figure, when the turnover of the NSE is well available on the basis of Annual Reports. The contention that the turnover for the CD segment should be the relevant turnover is rejected. Enough reasons to hold that the whole turnover of NSE should be taken into consideration, in view of the finding on the relevant market. The order of CCI in this behalf need not be modified. As regards, the other remedies imposed, the NSE has submitted that it should not be required to maintain segment wise account as in a multi-product firm, it is difficult to apportion shared based fixed costs and further that AS 17 does not requires the maintaining of segment wise accounts. In view of finding that the relevant market is the services of Stock Exchange, in all the segments it will not be necessary to maintain segment wise accounts. This direction by the CCI is not approved and is ordered to be deleted. There are no merits in the Appeal - Accordingly, the Appeal is dismissed.

Summary

Issues Involved:
1. Dominance of National Stock Exchange of India Ltd. (NSE) in the relevant market.
2. Abuse of dominance by NSE.
3. Definition of the relevant market.
4. Predatory pricing by NSE.
5. Imposition of penalties on NSE.

Issue-wise Detailed Analysis:

1. Dominance of National Stock Exchange of India Ltd. (NSE) in the Relevant Market:
The judgment discusses whether NSE held a dominant position in the relevant market, which was initially defined as the stock exchange services market. The Director General (DG) concluded that NSE was a dominant player based on its high market share in various segments, extensive resources, and infrastructure. The majority order of the Competition Commission of India (CCI) agreed with this, citing NSE's significant market share in equity, F&O, WDM, and CD segments, its financial strength, and its extensive network. The minority order, however, disagreed, stating that NSE's market share in the CD segment had decreased over time, indicating it could not operate independently of competitive forces.

2. Abuse of Dominance by NSE:
The CCI's majority order found that NSE abused its dominant position by engaging in predatory pricing, waiving transaction fees, admission fees, and data feed fees in the CD segment, thereby harming competition. The DG's investigation revealed that NSE's zero pricing policy was not justified by the nascency of the market but was a strategy to eliminate competition, particularly MCX-SX, which only operated in the CD segment. The majority order concluded that NSE's conduct was exclusionary and aimed at foreclosing competition, thus violating Section 4(2)(a)(ii) of the Competition Act.

3. Definition of the Relevant Market:
The DG defined the relevant market as the stock exchange services market, including equity, F&O, WDM, and CD segments. The majority order of the CCI, however, defined the relevant market more narrowly as the CD segment alone, based on the distinct characteristics and participants of this segment. The minority order agreed with the DG's broader definition, arguing that the services provided by stock exchanges should be considered as a whole, not limited to specific segments.

4. Predatory Pricing by NSE:
The DG and the CCI's majority order found that NSE engaged in predatory pricing by waiving transaction fees in the CD segment, which was below the average variable cost. This conduct was aimed at eliminating competition from MCX-SX, which could not sustain such losses. The minority order, however, argued that NSE's pricing strategy was aimed at developing the nascent market and increasing liquidity, and that there was no intent to eliminate competition.

5. Imposition of Penalties on NSE:
The CCI imposed a penalty of 5% of NSE's average turnover, amounting to Rs. 55.50 crores, for abusing its dominant position. The majority order justified the penalty based on NSE's deliberate exclusionary conduct and the harm caused to competition. The minority order, however, argued that the penalty was disproportionate and that NSE's conduct was aimed at meeting competition and developing the market. The Tribunal upheld the penalty, rejecting NSE's arguments of novelty, uncertainty in the application of law, and lack of intent.

Conclusion:
The Tribunal dismissed NSE's appeal, upholding the CCI's majority order that found NSE guilty of abusing its dominant position through predatory pricing in the CD segment. The Tribunal confirmed the penalty imposed by the CCI but deleted the direction to maintain segment-wise accounts, as the relevant market was defined as the services of stock exchanges in all segments.