COMPETITION APPELLATE TRIBUNAL

Appeal No. 15 of 2011 with

IA NoS. 25/2011, 26/2011, 27/2011, 10/2012,27/2012
[Under Section 53B of the Competition Act, 2002 against the order dated 23.6.2011
passed by the Competition Commission of India in case no. 13/2009]

CORAM

Honble Justice V.S. Sirpurkar
Chairman

Honble Shri Rahul Sarin
Member

In the matter of:
The National Stock Exchange of India Ltd.
Through its Director
Exchange Plaze, Plot C-1, G-Block,
Bandra Kurla Complex, Bandra (East),
Mumbai 400 051. Appellant

Vs.
1. Competition Commission of India,
Through its Secretary,
Hindustan Times House,
18-20, Kasturba Gandhi Marg,
New Delhi 110 001. Respondent No. 1

2. MCX Stock Exchange Limited
Through its Director,
Exchange Square, Suren Road,
Andheri (E), Mumbai 400 093. Respondent No. 2



Appearances: Shri Amit Sibal, Sr. Advocate with Shri Naval Satarawala
Chopra, Shri Prateek Bhattacharya and Shri Aman Singh Sethi,
Advocates for Appellant

Shri A. N. Haksar, Sr. Advocate with Shri Anand S. Pathak, Shri
Udayan J ain, Shri Abhijeet Sinha, Ms. Chitra Parande and Shri
Akshay Nanda, Advocates for R-2
Shri Balbir Singh, Advocate with Shri Abhishek Singh Baghel,
Ms. Monica Benjamin, Advocates with Ms. Shabistan Aquil,
DD(Law) for CCI


ORDER

PER MR. J USTICE V.S. SI RPURKAR, CHAIRMAN
2


An order passed by the majority Members of the Competition
Commission of India (for short the CCI ) holding Appellant-National Stock
Exchange of India Ltd. (for short NSE) to be a dominant player in the
relevant market and further holding that it had abused its dominance
therein and on that count inflicting a penalty of Rs. 55.50 crores (@ 5% of
the average turnover) falls for consideration in this Appeal. The other
order passed by the minority two Members namely - Shri Anurag Goel and
Dr. Geeta Gouri, however, exonerating the Appellant-NSE, holding that
there was no violation of Section 4 of the Competition Act, 2002 (for short
the Act) on the part of NSE does not.
2. Information was led before the CCI at the instance of the respondent
MCX Stock Exchange Ltd. (MCX-SX for short) against the National
Stock Exchange of India Ltd. (the appellant herein) and DotEx
International Ltd. (DotEx for short). The MCX-SX is now Respondent
No. 2 in this Appeal while DotEx has not been joined as a party to this
Appeal which was registered as Appeal No. 15 of 2011.
3. In the said information, it was alleged that the appellant had
abused its dominance under Section 4 of the Act by introducing predatory
pricing by waiving transaction fee altogether in the newly established
Currency Derivatives Segment (CD Segment for short). It was also
urged that for this 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. The information which was filed under
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Section 19(1)(a) of the Act was also against the Omnesys Technologies
Pvt. Ltd. (OMNESYS). It was urged that MCX-SX and NSE were
providing currency futures exchange services. It was pointed out that
NSE through its circular dated 26.8.2008 announced a transaction fee
waiver in respect of all currency future trade (Currency Derivatives)
executed on its platform and then it continued to extend its waiver
programme from time to time and even on that date when Section 4 of
the Act came on the anvil on 20.5.2009. Further information was
provided that due to this transaction fee waiver by the NSE, MCX-SX
which was the only other player in the field in respect of currency
derivatives had also to waive transaction fee on its platform for CD
Segment from the date of its entry into the stock exchange business and
which was somewhere in the month of October, 2009 and thus MCX-SX
was suffering huge losses as it had no income through its CD Segment
and the MCX SX had the license only for dealing in the CD Segment. This
CD Segment seems to have been introduced by the recommendations of
RBI and SEBI in August, 2008 the date from which the NSE started its
operation in CD Segment. I t must be noted that the MCX-SX got the
license for operating only in the CD segment. It did not have the license
to operate in any other segments like Stocks Future and Options (F&O),
W.D.M. etc. It was pointed out in the information that NSE was charging
no admission fee for membership in the CD Segment though it was so
charging in the equity, F&O and debt segments. It also did not collect
the annual subscription charges and an advance minimum transaction
charges only in respect of CD Segment. It was urged that the cash
4

deposits to be maintained by a member in the CD segments were also
kept at a very low level as compared to the other segments.
4. It was further urged that NSE was not charging any fee for
providing the data feed only in respect of CD segment ever since its
commencement the segment on 26.8.2008 and continued not to charge
any fees in respect of the CD Segment. It was, therefore, urged that
MCX-SX was unable to charge anything on account of the transaction
fees, admission fees for membership, annual subscription charges,
advance minimum transaction charges and also fee for providing data fee
and thus it had no income from the CD segment whatsoever and further
CD segment was only segment in which the MCX SX was given.
5. A complaint was also made in respect of OMNESYS which was a
software provider for financial and security market in which the NSE had
taken 26% stake through DotEx, which is a 100% subsidiary of NSE. It
was urged that the DotEx/OMNESYS had introduced a new software
known as "NOW" to substitute a software called "ODIN" developed by
Financial Technologies I ndia Ltd. (FTI L), which was the promoter of the
MCX-SX and the market leader in the brokerage solution sector.
6. It was further urged that after taking stake in OMNESYS, DotEx
which was 100% subsidiary of NSE had written individually to the NSE
members offering them the technology of "NOW" free of cost for the next
year. Simultaneously, NSE had refused to share its CD Segment
Application Programme Interface Code (APIC) with FTI L and thus
disabling the ODI N users from connecting to the NSE CD segment trading
platform through their preferred mode. The product was thus thrust upon
the consumers desirous of the NSE CD Segment, was the product "NOW"
5

developed by DotEx and OMNESYS, in place of ODIN. It was urged that
NSE was using "NOW" on a separate computer terminal for accessing its
CD Segment. It was further urged that the main advantage of the ODI N
software was that a trader could view multiple markets using same
terminal and take appropriate calls. The shifting between different
terminals (NOW and ODIN) severely hampered the traders ability to do
so, thus the expected response from a common trader was to confine to
one terminal which connected to the dominant player only i.e. to use the
"NOW" terminal (free of cost) and confine itself to the NSE CD Segment.
It was therefore urged that on this count also the NSE had abused its
dominance and so had OMNESYS.
7. It was further urged that the losses suffered by informant in the CD
Segment were much higher than the loss suffered by the NSE (due to the
waiver of the transaction fees and other fees) as the NSE enjoyed the
economies of scale and has the ability to cross-finance the losses from
the profits made in other segments wherein it was dealing and thus it
has the financial strength to fund its predatory practices based on
massive reserves built through accumulation of monopoly profits over the
years. In contrast, MCX-SX was dependent solely on the revenues from
the CD Segment and its losses were mounting in view of its transaction
fee waiver, the continuation of which was compelled by the NSE's
decision to continue with the total fee waiver.
8. It was also urged that NSE's fee waiver would not only eliminate
the business of the MCX-SX in CD segment but also eliminate the
potential and efficient competitors from the entire stock exchange
services. It was urged that the policy of fee waiver was adopted by NSE
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as an exclusionary device to kill competition and competitors, and to
eliminate MCX-SX from the market as a supplier of stock exchange
services (CD Segment) and thus NSE had, therefore, used its dominant
position in the relevant market to eliminate competition and competitors.
It was also urged that NSE along with DotEx and OMNESYS had violated
provisions of Section 4 of the Act by denying the integrated market watch
facility to the consumers by denying access of Application Programme
Interface Code (APIC) to the promoter of MCX-SX.
9. It was further urged that the various fee waivers and the low level
of deposit requirements only with respect to the CD segment of NSE were
completely at a variance with its conduct in other segments and were
aimed at eliminating competition and discouraging potential entrants and
amounted to the tactics for excluding the other competitors from entering
into the field. On this basis number of reliefs were prayed :
(a) To investigate infringement of Section 4 of the Act by
NSE;

(b) To direct the NSE to discontinue transaction fee, data-
feed fee and the admission fee waivers in respect of the
CD segment and to impose transaction fees, data-feed
fee and admission fee in the said segment equal to that
in the other segments of NSE;
(c) To order NSE to require its members to maintain
deposits for the CD segment at a level that is consistent
with the levels of other segments;
(d) To grant an injunction restraining the NSE from
continuing the transaction fee, data-feed and admission
fee in respect of the CD segment in line with those in
other segments; and (iii) mandate NSE to collect
deposits from members at a level on par with those in
its other segments, pending final disposal of the
complaint;
(e) To order NSE to pay all of the complainant' costs and
impose the highest level of penalties on the NSE in
accordance with the Act, so as to have deterrent effect
and ensure free and fair competition in the relevant
market; and
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(f) To pass such other order as the Commission may deem
fit to ensure free and fair competition in stock exchange
services market.
10. On this basis the CCI entertained this information and took a prima
facie view that this information deserves to be investigated by the
Director General (D.G. for short) and ordered accordingly.
11. MCX-SX had also filed an application dated 6.7.2010 for interim relief
under Section 33, According to which it was complained that if NSE
continued to offer its services in the CD segment free of cost despite a
significant increase in the turn over, the MCX-XS could suffer combined
loss of around Rs. 100 crores. It was urged that since the CCI
had already formed a prima-facie opinion in this matter and had sent the
matter for investigation to the Director General, MCX-XS would be
required to exit the market. The CCI, however, refused to pass any order
under Section 33 particularly in view of the fact that the investigation by
the D.G. ordered by it, was near completion.
We need not go on that issue whether the CCI was right in refusing
the interim relief.
We also need not consider the question about the APIC and the
alleged tactics played by DotEx and OMNESYS in respect of ODIN and
NOW for the reasons which we would elaborate at the end of this
judgment. The parties also did not address us on that issue for the
obvious reasons that that question was already closed between the parties
by a compromise affected before the Bombay High Court.
12. The matter was investigated by the DG which investigation included
examination of the financial statement of NSE, details of fees and charges,
and other costs incurred in different segments.
8

13. In addition, the D.G. also studied several reports of regulators and
circulars of Expert Committee as also regulations/circulars issued by SEBI
to understand the mechanics of various charges imposed by the stock
exchange services.
14. The D.G. while considering the relevant market came to the
conclusion that the stock exchange business as a whole constituted the
relevant market. He took this view as according to him the product
differentiation was not of much practical consequence and the demands -
supply structure was similar across all the segments and there was
obvious co-relation between the segments which were limited in number.
It was also noted by him that from the demand side, majority of the
stock brokers are the members of all the segments and the users were
also almost common. He deduced that each product was used with a
common objective of profiteering of investment and trading.
16. This view was obviously opposed by the NSE according to which the
stock exchange services could not be a relevant market in this case. It
argued before the D.G. that each segment of the capital market and the
debt market is a distinct market by itself as there were separate trades at
stock exchange in respect of different segments. It was argued by the
NSE before the DG that the CD market was of recent origin and could not
be said to be interchangeable or substitutable from the demand side.
Further, it pointed out that the CD segment was essentially for the
importers and exporters who desired to hedge the currency fluctuation
risk which was not in case of equities/debts/F&O segments. Without
prejudice to this contention, NSE further argued that if at all there was
the question of interchangeability or substitutability arose the CD market
9

could be seen as a substitute of OTC segments. Thus according to the
NSE the CD market and the OTC market was the relevant market. This
position was taken by the NSE also before us also. The DG, however,
held the related market to be the stock exchange business as a whole.
In that he considered the following five segments to arrive at a relevant
product. They were :-
(i) Equity segment
(ii) Equity F&O segment
(iii) Debt segment
(iv) CD segment; and
(v) OTC market for trades in foreign currency.

The D.G. noted the provisions of the Securities Contracts (Regulation)
Act, 1956 (SCRA) and after the issue of regulatory framework, both
Bombay Stock Exchange and NSE could commence the trading in CD
segment immediately, which fact indicated that CD segment was a part of
the stock exchange market services. According to the DG report, since
any exchange could easily start operations in any of the segments of
capital market, there was supply side substitutability between the
segments. Therefore, according to the DG report, the entire stock
exchange market service was a single relevant product.
17. The D.G. also came to the conclusion that it was not possible to
ascertain substitutability between CD and the other segments of stock
exchange services. The D.G. relied on several cases from international
jurisdictions such as Case Nos. 351 US 377 (1956), ECR 1973 0215, ECR
1980 page 03775, ECR 1983 page 03461, ECR 1991 page I - 03359, ECR
1994 page II - 00755, ECR 1996 page I - 05951, ECR 1998 page I - 0779
and others. Hence he held that in all these judgments, the courts have
relied on the requirement of interchangeability in contrast with
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substitutability. It was also noted that the courts had placed greater
reliance on the characteristics of the product for the purpose of satisfying
constant needs.
18. He concluded that from the very definition of futures contract, it
was clear that the basic characteristics of the product were similar to the
equity futures contract and therefore CD and equity derivative segments
had common characteristics. He held that "equity segment including
equity F&O and CD segment which mainly comprise the stock exchange
services market are substitutable on the product characteristics basis."
He also observed that F&O market and CD market are used by similar
type of participant, namely speculators and hedgers. He, however, came
to the conclusion that this could not be said about the OTC market for
which he firstly relied on the provisions of SCRA, RBI Internal Working
Group Report, RBI - SEBI report on CD Market, FEMA etc. He thus
concluded on the similarity of operations of stock exchange services in
relation to different segments traded in exchanges, that they were
substitutable.
19. He also took into account the membership patterns of MCX-SX and
NSE and found a very high commonality of members at NSE as well as
MCX-SX with the membership of other segments. According to him, this
clearly established that the existing members of other segments were
primary traders in the CD segment, which further implied that actual
hedgers of foreign exchange did not see substitutability or
interchangeability in the CD market as against the OTC market.
11

20. The D.G. also considered the SSNI P (Small but significant and non-
transitory increase in price) test and held that it was not possible to rely
on that test.
21. Thus the D.G. finally took the view that stock exchange services in
India including equity F&O, WDM and CD was the relevant market but
not the OTC market.
22. While assessing the dominant position, the D.G. examined the
status of the NSE on account of :
(a) Position of strength
(b) Ability to operate independently of competitive forces
prevailing in the relevant market; and
(c) Ability to affect its competitors of consumers or the
relevant market in its favour.

23. The D.G. also examined the market power along with the lines
indicated in Section 19(4) of the Act. While considering the market share
in the relevant market of stock exchange services, the D.G. found that
when NSE had started its operation in November, 1994 there were 21
stock exchanges in I ndia with Bombay Stock Exchange (BSE) commanding
a market share of 41.5% in the equity segment. By 2008-09, NSE had
acquired 71.43% of the equity segment as against the vastly reduced
share of 28.55% of BSE. He found that in the F&O segment, NSE
commenced trading in J une, 2000 and had risen to over 99% market share
since then. I n the WDM segment, NSE commenced trading in J une, 1984
NSE has consistently maintained market share of over 90% since 2001-
2002. It also found that insofar as the CD segment was concerned the
NSE had a market share of 47 - 48% as against 52 - 53% of MCX SX. In
view of this the DG found that NSE was a dominant player.
12

24. While considering the size and resources of the enterprise also on the
basis of the statistics available, the DG came to the conclusion that NSE
had total income of Rs. 1042 crores with profit before tax of Rs. 689 crores
which indicated a sound financial position of the NSE. While considering
the third factor of size and importance of the competitors, the D.G.
concluded that in comparison with NSE which had commenced the trading
in November, 1994 the remaining 19 original exchanges started collapsing
due to intense competition from NSE. This included even the BSE which
was one sound player found that though MCX-SX entered the arena only
on 14.8.2008, it ended the first year with the carry forward loss of Rs.
298.7 million. The D.G. also took into consideration the economic power of
the enterprise and found that there also NSE had presence in 1486 cities
and towns and majority of investors, brokers etc. were connected with NSE
with its extensive infrastructure and also found that unlike MCX-SX, NSE
could raise equity and debts to funds its requirements. On this count also
the D.G. considered NSE as a dominant player.
25. On the next count of vertical integration of enterprises or sale or
services net work of such enterprises, the D.G. clearly held that the NSE
came clearly as a leader.
26. So also on the other factor of dependence on consumers the D.G.
held that the there was a far greater number of buyers and sellers to NSE
and it enjoyed the benefits of network effects resulting from higher
liquidity and lower transaction costs and thus it emerged as a leader. On
the last two aspects on the countervailing buying power it was held that
the users of the stock exchange services were individually too small to
countervail buying power.
13

27. On entry barriers, it was noted by the D.G. that stock exchange
services was an area of high regulatory barriers. He also considered the
high capital cost of entry, financial risk, marketing and technical entry
barriers further strengthens the already dominant position of NSE. Thus
the D.G. concluded that the NSE was a dominant player in the market.
28. On the question of abuse of dominant position, the D.G. examined
the abusive behavior on account of four factors :-
A. Transaction fee waiver;
B. Admission fee and deposit level waivers;
C. Data feed fee waiver; and
D. Exclusionary denial of "integrated market watch" facility.

29. The D.G. noted on the first aspect of transaction fee waiver that the
NSE had issued a Circular No. NSE/CD/11188 dated 26.08.2008 whereby it
announced transaction fee waiver in respect of currency futures trades
executed on its platform. It thereafter issued three circulars (1) on
26.09.2008, which was to be valid upto 30.09.2008; (2) a circular dated
28.11.2008, valid upto 31.03.2009; and (3) a circular dated 30.03.2009,
which was to be valid upto 30.06.2009. It is obvious that out of these four
circulars, three related to the pre 20.05.2009 period. Considering that
section 4 was activated w.e.f. 20.05.2009, it is the last circular dated
30.03.2009, which would be a relevant circular, as it covers the date
20.05.2009. Thereafter, no circulars came to be issued right till the date
when the impugned order of CCI was passed. Thus, right w.e.f.
20.05.2009 the NSE continued not to charge any fees in respect of the CD
segment.
30. The D.G. has referred to the defence of NSE that the waiver was
done to encourage larger participation as the CD segment was at a nascent
14

stage. According to the NSE, this policy was influenced by report of the
High Powered Study Group on Establishment of New Stock Exchanges. It
was also stated that the Pricing Committee was constituted by the Board of
NSE to guide and decide all pricing matters and the waiver of transactions
fee was the decision of that Pricing Committee. (We shall have the
occasion to refer to the decisions of this Pricing Committee in the
subsequent part of this judgment)
31. The D.G. then examined the transaction charges levied by NSE in
other segments and noted that turnover of NSE was Rs. 1078 crores in
comparison to the BSE turnover of Rs. 2.52 crores. The D.G. noted that
NSE did not have the historical philosophy of waiving fee to develop a
nascent market for which he based his findings on the transaction fees
levied on WDM segment and the other segments. The D.G. also gave
additional reasons to refute the theory of NSE of nascent market. The D.G.
found that in Gold ETF segment the transaction charges were levied from
March 2007 till August 2009, when it was the only exchange trading in
Gold ETF segment. However, it was only after February, 2010 that NSE
waived/ reduced transaction fee in Gold ETF segment. From this the D.G.
came to the conclusion, after noting the entry of BSE into Gold ETF market,
that the NSE introduced waivers/ reductions in this sub segment from
March, 2010 with the obvious view of maintaining its superiority in the
market. After examining various board minutes and agenda items of NSE,
the D.G. concluded that Pricing Committee never went into the factors
such as cost of infrastructure, man-power, and risk containment measures
etc. while deciding upon the fee structure or waivers.
15

(We must here itself note that the Pricing Committee which was deciding
upon the policy of pricing for the CD segment does not seem to have taken
into consideration the advent of the Act. In fact, after 30
th
of March, 2009
when it had issued the last circular, when section 4 was promulgated on
20
th
May, 2009, it was expected to take into account the effect of the zero
pricing, particularly because it was then not the only player in the market
and the only other player in the market was the MCS-SX, which had no
other business to do excepting the CD segment. Very strangely the Pricing
Committee does not seem to have taken this into consideration).
32. The D.G. also examined the pattern of the fees charged by way of
admission fee and deposit level waivers. It is already noted that for CD
segment there was no admission fee or deposit level waivers or
requirement of making any deposit. The D.G. noted that the NSE was
charging this admission fee for all other segments. As regards the deposit
level waivers, the D.G. noted the arguments by NSE that the requirement
of deposit levels was made keeping in line the nature of the segment in
terms of the risk associated and the other factors. The D.G. noted that
earlier deposit required for CD segment could not be said to be
unjustifiably low. It was found by the D.G. and observed that NSE had
reduced deposit structure w.e.f 28.11.2008, which was of necessity
followed by MCS-SX from J anuary 13, 2009. Thus, it was in this sector also
that the NSE had initiated the lowering down of the deposit levels.
33. As regards data feed fee waiver, the D.G. noted that this was waived
right from the beginning. Consequently, MCX-SX was also not in a position
to charge the fee. The D.G. noted that the same reasons were forwarded
by the NSE in respect of this waiver also. The NSE had tried to justify that
16

its subsidiary DotEx was providing data feed service in various forms and
was not charging any fee for the CD segment and therefore NSE did not
charge its clients. The D.G. noted that in respect of other segments, the
NSE was charging a substantial fee for data feed. On this backdrop, the
D.G. concluded that DotEx had waived the fee with the purpose of
capturing the market. It was noted by the D.G. that the DotEx was 100%
subsidiary of NSE. The D.G. also noted that the waiver of data feed was
not discussed during any of the board meetings over the initial 16 months
from the date of commencement of trading in CD segment and it was first
time discussed only later on.
34. The D.G. went on to analyze the predatory pricing by NSE. In this
the D.G. took into consideration the definition of predatory pricing and the
2009 Regulations for determination of cost production, which can be
referred to as cost regulations. After considering the implication of
various terms like costs in Regulation 3(1), the DG took stock of the
argument by the NSE that it was not incurring any variable cost for
running the CD segment and therefore, the zero pricing could not amount
to predatory pricing within the meaning of section 4 of the Act. The D.G.
asked a very relevant question, that being, if NSE was not having any other
segment to support income, could it survive with this zero pricing policy in
respect of the CD segment and noted that answer would be obviously in
the negative. The D.G. also considered the argument from the NSE that
this policy was in the nature of introductory or penetration pricing, which
has no objective of ousting or reducing the competition. The D.G.
however, observed that even in the introductory/ penetration pricing, there
had to be an element of pricing. The NSE argued before the D.G. that the
17

variable cost under the circumstances was zero and since this cost was
zero (approximately) therefore, no pricing policy, could not be said to be a
predatory pricing policy. The D.G. observed that the NSE could run
operations in the CD segment only due to substantial fixed cost, which it
has already incurred for all the segments. If the pricing of any segment is
to be linked only to the variable cost, NSE would have zero pricing for all
the segments, because none of them would have any variable costs. The
D.G. held that the investigation had already established that this claim of
NSE was not substantiated by the facts. The D.G. had also referred to the
report of the RBI SEBI. The DG also took into account the statement of
Director (Finance and Legal) that additional expenditure was incurred for
machinery, manpower, I T support, disaster recovery etc. in respect of the
CD segment system. It was also admitted that surveillance system for the
CD segment was also set up. It was also admitted that there were many
dedicated employees for the CD segment and NSE paid substantial amount
to these employees and therefore, the D.G. came to the conclusion that
the contention of NSE that none of these costs constitute variable costs
could not be accepted. Various views taken by the international
jurisdictions were considered by the D.G. including the US Department of
J ustice, DG Competition of European Union etc. Various other discussion
papers on EC Exclusionary Abuses were also taken into consideration. All
the concepts like average variable costs, AAC, long run average
incremental cost were taken into consideration by the D.G. The D.G. relied
on the following observation of the European Commission :-
18

If the price are below average total costs but above average variable
costs, those prices must be regarded as all abuses are determined as
a part of the plan for eliminating a competitor.
The D.G. then went on to hold that there was a strong justification for
following ATC or at least AIC in the instant case for determining predatory
pricing in the relevant market of stock exchange.
35. Undoubtedly, the NSE had been asked about the details of allocation
of all fixed and variable costs for the CD segment for the last two years.
However, very significantly NSE submitted that it did not prepare accounts
in which separate profit and loss account statements are provided for
either the CD segment or any other segments. The NSE tried to justify this
stand by saying that there were difficulties in allocating common costs
across a multiple products firm. However, the D.G. examined certain
trends in the balance sheets and provided a profit and loss accounts of
NSE. From the investigation, it was pointed out that there was a quantum
increase in fixed assets in general and IT hardware/ software, since the CD
segments started in particular after financial year 2007-08. Previous to
that, the increase in the fixed assets was only Rs.31.472 crores, however,
there was an increase of Rs.133.671 crores. During 2008-09 a further
increase was of Rs.93.475 crores and further in the following year it was
Rs.90.1 crores. In respect of refusal by the NSE to provide segmented
costs, the DG considered the details of overall capital costs, expenses,
segment-wise long run incremental cost (LAIC) and established the effect
on the costs subsequent to the start of CD segment. The D.G. observed
that the total cost for 2008-09 worked out to Rs.4.42 crores and 2009-10 it
came to Rs.31.07 crores. The D.G. distributed the total cost of NSE on a
19

pro-rata basis for all the segments that the NSE was dealing with. The
D.G. also estimated the depreciation of Rs.5.63 crores during 2009-10.
The D.G. also noted that NSE had conducted several seminars, workshops
and road shows for promoting operations in CD segment including 1163
promotional activities in 103 locations across India, the expenditure of
which was not provided in the details of expenditure.
37. The D.G. also examined the pattern of clearing and settlement
charges incurred by NSE. These activities were executed by the NSE
through NSCCL, which is wholly-owned subsidiary of NSE. It was found
that for other segments like F&O and equity, the NSCCL was charging NSE
at 15% of the transaction charges in equity charges. The D.G. therefore,
held that transaction charges amounted to a variable cost linked to the
volume of transaction. The D.G. also observed that the NSE Board by a
resolution in J une 2010 enhanced clearing of settlement charges in the
F&O segment, showing the clear strategy for loading the settlement
charges for the CD segment on to the F&O segment. After considering the
issue of notional clearing and settlement charges for the CD segment at
15% of transaction charge, the D.G. came to the conclusion that the
expenditure could be notionally Rs.13.74 crores, payable to the NSCCL for
the periods from August 2008 to April, 2010. The DG also came to the
conclusion that MCX-SX was operating only in the CD segment and its
operating expenses could be no different from the expenses of NSE. The
D.G. on this basis rejected the theory of NSE that it did not incur any
variable costs. The D.G. also relied on the judgment of Ontario Supreme
Court of Canada in Regina vs. Hoff Mann La Roche Ltd. On this basis, the
D.G. concluded that the waiver of transaction charges, data feed charges,
20

admission fees and the reduction of deposit levels by NSE amounted to the
actions violating section 4(2)(a)(ii) of the Competition Act.
38. In addition to above, the D.G. held that NSE had used its dominant
position for leveraging and thereby it is guilty of contravention of section
4(2)(e) of the Act. For this purpose, the D.G. took into consideration the
share of NSE in F&O, the equity and WDM segment, which were 100%,
75% and 90% respectively. The D.G. held that NSE was using this profit,
which it earned to leverage this position in the CD segment, wherein MCX-
SX was competing with it and this it was doing by not charging transaction
fee, data feed fee etc. The D.G. seems to have relied on few cases like
Tetrapak II case and Deutsche Post AG (DPAG)/ United Parcel Service
(UPS) case, where the strategy of cross subsidies from other business
activities was found to be anti-competitive by the European Commission.
On these accounts, the D.G. found NSE guilty of contravention of section
4(2)(e) of the Act.
39. Ultimately the D.G. concluded that the acts on the part of NSE have
harmed competition in the Indian Capital Market particularly in the CD
segment. The behaviour of NSE is clearly exclusionary and the facts
indicated that such acts were done with intent to impede future market
access for potential competitors and to foreclose existing competition. The
D.G. also held that this anti-competitive conduct enhanced the harm as the
relevant market of the stock exchange services is a network effect of
market.
40. This report was forwarded to the CCI, which directed the service of
the report to the Opposite Parties No.1 and 2 for filing their reply/
objections. Some additional submissions were also made by the
21

Informant, which were also forwarded to the Opposite Parties. Some other
applications filed by the Informant were also directed to be served to the
opposite parties.
41. The Opposite Parties No.1 and 2 filed their main reply along with
annexures. Thereafter several letters and submissions were filed on
various dates. The I nformant also filed their preliminary submissions as
regards to the D.G. report. Further written submissions were also filed by
the Informant, while the Opposite Parties No.1 and 2 also filed additional
written submissions.
42. The Opposite Parties relied on the reports submitted by the Genesis
Economics Consulting Pvt. Ltd. (Genesis) and Prof. Richard Whish,
Professor of Law at Kings College. Similarly, the Informant relied on the
reports of their economic consultants, LECG Ltd.
43. The CCI has neatly and in great details noted the contentions raised
by the Opposite Parties No.1 and 2 as also the objections to D.G.s report.
So also it noted the legal and economic objections raised by Opposite
Parties No.1 and 2. It took into account its details and noted the same in
the impugned order. The CCI also noted the counter submissions of the
Informant on D.G.s report and the submissions of NSE on the D.G. report.
We need not deal with them as the further part of the judgment would be
devoted to consider those objections, which were not only raised before
the CCI, but before us also. Shortly stated on the basis of the rival
contentions, the CCI came to frame the following issues :-
(a) What is the relevant market, in the context of section 4 read
with section 2(r) and section 19(5) of the Competition Act,
2002?
22

(b) Is any of the Ops dominant in the above relevant market, in the
context of section 4 read with section 19(4) of the Competition
Act?
(c) If so, is there any abuse of its dominant position in the relevant
market by the above party?

44. In its final judgment, however, there was a division of opinions. The
Chair-Person with three other learned Members has passed the final order
holding NSE guilty of the breach of section 4(2)(a)(ii) and 4(2)(e) and has
inflicted the penalty @ 5% of the average turnover of Rs.1110 crores
amounting to Rs.55.50 crores. On the other hand, the two learned
Members have written a separate order disagreeing with the conclusion
drawn in the majority order and have held that no violation of any of the
provisions of section 4 has been established against the NSE. Thereby, the
two learned members have completely exonerated the NSE. In addition to
inflicting of the penalties, the majority order has also issued certain
directions under section 27(a) as also under section 27(g). These
directions are :- (1) to cease and desist from unfair pricing, exclusionary
conduct and unfairly using its dominant position in other markets to protect
the relevant CD market; (2) to maintain separate accounts for each
segment with effect from 01.04.2012; (3) to modify its zero price policy in
the relevant market and to ensure that the appropriate transaction costs
are levied, which action was directed to be taken within 60 days; (4) The
NSE was directed to put in place system that would allow NSE members
free choice to select NOW, ODIN or any other market watch software for
trading on the CD segment of NSE. This was directed to be done under
the overall supervision of SEBI, if necessary. For this NSE was also
23

directed to ensure all cooperation from DotEx or Omnesys. Before we
proceed, we must put here that this fourth direction is of no consequence,
as there has been a compromise in this behalf before the Honble Bombay
High Court. The parties also did not address us in respect of this aspect.
45. Marathon arguments went on before us by the learned counsel who
appeared in this matter and possibly every view point was canvassed
vociferously before us. It is on these rival contentions that we now
proceed to decide the matter.

Relevant Market

46. According to the D.G. the geographical relevant market was I ndia,
the product market was the services offered by the stock exchange.
There is no difficulty about the geographical market being of India, as both
the sides, as also the two deferring judgments by the CCI agreed on that
proposition. The question is about the product market. According to the
NSE, this market should be the market of currency futures as also the Over
The Counter (OTC) market. It is a common knowledge that the OTC
market is used by the hedgers, who want to cover their risk. The hedgers
include those who have to satisfy the claims in foreign currency
immediately or in future. Even the banks cover their risk by hedging on
the OTC market. Shri Sibal, arguing for the appellant very forcefully
submitted that in order to start a new segment of capital market in I ndia,
namely exchange traded currency derivatives segment, a report was
brought into existence, which is RBI-SEBI Standing Technical Committee
Exchange Trade Currency Futures report (RBI-SEBI report) in 2008. Shri
Sibal very heavily relied on the following excerpt in this report :-
24

Exchange traded futures as compared to OTC forwards serve the
same economic purpose, yet differ in fundamental ways. The
counter party risk in a future contract is further eliminated by the
presence of Clearing Cooperation. Further in an exchange traded
scenario where the market lot is fixed at a much lesser size than the
OTC market, equitable opportunity is provided to all classes of
investors whether large or small to participate in the futures
market.

Shri Sibal therefore, argued that since the exchange traded currency
futures and OTC, serve the same economic purpose, the relevant market
should be the market of the currency future along with OTC. The CCI in
both the judgments did not agree with this contention. In so far as the
OTC market is concerned, the CCI discussed it thoroughly. The CCI
pointed out that the CD market was futures derivative market where
underlying securities are the currencies. OTC market, however, includes
various products such as forwards, swaps and options for hedging the
currency risks. Functionally, the products may be considered as similar,
but according to CCI they are quite different in terms of characteristics as
well as participants. The CCI found that there was differentiation from the
OTC market in terms of settlement on maturity, settlement period, counter
party risk, size of market lot and participation, amongst other things. The
CCI also noted the major difference that the CD segment had maximum
maturity of 12 months, whereas OTC forwards could be for much longer
durations. While considering the participation, the CCI noted that the
equity and equity derivative segments or WDM segment were essentially
for investors or speculators who seek to gain from price movements of
equities. It noted, however, that the OTC segment was basically for
25

importers and exporters having contractual exposures and who try to
hedge their risks emanating from fluctuations of exchange rates. The CCI
also noted that OTC products are not traded on exchanges and only
specified entities can participate in this market and since the CCI was
looking at a case where the Informant and the Opposite Parties are both
providing stock exchange services, a product that is not being traded,
cannot be said to be a part of any market the two are operating in. The
CCI also considered the SSNI P tests and found it to be unnecessary in the
circumstances. For this purpose, the CCI relied on the US Horizontal
Merger Guidelines 2010, which has held that the SSNI P test was solely a
methodological tool for performing hypothetical monopolist test for the
analysis of mergers. The CCI also referred to the Official J ournal by
European Commission and came to the conclusion that the reliance on the
test was unnecessary. In that the CCI also referred to the small and
insignificant transaction fees and other fees. The CCI also refused to go
into the interchangeability or substitutability of the products. The CCI
therefore, rejected the plea that the OTC market should be included in the
relevant market.
47. Shri Sibal, the learned counsel appearing for the appellant, very
seriously urged that if the SSNIP test is to be considered as the applicable
test, then 5-10% increase in price for the service of CD is unlikely to drive
purchasers of CD contracts to purchase equity. However, in the very next
breath Shri Sibal urges that such a price increase could, however, drive
users of the CD segment to the OTC segment. Now these are the
contradictory arguments. Particularly when all the speculators and the
players in the CD market are not interested in the OTC market in which
26

only the hedgers and arbitrageurs are interested and all the speculators
cannot be imagined to be the hedgers and arbitrageurs. Shri Sibal,
therefore, urged that the CD and OTC segment form part of the same
relevant market. When we consider the Genesis report as also the opinion
of Prof. Richard Whish, which were heavily relied upon by him, we find the
thrust of that report is not so much on OTC market, as it is to canvass that
all the stock exchange services like CD futures, F&O, WDM and securities
cannot be covered under the relevant market. The Genesis report as well
as Prof. Richard Whish have laid considerable stress only on that point.
There does not appear to be any relevant discussion about the OTC market
being the part of the CD market. We therefore, reject these reports at
least in so far as the first question is concerned, as to whether the OTC
market could be included in the CD market. It has already been
considered by the CCI and we also consider that the two have a complete
different complexion apart from the platform where the OTC and CD are
traded. The OTC market essentially comes under the regime of the
banking laws and would be restricted to the hedgers and arbitrageurs.
There would be no scope from the speculators in that market. We
therefore, uphold the finding of the CCI that OTC market cannot be a part
of the market for CD segment.
48. Now we consider the other finding on which both the judgments are
unanimous. The CCI seems to have relied on the further part of the
aforementioned report, particularly in para 5.2 of Chapter 5 where a clear
separation of CD segment from other segments in any recognized stock
exchange where other securities are also traded is given. It also relied on
the further stipulation that the trading and the order driven platform of the
27

CD segment must be separate, as also the membership of the segment
must also be separate and the CD segment must have a separate
governing council. It also recommended a rigid arrangement to the effect
that no trading/ clearing member should be allowed simultaneously to be
on the governing council of the CD segment and the cash/ equity
derivatives segment. The CCI also referred to Chapter 7, where it was
mentioned to begin with, FIIs and NRIs would not be permitted to
participate in currency futures markets. After mentioning about the entry
of MCX-SX in the market and the fact that MCX-SX was only permitted to
operate in the CD segment, the CCI deduced three factors (1) that in the
minds of policymakers, the CD segment was not only completely different
from other segments but also differed from OTC in fundamental ways, and
therefore the policy recommended strict segregation of the CD segment;
(2) till 2008 the exchange capital market in India did not have exchange
traded currency forwards segments; and (3) competition concerns, if any,
have to be examined in the segregated and new market where the
Informant is operating. The CCI therefore, held that the exchange traded
CD market was fundamentally distinct from other segments of the capital
market. I n fact, it did not exist prior to August 2008. The CCI therefore,
deduced that a market which earlier did not exist and which was
consciously created by the policy makers as a new and distinct market,
cannot be said to be part of a market that existed. Ultimately, it came to
the conclusion that the CD segment being a distinctive and separate
market, the relevant market in this case should be the services offered in
CD segment.
28

49. When we consider the findings of the minority order on this issue, we
find that the minority order has referred to section 2(r), 2(s) and 2(t). The
minority order has also in its determination and more particularly at para
7.6.1 noted that the exchanges only provide the infrastructure (platform)
for such products to be traded subject to regulations, rules, by-laws and
operative procedures. It concluded, therefore technological support and
the facilities provided by the exchanges, which results into easy execution,
lower cost of transaction, efficient risk of management, fail-proof
settlement mechanism. It mentions that a robust infrastructure
mechanism with enhanced technological support definitely adds volumes
necessary for the development of the market. It however, mentions that
merely because several products are traded in different segments of the
same stock exchange and are categorized as exchange traded products,
they do not lose their product differentiating features or their identity as
representing different asset classes with different target customers/
consumers. It, therefore, held that both the exchanges and the securities
traded are the external trappings while, the real substances lies in the
classes of assets that are traded as underlying. It then jumped to the
conclusion that the relevant market in the present case is currency
derivatives segment of stock exchange services. It is, therefore, clear that
we would have to concentrate on the majority judgment for examining the
correctness of the ultimate finding that the relevant market was related to
the CD segment. We have already referred to the three deductions, first
being about the policy; second being about the CD segment being
introduced only in 2008; and thirdly the Informant operating only in the
market of CD segment. In our view, the third deduction about the
29

Informant operating only in the CD market is irrelevant. After all when the
judgment was written in J une 2011, a third player had also been added
right from September 2010, that was United Stock Exchange (USE).
Though it had lesser market share as compared to NSE and MCX-SX, in
fact USE has started in September 2010 with highest market share of
45.53%. I t started losing its market share gradually with sporadic gaining
the market share upto J une 2011. Again nothing depended upon the
Informants being engaged only in CD segment. In our view, the CCI
committed an error in relying on this factor. There was after all no
guarantee that the other exchanges would not step into and it actually
happened much latter when even Bombay Stock Exchange also joined the
CD segment, somewhere from November 2013, during the pendency of
this Appeal. When we consider the second factor that the CD segment
started only in 2008, that in our view again would be an irrelevant factor.
Merely because the CD segment started in 2008, would not make it a
distinct market. Lastly, even the first factor about policy, to say the least is
inconsequential factor. The policy did not show that CD segment was
totally and completely different. All that it says in para 5.2 that a
recognised stock exchange where other securities are also being traded
may set up a separate currency futures segment. It has then suggested
the three factors (1) the trading and the order driven platform of
currency futures should be separate from the trading platforms of the other
segments; (2) the membership of the currency futures segment should be
separate from the membership of the other segments; (3) the currency
futures segment should have a separate Governing Council on which the
representation of Trading/ Clearing Members of the currency futures
30

segment should not exceed 25%. Further 50% of the public
representatives on the Governing Council of the currency futures segment
can be common with the Governing Council of the cash/ equity derivatives
segments and the Exchange; (4) The Chairman of the Governing Council of
the currency futures segment shall be a member of the Governing Council.
If the Chairman is a Trading Member/ Clearing Member, then he shall not
carry on any trading/ clearing business on any Exchange during his tenure
as a Chairman; (5) No trading/ clearing member should be allowed
simultaneously to be on the Governing Council of the currency futures
segment and the cash/ equity derivatives segments We have gone
through practically the reports supplied to us, para 5.3 describes the
eligibility criteria for Clearing Corporation of the currency futures segments,
while para 5.4 speaks about the separation from other segments of the
Clearing Corporation. In our view this report merely considers the safety
aspect and the insulation of possible disputes due to the interlinked
interests of the exchanges and/ or the officials. In fact, the report and
more particularly para 1.2 specifically hints at the difference between OTC
and the currency futures. The report is a complete mechanism on as to
how the CD segment would work and the separation procedure provided in
para 5.4 is more or the less is a safety mechanism. We fail to understand,
as to how this report by itself could be relied upon by the CCI to hold that
currency futures is a different product. The Informant MCX-SX has filed
before us the report of internal working group on currency futures. The
findings in their internal group do suggest that OTC segment could not
form a part of the same relevant market as the CD segment.
31

50. We have now to consider whether the CD market by itself could be a
separate and distinct market. We must here note that a fundamental error
committed in treating the CD segment as a product by itself. I n fact, at
one place the majority order had defined the relevant product market as
stock exchange services in respect of the CD segment. Now, if the stock
exchange services were common, then there was no need to restrict these
stock exchange services in respect of CD segment alone. The fundamental
error that was committed by the majority and minority order was that it
says that it assess the relevant market focused on the products being
traded on stock exchange as opposed to the services, which are offered by
the stock exchanges. It must be understood here that a stock exchange
does not manufacture, offer or sale any product. It simply offers a trading
platform and associated services for brokers to use. The market for
assessment therefore, has to be the services offered by stock exchange
independent of the product being traded on that exchange because a stock
exchange does not sell a product. It must be borne in mind that a stock
exchange does not create products like WDM, F&O, securities and currency
derivatives. It merely offers the services. The competition assessment has
to be therefore, only in respect of the services offered by the stock
exchanges irrespective and independent of the products traded on the
stock exchange. The learned counsel for the MCX-SX rightly argues that
SEBI allowed the trading on stock exchanges of (1) equity; (2) debts; (3)
futures; (4) options; and (5) currency derivatives. All the stock exchanges
provide trading services in respect of these products, though at the
relevant time, the MCX-SX was providing the service only in CD segment.
When the competition question comes, it would have to be understood, as
32

to in what manner and what conditions these services were offered by
various stock exchanges including NSE and MCX-SX. The very existence of
the institution of stock exchange is for providing services to the
speculators, brokers and all those interested in those products. Therefore,
what is important is a service not the segments in which the stock
exchanges deal. A beautiful example came to be cited by Shri Haksar. He
compared the stock exchanges with the firm doing the business of dry-
cleaning. He pointed out that in a competition between the two dry-
cleaners, the only relevant factor would be the services given by the dry-
cleaners in dry-cleaning the clothes, whether it be shirts or coats or pants.
According to him, it cannot be imagined that one dry-cleaning firm is
cleaning only shirts, or only pants, or only coats. The example is extremely
apt. It must be realized that the nature of the product does not affect the
services, and the competition law assessment can and should be done only
with respect to the services being offered, especially when the enterprises
concerned do not have any control over the products being traded because
the products do not belong to them or nor are they created by them. Shri
Haksar points out that in the present case, the NSE did not waive the price
of the product being traded on its platform, but simply waived the fee for
the services offered by NSE. He also gave another example of a card
room. A person operating a card room simply provides the premises, a
pack of cards, and various tables for the players to play. All these items
would be the services offered by the proprietor of the card room. Whether
the players play poker at one table and bridge at another, does not take
away the fact that proprietor of the card room is simply providing certain
services to the card players. A competition law assessment between the
33

two proprietors of the card room would, therefore, be based only on the
services offered by each of them and not based on the card games that the
players playing inside each of the card rooms. What the players wish to
play at any time is determined by the players, not by the proprietor of the
card room, and the similar things take place at the stock exchanges. A
stock exchange provides certain services to the participants (i.e. broker) on
its platforms. Whether a broker uses its services for trading in shares or
currency derivative, does not affect the nature of services provided by a
stock exchange for competition law assessment. In our opinion the
argument is infallible.
51. It was also heavily argued by NSE that considering the definition of
section 2(t), the relevant product market must comprise of all those
products/ services, which are viewed as an interchangeable/ substitutable
by the consumer. According to him, this implies that only demand side
substitutability, namely what consumers consider as interchangeable, that
according to him is the only relevant consideration for determining the
relevant product market. He further argues that what suppliers found to
be substitutable (i.e. supply side substitutability) is not a factor to be
considered in determining relevant market for the purpose of the
Competition Act. He has given the example that a person going to Mandi
to purchase onions will not find wheat seller at the Mandi to provide an
adequate substitute. He therefore, argues that as long as onions are not
substitutable for equity/ F&O/ WDM, the products (and consequently their
service) cannot form part of the same relevant market. According to him
in paragraph 10.24 of the majority order seems to have agreed with this
argument. Before proceeding further, we must hold that what the
34

consumer wants from the Mandi seller, is a definite product like onion or
potatoes or grains. He does not go to the shopkeeper for his services. He
has a definite product in mind. Such product is absent in the present
scenario. If a person wants to purchase or deal in shares, he only uses the
services of the stock exchange. He may in the process purchase few
shares, but those shares are not the products. The product is the service
offered by the stock exchange for getting either shares or F&O or WDM or
CD derivatives. Therefore, the example is incorrect. There is tangible
product in this example in shape of onions or potatoes or grains. Such
tangible product is absent here. This is apart from the fact that a person
purchasing CD need not restrict himself only to CD, he may have a choice
to deal with the securities or WDM or F&O. It is always a broker, who
deals and broker need not restrict himself only to the product of CDs. He
can deal with any other product, provided he has the license to that effect.
It is, therefore, that we say that the argument about supply side and
demand side is irrelevant in this matter for the simple reason that it is a
question of service being offered to the customer in this case either the
broker or the speculator or anybody. Merely because a broker could get a
service of CD from a separate platform that does not become a whole
relevant market. I t was tried to be argued by Shri Sibal that of the twenty
largest trading members by volume in NSE CD segment, only three are also
amongst the top twenty traders in the equity and F&O segments. Very
strangely, the learned counsel relied on this data for canvassing that the
two are separate markets. We fail to follow. Even if the three persons out
of the top twenty persons are dealing both in CD segment, equity, F&O
segments that is enough to buttress the point that it is the service of the
35

stock exchange in all the sectors, which would be a relevant market. The
learned counsel has also relied on the percentage, the 7.6% of the trading
volumes of the CD segment. In our opinion, this argument must be
rejected as inconsequential. The learned counsel also argued on the basis
of SSNIP test and contended that if there was non-transitory increase in
price of 5-10%, it was unlikely to drive the purchasers of the CD contracts
to purchase equity. In the same breath, however, the learned counsel
urges that such a price increase could, however, drive users of the CD
segment to the OTC segment. We do not agree. It may be that if a
transaction fee was charged by the NSE in CD sector, the concerned broker
might stop dealing in the CD sector altogether and might turn to the other
segments as he has to remain in the business. Therefore, in our opinion,
SSNIP test would be of no consequence. We must again realize that in
section 2(t) there is a separate mention of the products or the services.
Therefore, the two concepts cannot be confused with each other. What
are we concerned here, are not the CDs, futures derivatives for CD or the
shares or the WDM or F&O. We are concerned with the price of a service,
which is offered by NSE. The real issue was as to whether the NSE in
offering the service had abused its dominance. While interpreting section
2(t), we cannot ignore section 2(u), the definition of service, which
suggests as under :-
2(u) service means service of any description which is made
available to the potential users and includes the provision of services
in connection with business of any industrial or commercial matters
such as banking, communication, education, financing, insurance, chit
funds, real estate, transport, storage, material treatment, processing,
36

supply of electrical or other energy, boarding, lodging, entertainment,
amusement, construction, repair, conveying of news or information
and advertising.

The latter part of the definition though restricts itself to the factors
mentioned, it cannot be ignored that basically service means 'service' of
any description. The only condition is that 'service' must have been made
available to the potential users. In this case the 'service' is used by the
brokers, speculators and other players of the stock exchanges, which the
stock exchanges offer. It provides the platform to such person for giving
the service. Now, it is not as if a person dealing in the stock exchange
service for CD, he would not utilize that service in the other sectors, that
only depends upon on his will. Therefore, what is relevant here is the
service. It cannot be further restricted to what the CCI has done by
treating service only to the CD segment. That is clearly impermissible.
52. Our attention was invited to the 2
nd
Genesis report and more
particularly to para 2.1.4 of that report. I t was tried to be shown that the
international case precedent had consistently found that equities are in a
separate market to currency derivative based on differences from a
demand-side perspective. The first such example was merger of TSX
Group I nc and Bourse de Montreal (2009). A quotation is used in that case
equities, derivatives and commodities had distinct risk profiles; as such,
demand substitutability was limited. The Bureau concluded that these
instruments were not competitive substitutes with one another and
examined these three grouping separately.
53. Second example given was Australian Stock Exchange and SFE
37

Corporation Ltd. (2006), where it is suggested that the merger between an
equities exchange and derivatives exchange was approved on the basis
that there was no product substitutability, implying a lack of demand
substitutability. The Australian Competition and Consumer Commission
(ACCC) also found that supply side substitutability was unlikely in practice
due to network effects and that could arise as a result of liquidity
requirements. While giving the third example the report takes into
consideration the Deutsche Borse AG, Euronext NV and London Stock
Exchange. A quotation of the Competition Commission of UK was quoted
there to the following effect derivatives, equities and bonds are really
substitutable from the purchasers point of view. The UK Competition
Commission also found that there was no room for supply side substitutes
based on the facts that a platform would incur non-trivial cost over a year
or more in order to start trading in another product. Furthermore, they
noted the limitation on economies of scope arising from power in adjacent
markets. Equities derivatives and bonds are typically traded on separate
platforms, suggesting that economies of scope are not strong enough to
warrant inclusion in the same market. The fourth example is that of
Eurex. In this case the European Commission observed the following,
despite the connections to the markets for listing and trading services for
securities, on which Parties operate, and the derivatives market, on which
Eurex operates, there are substantial differences between the two
markets.
54. All these cases are merger cases apart from the fact that the law laid
down by foreign competition authorities, are not binding on this Tribunal.
It must be said in respect of these cases that, being cases relating to
38

merger, the law laid down will not be applicable to the present case, where
the relevant product is a service offered by the security exchange. After all
a service offered by NSE was complained of, as they refused to charge
anything for that service and thereby had tried to bleed MCX-SX slowly,
since MCX-SX did not have a license for any other segment except the CD
segment. If the services offered by NSE without charging anything was
the cause of the complaint by MCX-SX, then we would strictly have to take
into consideration the service aspect. The service offered by NSE in the
matter of currency derivatives, would be no different than the service
offered in the other segments in which it was operating. It has already
been shown that it was not necessary that a person taking the service in
currency derivatives would not take that service in the other segments. On
the other hand, it was clear from the statistics that there were number of
persons, who were utilizing the service in the other segments also. I n fact,
it is an admitted position that out of the biggest twenty players, as many
as three players were utilizing the service of NSE in the other segments.
Therefore, while dwelling upon to decide the relevant market, this aspect
of service alone cannot be ignored and it would have to be held that the
service offered by the security exchanges would be the relevant market.
55. We must not ignore the fact that for the purpose of defining relevant
market in a case relating to abuse of dominance, there is no international
precedent in construing different services offered by the stock exchanges
as separate relevant market. Secondly, even if a separate relevant market
is found, as it has been found in the aforementioned four cases, that has
been found only in the cases of mergers and joint-ventures. Thirdly, the
present case is not the case of merger approval, where for defining
39

relevant market, each service has to be compared with the competitors
service, so that a single player does not start to dominate after getting
merged with another entity. In our opinion, therefore, it would be
irrelevant to rely on the decision holding the relevant market for merger
cases for being used in the case under abuse of dominance. A holistic
picture would have to be taken into consideration and in our opinion the
D.G. has correctly held the relevant product market to be the services. It
must also be noted that the merger analysis is an ex-ante review of the
proposed merger and to examine whether the proposed merger will
significantly alter the structure of the market and impact the participants in
the market in the futures. It is an assessment frequently based on an
assessment of probabilities and likelihood of certain types of behavior
arising from the merger. Therefore, it is natural that the definition of
relevant market for assessment becomes as narrow as possible to evaluate
the impact of merger in the future. The consideration is that if the
proposed merger does not significantly and adversely alter the structure of
the narrowest possible relevant market, then it can be justifiably concluded
that the proposed merger may not have an impact on competition in
future. This is in sharp contra distinction with a review in connection with
abuse of dominance case, which is an ex-post facto review. The
competition authorities in an abuse of dominance case review and assess
the conduct of an enterprise in the past of an event, which has taken place
already or is continuing as on the date of investigation/ order. This,
therefore, becomes a static analysis of an event, which has occurred
between the two points in time. Thus, a merger analysis is a prospective
assessment, while the abuse of dominance position assessment is
40

effectively an assessment of the conduct that has already taken place. Shri
Haksar very earnestly urged this proposition for which he relied on extracts
from Bellamy and Child. Shri Haksar also analyzed the aforementioned
cases cited by NSE and contended that in the case of merger of TSX Group
Inc. and Bourse de Montreal Inc., the Canadian Competition Bureau had to
define the relevant market as services offered in respect of each segment
to assess any potential overlaps that may raise competition concerns. This
depended on the specialization agreement, which played critical role in this
assessment. He also commented that in Deutsche Borse AG, Euronext NV
and London Stock Exchange, the assessment focused on services offered in
the equity segment because the target enterprise i.e. London Stock
Exchange operated primarily on the equity segment and the derivatives
segment constituted only 3% of the business transacted on the London
Stock Exchange. Shri Haksar explained that due to insignificant business of
the target company i.e. London Stock Exchange in the derivatives segment,
the UK Competition Commission confined its assessment of the potential
impact of the merger to the equity trading segment. That was because
the business of the derivatives segment was insignificant and the proposed
acquisition of the London Stock Exchange could not raise any competition
concerns in UK. He also pointed out that the parties in this case were ad
idem on the narrow market definition.
56. Alternatively, Shri Haksar contended that there are various similarities
between F&O and CD segments. He brought out as many as ten
similarities, they being :-
(i) All derivatives markets in I ndia are cash settled no one gets an
actual share or foreign currency by entering into derivatives
41

contract. He only gets the difference in cash which is common
for F&O and CD. F&O and CD contracts are very similar as
borne out by following.
(ii) A consumer in either segment does not have any ownership
right to an underlying security or currency, but only gets a
contractual right to the difference in prices.
(iii) CD & F&O Contracts are unique to the exchange which have
launched it and can be closed out only on the same exchange;
unlike securities purchased in Equity Segment, which can be
sold in any other exchange.
(iv) Nature of derivatives contracts available for trading in both
segments are very similar futures and European style options.
(v) F&O segment regulations adopted as it is for CD segment by
NSE, pursuant to a specific permissive clause in Chapter VII of
RBI-SEBI Technical Committee Report.
(vi) SEBIs Master Circulars issued on December 31, 2010 clearly
club F&O and CD segment contracts in single circular, while
Equity is segregated in a separate Master Circular of same date.
(viii) Consumer view: Statement of a very sophisticated global
consumer i.e., Bloomberg, as extracted in page 81 and 82 of
DG Report.
(ix) Trading member, clearing member classification only relevant
for F&O and CD segments.
(x) Trading parameters, margins and settlement modes for
derivatives (similar for both F&O and CD) are very different
from those for cash trades.
57. Shri Haksar, therefore, urged that if at all CD market is to be
considered as a separate relevant market then it should also be considered
along with F&O market, in which obviously the NSE has a forceful
presence. It is not necessary for us to go to this aspect, as we are
convinced that the relevant market in this case is that of the services
offered by the stock exchanges. In that view, we confirm the finding of
42

the D.G. on this issue. We would not, however, comment on both the
majority and minority orders, which has accepted the CD segment as the
relevant market, for the simple reason that even if that market is to be
held as a relevant market, in our opinion, the majority order was correct in
deducing that the NSE is a dominant player in that market.
58. It need not detain us, if the relevant market is taken to be the
services offered by the security exchanges then there would be no
question of the NSE not being a dominant player. We would separately
consider the arguments of the parties on the aspect that the relevant
market was the CD segment alone and the NSE was a dominant player,
even if that market alone is considered as the relevant market.

43

59. This takes us to the issue of dominance. We have to consider
whether the NSE is a dominant player in the relevant market. We have
already clarified that even when the relevant market was defined narrowly
as being the market of currency derivatives alone, by both the judgments
of the CCI, the majority order held NSE to be a dominant player. We
would, therefore, consider as to whether the NSE was rightly held to be
dominant in that judgment of the CCI , even when the relevant market was
construed narrowly to be the market only for currency derivatives. We
must at this juncture point out that before holding the CD market to be the
relevant market, the CCI separately considered the various aspects of
equity market, F&O market and WDM market. Lastly, it also considered
the CD market and the OTC market. The CCI then went on to record that
equity and equity derivatives segments or WDM segment were essentially
for the investors or speculators, who seek to gain from price movements of
equities, while the OTC segment was basically for importers and exporters
having contractual exposures and who try to hedge their risk emanating
from fluctuations of exchange rates. The CCI then went on to record that
the CD segment primarily for speculators of currency values and short term
hedgers, who want to cover their economic exposure, but require greater
liquidity. Then the CCI in its majority order went on to reject the SSNI P
test, holding that it was merely a methodological tool for performing
hypothetical monopolist test for the analysis of mergers. It then referred
to the Cellophane Fallacy. The majority order also refused to go into the
extended debate to distinguish the words interchangeable or
substitutable, considering the facts of the case and different aspects of
capital market in I ndia. The CCI held this to be unnecessary and not
44

useful. It acknowledged that equities and currencies were entirely
different and consequently related derivatives were also different. It
therefore, went on to hold that the currencies and equities were related to
the different market. It acknowledged that from any practical point of
view, a product over CD segment exchange could not be said to be either
interchangeable or substitutable by a product in segments like equity and
F&O. We have also indicated above that we do not subscribe to this view
because, this view is predominantly a view treating equities and currency
derivatives to be the products, which itself is not a correct notion. The
majority judgment then went on record to say that the stock exchange
services in respect of the CD segment is clearly an independent and distinct
relevant market. Though, the majority order in para 10.24 agreed that the
DG had found a high degree of commonality amongst the members of the
MCX-SE and NSE and held that this itself had no bearing on
interchangeability or substitutability between various segments of stock
exchange services. It wrongly gave an example of wholesale traders of
grains and wholesale trading of vegetables, completely ignoring that in that
example, the products were tangible products of grains and vegetables. It
is on this basis that the majority order came to the conclusion that relevant
market was CD segment in I ndia.
60. Though, we do not see this as an absolutely correct finding, all the
same we will have to consider, as to whether the majority judgment was
correct in holding the NSE as a dominant player in the narrow market of
CD segment. The following factors, which were found by the DG or
mentioned in the majority judgment are stated as under :-
45

a. In the equity segment of stock exchange services in
India, NSE has continuously held high market share for
the past 8 years going beyond 71% in 2008-09.
b. In the F&O segment, NSE has almost 100% market
share.
c. In WDM segment, NSE has maintained more than 90%
market share for the past 6 - 7 years.
d. Putting together equity, F&O, WDM and CD segments,
NSE have garnered 92% market share as of 2008-09.
e. In CD segment itself, NSE has a market share of 48%
according to the DG report.
f. NSE has been in existence since 1994 as against
incorporation of MCX-SX IN August, 2008.
g. As at 31.3.2009, reserves and surplus of NSE stood at
Rs. 18.64 million, deposits at Rs. 9.17 billion and profit
before tax at Rs. 6.89 billion.
h. In comparison, BSE had a net profit of Rs. 2.6 billion
only and MCX-SX carried forward net loss of Rs. 298.7
million for the period ending 31.3.2009.
i. NSE has presence in 1486 cities and towns across India.
BSE has presence mainly in Maharashtra and Gujarat
and is now reduced to mostly operating in equity
segment. MCX-SX has only about 450 centres and
operates only in CD segment.
j. NSE has high degree of vertical integration ranging from
trading platform, front-end information technology, data
information products, index services etc.
k. Stock exchange services in India are highly regulated
and require approvals of SEBI to start a new exchange.

61. According to the majority judgment, these factors which were
undisputed created a complete picture of players in the capital market in
general and in the relevant market of currency derivatives. The order then
46

touches upon history relating to the first half century of independent India,
in which BSE was way ahead of all the regional stock exchanges, but only
before the entry of NSE on the scene, which soon became the market
leader. The CCI then referred to the entry of MCX-SX and USE in the CD
segment and noted that by the time these two players made entries, NSE
had already occupied an overall position of strength. The order then notes
that there were only three players in the market, i.e. NSE, MCX-SE and USE
and referred to their current percentage, to be 34% MCX-SX, 30% NSE
and 36% with the latest entrant USE as of October 2010. The judgment
then mentions that it is these three players which would have at least
some ability to affect its competitors or the relevant market in its favour,
even if it is not capable of operating completely independent of competitive
forces or affecting consumers in the relevant market. The CCI majority
judgment then went on to refer to section 19(4). It mentioned in this
behalf that the position of strength has to be arrived at after rational
consideration of relevant facts, holistic interpretation of seemingly
unconnected statistics or information and application of several aspects of
the I ndian economy. I t mentions that what has to be seen is whether a
particular player in a relevant market has clear comparative advantages in
terms of financial resources, technical capabilities, brand value, historical
legacy etc. to be able to do things which would affect its competitors, who
in turn would be unable to do so or would find it extremely difficult to do
so on a sustained basis. The reason is that such an enterprise can force its
competitors into taking a certain position in the market which would make
the market and consumers respond or react in a certain manner, which is
beneficial to the dominant enterprise but detrimental to the competitors.
47

On this backdrop, it referred to in Explanation (a) to section 4 of the Act
and then proceeded to consider whether NSE had a position of strength,
which enabled it to affect MCX-SX as a competitor in its favour.
62. It firstly asked itself a question (1) can NSE sustain zero pricing
policy in the relevant market long enough to outlive effective competition?
It answered this question holding looking at the financial statements of
NSE, its reserves and surplus or its profits after tax, it cannot be argued
that the capacity of NSE to defer profits or to bear long-term risk of
possible market failure is lesser than that of MCX-SX in the relevant
market. According to it this was clearly a position of strength.
63. The second aspect that came for consideration was whether there
was any indication that the conduct of NSE showed that it was aware of its
capability? The CCI noted that NSE had not followed Accounts Standard 17
(AS17), which stipulated the segment reporting. The CCI in the majority
order rejected the facile explanation that the so called detachment of profit
motive was with the desire to develop the CD segment for the larger good
of the capital market in India. The CCI rejected this explanation as
unpalatable. I t then mentioned it is unthinkable that a professionally
managed modern enterprise can afford such financial complacency in the
face of competition unless it is part of a bigger strategy of waiting for the
competition to die out. This complacence can only point to awareness of
its own strength and the realisation that sooner or later, it would be
possible to start generating profits from the business, once the competition
is sufficiently reduced.
64. The third aspect, which was considered was whether in the absence
of above strengths, would NSE be able to or want to continue with zero
48

pricing indefinitely? The majority order answered this question holding
that had NSE not got the undeniable advantages arising out of its
operations in other markets, it would not have been able to or wanted to
charge nothing for providing stock exchange services for the cash
derivatives forwards market. It also noted that in this behalf MCX-SX or
any other current or future competitor did not have similar advantages.
From this, the majority order deduced that NSE enjoyed a position of
strength in the relevant market, which enabled it to affect its competitors
in its favour. It mentions that for arriving at this conclusion, the CCI have
taken into account relevant aspect of the financial statements of the parties
concerned, HHI index of more than 5000 in the CD segment (2009-10),
ICR3 of more than 99 and other key indicators. The majority order said
that it had also given consideration to some important cases from
international jurisdiction, such as AKZO, [1978] ECR 207, United Brands
[1991] ECR I-3339, Du Pont. From this, the majority order came to the
conclusion that NSE had the position of strength and therefore, enjoyed
dominant position in the relevant market.
65. In this behalf, when we consider the minority order, reference is
made to the finding of D.G. that NSE held absolute dominance, even if CD
market is assessed in isolation with other segments, on account of its
incomparable economic power, size, resources, higher degree of vertical
integration, absolute dependence of consumers and large degree of
economies of scale in operating different segments with adequate scale in
each of those segments. The minority order then went on to consider the
argument by NSE that while it started with 100% of the CD segment
market in October 2008, it did not enjoy the first position in terms of
49

market share and this indicated that NSE was not able to operate
independent of competitive forces, nor could it affect its competitors. It
also noted the argument by NSE that MCX-SX had continued to increase its
market share after entry, pushing NSE to second position and its market
share had gone up to 60.47% by August 2010, when USE entered the
market in September 2010. The respective share of NSE, MCX-SX and USE
was 32.48%, 42.77% and 24.75%. The minority order then considered
the position upto October 2010 of the respective market shares, which was
taken from Genesis report dated 30
th
October, 2010. The minority order
then went on to analyze the market shares. It deduced from this that the
NSE at least on the basis of the market share could not be said to be a
number one player. I t disagreed with the deduction of D.G. as also the
majority that NSE enjoyed economic power, which was reflected in its
ability to maintain zero price over the long run and to sustain losses in the
CD segment from other segments. I t rejected the argument that all of
these could be perhaps under different circumstances translated into a
competitive advantage. It mentioned that however, in a networked
industry, a new comer could have easily overcome the competitive
advantage of the incumbent by offering innovative product with value
added services. It also mentions that the CD segment did not drive any
specific benefit from other segments of the stock exchanges. It also took
stock of the further deduction by the D.G. about NSEs dominance on the
basis of vertical integration of the enterprises. It also rejected the other
deductions of D.G. about entry barrier.
66. The minority order then went on to consider the definition of
dominance in section 4 and stressed at the words .in its favour. I t
50

noted that the market share of NSE, which was 100% in August 2008, had
gone down to 33.17% nearly in two years time and this fact by itself
according to the minority order was sufficient to show NSEs inability to
influence the market or its competitors in its favour. It then went on to
mention we are not aware of any case in the history of competition
jurisprudence, where a firms market share has been reduced drastically (to
less than one third in this case) in a relatively short period (two years in
this case), and yet it has been found to be dominant by a competition
regulator or a court.
67. In our opinion, the analysis by the majority order is correct and the
analysis by the minority order, more particularly about the market share
and the so called reduction thereof is not satisfactory. First, we will take
up for analysis the market share aspect. It seems that the minority order
has considered the position upto October 2010. This judgment is dated
03.06.2011. It is obvious that the minority order has restricted its findings
to the whole period of two years. Even if we consider the market share for
upto October 2010, as has been done by the minority order, it will be seen
that right from August 2008 upto November, the NSE was a clear market
leader. Again from December (2008), J anuary and February (2009), its
market share was almost equal to the market share of MCX-SX. From
there again, its market share rose and it became number one from March
2009 to August 2009 i.e. the next six months. Then right upto December
2009, it was almost hand-in-hand with MCX-SX. In 2010, however, it
started declining. Therefore, right upto the month of August or September
2009, in majority of months the market share of NSE was more than the
market share of MCX-SX and when it was not so, it was fully comparable to
51

the market share of MCX-SX. Shri Sibal pointed out that the period of 1
st

Circular when NSE charged zero price for the transaction fee was issued on
26
th
August, 2008 and was valid for about one month i.e. upto 30
th

September, 2008. The second Circular was dated 26
th
September, 2008
and was valid upto 30
th
November 2008. The third Circular was issued on
28
th
November, 2008 and was valid upto 31
st
March, 2009. All these
Circulars undoubtedly are prior to 20
th
of May, 2009, when section 4 was
for the first time activated. The culprit Circular is dated 30
th
of March,
2009, which is valid upto 30
th
of J une 2009. When the Act came on 20
th

May, 2009, NSE was a clear leader, having 53.19% of market share as
compared to the market share of MCX-SX being 46.81%. This position
continued upto August 2009 i.e. for four months including May, when the
market share of NSE was more than the market share of MCX-SX. Again
for the next four months the market shares are almost similar with MCX-
SX. We have it on record that the Circular dated 30
th
March, 2009, which
was valid upto 30
th
J une, 2009, was the last circular issued and thereafter
it was continued right till August 2011, when for the first time, the NSE
started charging the transaction fees. It is very significant to note that
thereafter it was number two only upto December 2011 and from J anuary
2012 it bounced back and continued to have the number one position
excepting for the months of March and April 2012. Right till March 2014,
its number one position continues in so far as market share is concerned.
We are really concerned with not only the market share, but the other
relevant factors considered by the majority order and more or the less
ignored by the minority order. The most relevant question was as to
whether the NSE could continue with its no transaction fee policy, as
52

compared to its competitor MCX-SX. It is absolutely clear that while NSE
could continue because of its relative strength in other segments, MCX-SX
could not have continued with that policy and per force it had to adopt the
same policy of no transaction fees, as otherwise it could not have even
entered the market, forget about its sustenance in that market. In this
behalf, therefore, we feel that the consideration by the majority judgment
is more realistic, objective and covers wider spectrum.
68. Shri Sibal while addressing us on the question of dominance invited
our attention to Explanation (a) of section 4, as also the various provisions
in section 19(4) of the Act. We must at this juncture note that the duty of
the CCI while considering the position of dominance is to take into
consideration all the factors under section 19(4). However, sub-section (4)
also empowers the CCI to take any of the factors, considering that
market share is but one factor, size and resources of the enterprise,
economic power of the enterprise, vertical integration of enterprises or sale
or service network of such enterprises are also some of the other relevant
factors. It is obvious that the size and resources of NSE were tremendous.
We need not go into the details thereof. In so far as vertical integration is
concerned, NSE was the richest amongst all the stock exchanges. Its
economic power can also not be disputed and indeed it was not disputed
excepting that it was argued that MCX-SX was also a very big company. I n
our opinion, though Shri Sibal argued on all these aspects, the leading
position of NSE cannot be disputed. Same thing can be said about the
market structure and the size of the market as covered in clause (j) of
section 19(4) of the Act. Our attention was invited by Shri Sibal to LECG
Report and the alleged admission therein at page 2370 that NSE would
53

probably not be dominant in the market that the Genesis Reports define,
whether or not that market includes OTC products. However, further
contents in the same paragraph are worth noting :-
We agree that NSE would probably not be dominant in the market
that the Genesis Reports define, whether or not that market includes
OTC products. However, this does not rule out the possibility of
abuse. NSE could be dominant in other markets from which it is
leveraging market power onto a market for trading services in
currency derivatives. The evidence shows that NSE is indeed
dominant on such markets.
We find that if separate markets are defined for stock exchange
services in the trading of each of cash equities, equity derivatives and
wholesale debt products, then these markets will be closely
associated with the provision of stock exchange services in currency
derivatives. NSE would be dominant in these markets for cash
equities, equity derivates and wholesale debt products, and it may
then be able to leverage its dominance from these markets onto the
market for currency derivatives. This strategy would allow NSE to
protect its existing dominant positions by preventing MCX-SX from
growing to a size where it could challenge NSEs existing dominant
positions.

69. We have already shown that firstly, the market could not be CD
segment alone and even if it is CD segment, even then NSE would be a
leader. Shri Sibal is undoubtedly right when he argues that while applying
the factors listed under section 19(4) of the Act, a check-the-box
approach should not be followed and the factors in that section should only
be considered as an aid in assessing dominance. However, even if we
consider those factors, as is suggested by the learned counsel, the
inevitable result would be that NSE clearly emerges as a leader. Shri Sibal
54

argues giving the examples of Ashok Leyland and TATA Motors in the truck
market or Coca Cola and Pepsi in the soft drinks market. He urges that in
both these markets, the players have high market shares and immense
resources at their disposal and that they cannot be considered dominant
only on those factors. The argument is undoubtedly correct. However,
we hasten to add that in this present scenario MCX-SX or the other players
did not have the advantage of having the complete domination over the
other segments like securities, WDM and F&O. It was also argued by the
learned counsel that the finding of dominance could not be lightly given
since that finding imposes a special responsibility on enterprises to ensure
undistorted competition in the market. The learned counsel argues that by
that finding one hand of the dominant enterprises remains is tied behind its
back and it has to compete with such restraint in the relevant market. He
is undoubtedly right that a dominant player in the market has a
responsibility, an added one, because of its dominance. However, if that
responsibility were to be voiced against NSE, the results were bound to be
adverse to NSE. The learned counsel again reiterated his argument that
the NSE could not be said to be in a position of strength, since it could not
operate independently of the competitive forces. The learned counsel
pointed out that even when NSE did not charge for the transaction fee, its
competitors were able to match and successfully outmanoeuvre NSE and
as a result the market share of NSE fell from 100% to 33.6%. We have
already commented on the market share percentage aspect to suggest
that, that is not be-all and end-all of the matter, apart from the fact that
the overall picture suggests that even if the CD segment is held to be the
relevant market, NSE still was the leader for the major part of the time
55

span. It is further urged that NSE could not affect its competitors in its
favour, as BSE, MCX-SX and USE successfully entered the CD segment and
were able to sustain zero pricing for periods longer than NSE. We do not
agree with this contention, as firstly it is misnomer to say that MCX-SX
successfully entered the market and were able to sustain themselves. It
was because MCX-SX has suffered huge losses when the transaction fees
was not being charged at all by NSE and consequently by themselves. Shri
Sibal also pointed out that now because of the introduction of the
transaction fee pursuant to the impugned order by the CCI , the consumers
are now paying for the services, which they were getting free. He also
pointed out that the trading volumes also halved leading to lower chances
of consumers finding a counterparty at the price they wished to trade at.
This is also not a complete argument. There may be and we are sure
there are many other reasons for the decrease in the trading volumes. The
introduction of the transaction fees by itself cannot be the only reason for
that purpose. Shri Sibal also criticized the observation of the CCI in
paragraph 10.34 of the majority order and contended that the majority
should have found none of the players in the CD segment to be dominant.
We are unable to agree with this argument for the reasons already quoted
above. Shri Sibal further argues that in the majority order the strength of
NSE was considered and that should not have been done. He gave an
example that any rich person entering any market would be considered to
be dominant. He gave an example of Google entering into bicycle
manufacturing market and pricing its bicycles below those of its
competitors. The argument is defective, as the size of NSE and its
56

strength is not considered in isolation, it is only one of the factors to make
it as a dominant player in the relevant market.
70. Shri Sibal then relies on the observation of the minority particularly in
para 8.2.6. We have already pointed out that the consideration by minority
of the position upto October 2010 was not correct and it should have taken
an overall picture into account. The learned counsel then again argued on
all the factors including the market share. We have already pointed out
and analyzed the market share aspect in this case. In our opinion, the
argument of market share is clearly flawed. Shri Sibal takes an exception
on the historical aspect considered in majority order. In our opinion the
majority was absolutely right in considering that aspect. He has also
addressed us on the profitability aspect, national presence of NSE, degree
of vertical integration and entry barriers etc. The argument about the
profitability aspect considered in majority order is that the USE and MCX-SX
were new ventures and therefore expected to have a lower level of
profitability. Then the argument is put about the strength of USE and
MCX-SX and their values. All these details in our opinion are unnecessary.
We have nothing to do with the strength of BSE and FTI L and the worth of
MCX-SX. Even if MCX is a big company, in the relevant market as we have
held, the strength of NSE is unmatched. The vertical integration was also
commented upon by the learned counsel and he contended that the
competitors in CD segment, namely USE and MCX-SX are closely linked
to the extensive infrastructures and capabilities of their promoters. He
urges that MCX-SX promoter MCX operates a clearing house, while its other
promoter, FTIL markets a trading software ODIN. I n our opinion, all these
arguments are of no consequence, particularly when it is clear that in so
57

far as the infrastructure is concerned, NSE is clearly a leader. There is
again no point in describing the strength of MCX, which is only a promoter
company of MCX-SX, nor is the strength of FTIL in any manner is relevant
in the present controversy. The learned counsel further argues that the
fact that MCX-SX and USE have been able to enter and operate in the CD
segment suggests that there are no entry barriers. The fact that MCX-SX
and USE have entered the market cannot be a relevant fact by itself for
giving a finding on entry barrier. That would have to be tested on the
policy of NSE of not charging any transaction fees and it will have to be
considered as to whether in such a situation would any new player chose
to enter the CD segment. The answer of which would always be in
negative. This argument is opposed by the MCX-SX by pointing out that
for entering into the CD segment there are some onerous conditions put in
by SEBI, which alone is authorized to allow for starting of stock exchange.
In short, to start a stock exchange is not a small exercise. That also goes
in favour of the argument about the entry barriers. The learned counsel
also severely criticized the three questions asked by the majority order to
itself and contended that these questions lacked economic logic. In our
opinion, the majority order committed no error in asking the three
questions. It has to be considered that it is not only on the basis of
answers to those three questions that finding about the dominance of the
NSE has been arrived at.
71. Shri Sibal then contends that the majority order focused only on one
competitor, rather than the category of competitors. He secondly argued
that the financial resources of all the players were not correctly
ascertained. Thirdly, it was urged that it was wrongly considered that NSE
58

had a better capacity to defer the profits in comparison to MCX-SX. Lastly
it was urged that the test of the deepest pockets was of no consequence.
In our opinion, all these arguments must be rejected. It is incorrect to rely
on a stray observation in a order. The stray observation was in respect of
the MCX-SX and that leads to the argument that majority order considered
only MCX-SX. In fact for first few months there was only one competitor
and probably that is why the majority took into consideration the position
of MCX-SX vis--vis NSE. We have already commented upon the so called
financial power of the MCX company, which was the promoter company of
MCX-SX. It is irrelevant as to who backs the company. What is required to
be considered is the company by itself and its strengths. Lastly, it cannot
be said that the MCX-SX was in better position than NSE to sustain the
losses and to keep on sustaining them.
72. Shri Sibal criticized the reliance placed by MCX-SX on the judgment of
the European Court of J ustice in Michelin vs. Commission ([1983] ECR,
3461). In this case, it was held by the European Court of J ustice that
Michelin had a worldwide strength while ascertaining whether it was in a
dominant position in the relevant market of Netherlands. Shri Haksar
criticized this reliance by saying that in that case, the worldwide strength of
Michelin was taken into consideration as in the opinion of the Court that
strength gave the distinct advantage over its competitors in the relevant
market i.e. Netherlands. Shri Sibal then urged that this judgment is in
apposite for the present controversy. In our opinion, the judgment applies
on all fours. In fact, the overall strength of NSE clearly gives it a leverage
to be benefited in the CD segment. The other observations in Michelins
59

case are extremely relevant. They being about the temporary losses
suffered by the dominant player.
73. Shri Sibal argued that the present figures regarding the market
shares should not have been taken into consideration and only the market
shares at the time when the alleged abuse took place should be
considered. He is undoubtedly right and hence we have seen that in first
few months, the NSE clearly emerged as a leader on account of its policy
of zero transaction fees. Shri Sibal from time to time relied on the minority
order and quoted various paragraphs, they include paragraphs 8.6.2 (vii),
8.2.8 as also paragraphs 8.2.7 of the minority order. We have already
considered these paragraphs and have given our reasons why we do agree
with the views expressed in those paragraphs. We are not impressed by
the other arguments regarding the speech of Shri Narayansami, on which
heavy reliance is placed by Shri Sibal. He has also raked up the
controversy about the alleged fraud in the MCX-SX by Mr. J ignesh Shah,
Vice-Chairman and Mr. J oseph Massey, Director. We find all these
references unnecessary in the present controversy. Shri Sibal also
commented on the judgment in United Brands vs. Commission [1978] ECR
207 on which MCX-SX had relied, which suggested that even if United
Brands had 40-45% market share, it was held to be a dominant player in
the market, because of its other strengths and advantages like ability to
control production, know-how, access to raw materials, large capital, brand
loyalty, transportation facilities etc. In our opinion, the judgment is rightly
relied upon by the MCX-SX, as it is already pointed out that NSE enjoys
many more factors as its strength, which have already been discussed in
the earlier paragraphs. We are also not impressed by the interview of Shri
60

T. Narayansami. We are also not impressed by the arguments about the
strength and the worth of MCX and FTI L. We have already rejected that
argument in the earlier part of the judgment. In short, we are convinced
with the finding of the majority order of the CCI that NSE was in a
dominant position.
74. That leaves us to decide as to whether in the present circumstances,
it has abused its dominant position. Lengthy arguments were addressed
on this question. Shri Sibal argued that in order to find the abuse of
dominance three tests have to be satisfied, they being - (a) dominance; (b)
pricing below cost; and (c) intent. We have already expressed that first
aspect about the dominance. Considering the second aspect of pricing
below cost, according to Shri Sibal, the term cost must not be confused
as used in the general parlance. He says that the manner of calculating
costs under the Competition Act is governed by the Determination of Cost
of Production Regulations, 2009 and more particularly Regulation No.3 of
it. He points out that under this Regulation, the concept of Average
Variable Cost (in short AVC) has to be considered. According to the
learned counsel, the language of explanation (b) to section 4 of the Act
itself suggests that in case of predatory pricing, cost would be as
determined by the regulations. He, therefore invites our attention to the
Determination of Cost of Production Regulations, 2009 and relies on
Regulation 3, which suggests that the Cost in the Explanation to section 4
of the Act shall, generally, be taken as average variable cost, as a proxy for
marginal cost. There is a proviso to it, which is as under :-
Provided that in specific cases, for reasons to be recorded in
writing, the Commission may, depending on the nature of the
61

industry, market and technology used, consider any other relevant
cost concept such as avoidable cost, long run average incremental
cost, market value.

He further points out that the marginal cost is a cost for producing one
additional unit. He gave an example of a manufacturing concern that in a
factory manufacturing steel, there would be fixed costs, like rent paid for
the use of the factory, salaries of employees, etc. and these costs have to
be incurred irrespective of the amount of steel that is produced. While
variable costs for the same factory would be iron ore and other raw
materials, electricity etc., that is a costs which would vary with each
additional unit of steel produced. He also takes an example of an ice
cream and suggests that the additional costs of milk, flavouring, sugar etc.
required to produce an additional scoop of ice cream. According to him,
the test for predatory pricing through the Cost Regulations ensure that
parties who are pricing low (a consumer benefit) are doing so in a way that
an equally efficient competitor could also provide the same product at such
low cost. According to him in the present case, this would amount to the
resources required to facilitate one extra trade on the CD segment.
According to him, since the marginal cost, is not always readily observable,
therefore, AVC is to be used as a proxy. The learned counsel further
argues that since in case of the stock exchanges, it is nearly impossible to
determine the costs involved in facilitating one extra trade, hence AVC is a
generally accepted cost benchmark to determine whether an enterprise has
engaged in predatory pricing. According to the learned counsel in case of
NSE, the AVC was zero and hence in not charging any transaction fees or
in other words charging zero price for transactions did not amount to
62

predatory pricing. We will have to test this claim of the average variable
cost being zero in case of CD segment. In our opinion, it is impossible to
support this conclusion.
75. The average variable cost is defined in the Regulations at 2(1)(b),
which is as under :-
2(1)(b) average variable cost means total variable cost
divided by total output during referred period;

76. A reference may be made to the definition of total cost, which is
defined in the Regulations at 2(1)(c)(i), it is as under :-
2(1)(c)(i) total cost means the actual cost of
production including items, such as cost of material consumed,
direct wages and salaries, direct expenses, work overheads,
quality control cost, research and development cost, packaging
cost, finance and administrative overheads attributable to the
product during the reference period;

77. The definition of total variable cost is as under -
2(1)(c)(ii) total variable cost means the total cost referred
to in clause (i) minus the fixed cost and share of fixed
overheads, if any, during the referred period;

78. These definitions would suggest that for arriving at the 'average
variable cost', first, one would have to arrive at a total variable cost.
Now total variable cost in the present case would be the total cost as
defined in Regulation 2(1)(c)(i) minus the fixed cost and share of fixed
overheads, if any, during the referred period. We must appreciate that in
this case, the average variable cost is claimed to be zero. This situation can
come only by first arriving at the total variable cost being zero. In our
opinion and there is good evidence available to suggest that the total
63

variable cost cannot be zero in order to justify the zero available variable
cost. It is only when the total variable cost is zero, then that zero cost is
divided by total output cost. It need not be explained that when zero is
divided by some figure, the result has to be necessarily a zero. Such is
certainly not a case here. This situation could have come only and only, if
total variable cost comes to a zero. It has not been shown by NSE that the
total variable cost in this case was a zero or in other words, there was no
total variable cost. The figures of the total variable cost have been
provided by NSE in their confidential version. They had to show that their
total variable cost was zero as their total cost minus the fixed cost and
share of fixed overheads came to zero. It is only and only in this situation
that their average variable cost could be zero. The most persuasive
argument of Shri Sibal as well as Shri Naval Chopra Satarawala could not
convince us on this aspect. In our opinion, it is not necessary for us to go
to the concepts of total avoidable cost and average avoidable cost or even
long run average incremental cost, in the facts of this particular case,
where the appellant NSE has not been able to convince us that the figure
of total variable cost comes to zero. In fact, it is on this short ground that
one can lead to the conclusion that NSEs claim that it did not at all have
any total variable cost, in the sense that its total cost minus the fixed cost
and share of fixed overheads came to zero. We, therefore, straightway
reject this claim of the NSE that since it had zero average variable cost,
therefore, they were justified in introducing a zero transaction fees policy.
79. If this justification of introducing zero transaction policy fails, as we
have shown it must, fail, then we will have to examine the conduct of NSE
in introducing the zero transaction fee policy in August 2008 and then
64

despite the advent of section 4 of the Act, continuing with the same to an
indefinite period. In this behalf, we would have to consider as to whether
this policy of zero transaction fee was an outcome of the genuine concern
on the part of NSE to collect liquidity and also whether the NSE had taken
notice of the advent of section 4 of the Act, which NSE must have known.
It cannot happen that a player like NSE would not know of the activated
section 4. In this behalf, we must refer to the Pricing Committee meetings
of the NSE. As per the records, on 10
th
J une, 2008, 2
nd
meeting of the
Pricing Committee was held in which a proposal was mooted to setup CD
segment and waiver of levy of transaction charges for a period of three
months, from the date of commencement of trading. We are prepared to
accept the position that this was obviously done in order to encourage the
liquidity in the market, after all the market was nascent at that time. We
do not have the advantage to know as to what transpired in the third
meeting of the Pricing Committee and it was only on 26
th
November, 2008
that the 4
th
meeting of the Pricing Committee was held. Minutes of this
meeting also speak that the NSE wanted to encourage the participation in
trading in currency futures and it had paid special attention to the fact that
the exchange traded currency future was still in the nascent stage. In that
view, it decided to extend the waiver of fees upto 31
st
March, 2009. On 3
rd

March, 2009 again the Pricing Committee sat to consider its pricing policy,
where it specifically considered the extension of waiver of admission fees
for the new members in CD segment, as also considered the waiver of levy
of transaction charges in respect of the trades done in currency futures.
By this, it considered the proposal to extend the transaction fee waiver
upto 30
th
September, 2009. There is also a 6
th
meeting of the Pricing
65

Committee alleged to have been held on 27
th
August, 2009, in which again
there was an extension of waiver of levy of transaction fees in respect of
the trades in currency futures and it agreed to continue it upto 31
st
March,
2010. Strangely enough the Circulars issued by the NSE, however, do not
tally with these minutes, because by the first circular, the valid period for
the zero transaction fees was only upto 30
th
November, 2008. Second
Circular came on 28
th
November, 2008, in which the NSE declared that it
would not charge transaction fees upto 31
st
March, 2009. The last Circular
seems to have come on 30
th
March, 2009 and in this Circular the zero
transaction fees policy was to be continued upto 30
th
J une, 2009, though,
the minutes suggest that they were to continue the zero transaction fees
policy upto 30
th
September, 2009. Very strangely, thereafter, in spite of
the fact that there was another meeting held on 27
th
August, 2009, in
which the Pricing Committee decided to extend the zero transaction fee
policy upto 31
st
March, 2010, no such Circular seems to have been issued.
At least that is not the claim made before us. In short the Circular dated
30
th
March, 2009, in which zero transaction fees was to be continued upto
to 30
th
J une 2009 (i.e. after 20
th
of May, 2009 when section 4 was
introduced) merrily continued to rule the scenario and it seems that NSE in
spite of its meeting on 27
th
August, 2009 of Pricing Committee, did not
bother to issue any other Circular.
80. We must at this juncture point out that the minutes of both these
meetings are completely silent about the effect of section 4 having been
taken into consideration by NSE. We can understand about the meeting
dated 3
rd
March, 2009, on that day the section 4 had not come. But what
completely perplexes us is the studied(?) silence of the Pricing Committee
66

in the meeting dated 27
th
August, 2009. In fact, anybody would expect
that after the advent of section 4 the Pricing Committee would immediately
sit up and take the notice of section 4, as on 20
th
May, 2009 there were
only two players in the market, one was NSE itself and the second was
MCX-SX. The NSE was well aware of the fact that MCX-SX did not have
license for any other segment and were dealing exclusively in the CD
segment. They were actually the competitors of NSE, even if it is
considered that the relevant market was only currency derivatives. It was,
therefore, clear that if the zero transaction fees was continued by the NSE,
MCX-SX would have no other alternative but to also follow the suit, and
that is precisely what happened. The MCX-SX had to continue with the
zero transaction fees policy, if not anything else at least to meet the
competition and in the process the MCX-SX in the very first year suffered
the losses of Rs.29.81 crores, in comparison to NSE, which registered profit
of Rs.515.54. It was known all over the world that MCX-SX do not have
any other license for running the stock exchange in any other segments
excepting CD segment and therefore, if they persisted with their zero
transaction fees policy, which was a direct outcome of NSE's zero
transaction fees policy, they would certainly bleed to death. That it did not
happen, cannot be a justification for NSE to, firstly, totally ignore section 4
and to remain complacent with their own policy by firstly introducing the
same and secondly continuing the same in spite of the advent of section 4.
In our view, this was the best example of abuse. In this, one can analyse
that MCX-SX could not have effectively competed with NSE on the basis of
this zero pricing conduct. The data clearly suggests that the prices
charged by NSE had the potential to foreclose MCX-SX, which was the only
67

competitor in the field then, or for that matter any other competitor, who
did not have the strengths of NSE. In our opinion, there is enough
evidence to support this in as much as the losses suffered by MCX-SX kept
on increasing. It was a well known fact that it did not have any other
segments to deal with and it ultimately got the same somewhere after
about two years, after a litigation.
81. On this factual backdrop it would be interesting to see D.G.s findings
on abuse of dominance by NSE. The DG had considered the following four
factors :-
a. Transaction fee waiver;
b. Admission fee and deposit level waivers;
c. Data feed fee waiver; and
d. Exclusionary denial of "integrated market watch" facility.

While considering the transaction fee waiver, the DG took into
consideration some previous history in view of the argument of NSE that
the step of waivers were taken to encourage larger participation in the
nascent CD segment. It was also argued before the DG that this policy
was influenced by a report of the High Powered Study Group on
Establishment of New Stock Exchanges and lastly it was pointed out by
the NSE that it had constituted a pricing committee to guide and decide
all pricing matters.
82. The D.G. considered the earlier such waivers by NSE in various
other segments like equity, F&O and had also noted that the NSE had
outstripped BSE by 2001. It was also noted by the D.G. that after
outstripping BSE, NSE did not extend the waiver and the waiver in
options in segments of F&O had continued till 2005. Even in respect of
WDM segment, while the NSE had started trading in J une, 1994, for one
68

year, NSE had levied charges of Re. 1/- per Rs. 1 Lakh. From this the
D.G. came to the conclusion that NSE did not have a historical philosophy
of waiving fee to develop a nascent market. The D.G. also considered
the conduct of NSE relating to Gold ETF segment where the transaction
charges were levied from March, 2007 till August, 2009 when NSE was
the only exchange trading in Gold ETF segment. However, it started
waiving/reducing transaction fee only after February, 2010. This was
probably to score over BSE which had entered into Gold ETF segment in
September, 2009 and had grabbed a market share of about 5% which
rose up to 19% by February, 2010. According to the DG this explained
as to why NSE had introduced waivers/reductions from March, 2010
onwards. The D.G. then observed that the management of competition
was the prime factor which influenced the transaction policy. The D.G.
also considered the fact that NSE collected admission fee of Rs.5,61,800
in equity, F&O and debt segment but did not charge any admission fee in
its CD segment and also did not collect any subscription charges and
advance fee in the CD segment. The reasons for not charging given by
NSE were also referred to. The other factors in respect of admission fee
and deposit level waivers were also considered by the D.G. The D.G.
also observed in his report that NSE had reduced deposit structure w.e.f.
November, 28, 2008 which was subsequently followed by MCX-SX from
J anuary, 2009.
83. Same such observation was made by the D.G. in respect of the data
feed fee waiver. It also considered the argument of NSE that the waiver
in data feed fee was for the same reason for not charging transaction fee
for the CD segment. The D.G. observed in this behalf that the issue of
69

data feed fee was never discussed during any board meetings over the
initial 16 months from the date of commencement of trading in CD
segment.
84. As regards exclusionary denial of integrated market watch facility,
we need not express anything here about the D.G.s observation in view
of settlement of the concerned parties.
85. While analyzing the predatory pricing by NSE, the D.G. considered
Regulation 3(1) of Cost Regulations and also further considered the
concepts of variable cost. The D.G. also posed a question whether in a
hypothetical situation of NSE not having any other segment to support its
income, could NSE have survived in the wake of its waiver policy? The
answer was obviously in negative. The D.G. observed the variable costs
being zero and rejected this argument. The DG referred to the additional
expenditure incurred by NSE for machinery, manpower, IT support,
disaster recovery etc. in respect of the CD segment along with other
factors like number of dedicated employees for the CD segment who
were engaged by NSE and were paid substantial amount. The D.G. came
to the conclusion that these costs did constitute variable costs. A
reference was made by the D.G. to examine the views taken by the
international jurisdictions while determining the appropriate cost and
further observed that the relevant product market was on the basis of
high level of network externalities. A reference was made by the D.G. to
the case of European Commission namely Wanadoo Interactive SA
(WIN).
86. The D.G. then noted that though NSE was asked to provide
comprehensive details of allocation of all fixed and variable costs for the
70

CD segment for the last two years, NSE had failed to do it on the ground
that it did not prepare accounts in which separate profit & loss account
statements are provided separately for either the CD segment or any of
the other four segments. The NSE had also argued before the D.G. on the
basis of the observations made by UK Competition Commission
investigation wherein it was concluded that the allocation of common
costs down to product level was impossible and would be misleading.
The D.G. countered these arguments on the basis of the balance sheet
and profit & loss accounts of NSE. The D.G. had noted that there was a
quantum increase in fixed assets of NSE in general and I T
hardware/software, since the CD segment started. It was noted that
during 2006-07, the increase in fixed assets was only Rs. 31.472 crores,
in comparison, the increase was Rs. 133.671 crores during 2007-08 that
is after the starting of CD segment in 2008-09, it was Rs. 93.475 crores
and during 2009-10, it was again Rs. 90.1 crores. The D.G. report had
looked at the details of overall capital cost expenses, segment wise long
run incremental cost etc. The D.G. also made estimation to the total
costs for the CD segment working out to Rs. 4.42 crores for the year
2008-09 and Rs. 37.07 crores for the year 2009-10 which had been
arrived at by the D.G. on the basis of pro rata assumption.

87. We are deliberately making a detailed reference to the D.G. report as
even the CCI has completely relied on the same. It was argued before the
CCI, firstly about the NSE not being dominant, secondly the transaction fee
waivers were done in order to develop the nascent market, thirdly that NSE
had historical philosophy of waiving fee in developing nascent market and
71

fourthly that there was no element of predatory pricing as there was no
variable cost and lastly that the charge of leveraging could not apply as
NSE was not dominant in the CD Segment. The CCI firstly rejected the
argument about the dominance and then considered the theory of
development of nascent market. I t discussed in detail the various stages
of nascency of a market and came to the conclusion that the market could
be nascent for the first few months but certainly not for ever or for
indefinite period. According to the CCI, this waiver policy was a strategy
and not a bona fide step for preserving or developing an otherwise nascent
market. It considered the various occasions on which the notifications for
waiving transaction fees was issued. The CCI also considered the historical
background of waivers in case of equity segment and F&O segment and
upheld the observation of the D.G. that NSE only after outstripping BSE, re-
imposed transaction charges after it had surpassed BSE. Similarly, CCI
also confirmed the D.G.s findings about WDM segment where after
commencing the trading on 30.6.1994, it levied transaction charges for a
full year till J une, 1995. It confirmed the D.G.s observation that this
conduct of NSE contradicted the claim of consistent policy of fee waivers to
develop nascent market. On these grounds it rejected the defence
regarding the development of nascent market.

88. It further noted the pattern of NSE behavior in respect of F&O
segment and WDM segment as also Gold ETF segment and concluded
that the historical conduct of NSE suffered from inconsistency and
nothing could be derived from this behaviour patterns which would lead
to the conclusion that NSE had consistently followed the philosophy of fee
72

waivers in the nascent market. It, therefore, confirmed the D.G.s
observation in this behalf. Similarly, the CCI had found no merit in the
justification given by the NSE regarding data feed fee waiver.
89. It also noted about the NSEs failure to give separate segment
figures to the DG.
90. It then referred to the fact that MCX-SX was operating only in the
CD segment as also its financial statements of 2008-09 and 2009-10
showed that it was incurring variable costs. I t also referred to the total
expenses made in 2008-09 and 2009-10. The CCI, therefore, confirmed
the finding that the CD segment did require some variable costs to be
incurred by the stock exchange and it cannot be zero as claimed by the
NSE. (We have already in the earlier part of the judgment shown as to
how the theory of the average variable cost being zero was palpably
wrong).
91. Thereafter, the CCI referred to the exercise made by the DG for
allocating and estimating the costs. Thereafter, it referred to the zero
pricing.
92. After considering the concept of unfair pricing, the CCI came to the
conclusion that the D.G.s observations about the variable costs were
correct. The CCI, therefore, came to the conclusion that the zero pricing
was unfair as far as MCX-SX was concerned. The CCI then referred to
the fact that NSE was in a position of strength which enabled NSE to
resort to zero pricing since August, 2008 while MCX-SX did not have such
strength. The CCI then observed - There is practically no justifiable
reason for NSE to continue offering its services free of charge for such a
long duration when it is paying for manpower and other resources for
73

running the business. I t is also a fact that no enterprise would have the
intention to engage in a profit-less venture for eternity. The CCI then
referred to the fact that MCX-SX had only CD segment and that was a
major constraint and therefore the zero price policy of NSE was unfair.
On this basis, the CCI came to the conclusion that the zero pricing policy
was unfair. It then observed in para 10.77 that - In this case the
conduct of NSE is beyond the parameters of promotional or penetrative
pricing. I t can, in fact, be termed as annihilating or destructive pricing.
93. We generally agree with the finding of abuse of dominance given
by the D.G. as well as the CCI. We find no justification on the part of
NSE to continue with the predatory pricing for unspecified period after
20
th
May, 2009. Much of the discussion has come as regards the
predatory pricing. We need not repeat that again.
94. Shri Sibal, however, calls the pricing as unfairly low pricing. His
submission appears to be that a zero price cannot be said to be predatory
pricing at all. We have given our own reasons in the earlier part of the
judgment to point out as to why a zero price would amount to predatory
pricing. As a matter of fact, there is a lot of difference in the concepts of
unfairly low price and zero price. In the former, there is at least some
price (which is more than zero), which is charged by the enterprise, while
in the latter there is absolutely no price and all the services required are
given free of cost. While discussing the issue of cost in the earlier part of
the judgment, we have already pointed out that there was no
justification, whatsoever in the claim of NSE that it did not have any
average variable cost, must fall to the ground. We have also pointed out,
as has been done by the D.G. and the CCI that there was no justification
74

for zero pricing. Shri Sibal argued that CCI has termed zero price as
unfairly low price. We do not agree. For unfairly low price, there has to
be some price somewhere, which is certainly more than zero. We,
therefore, reiterate our finding that this was a clear cut example of
predatory pricing. Without arguing as to what are the stringent tests for
predatory pricing, the learned counsel merely said that they have not
been met. Further arguments on these aspect regarding the concept of
dominance, pricing below cost, intent are merely the repetitions of the
earlier arguments. The learned counsel of the Appellant has given us a
short written submission consisting of 211 pages, most of which are
repetitions.
95. In the common parlance, predatory pricing means the pricing which
is essentially below the cost and has an intent of destroying the
competition in the market. We see no different meaning of this term.
The whole argument centers around the point that this was an example
of unfairly low price. We do not agree. In fact, it is a blanket
examination of predatory pricing. A comment was made about the four
pieces of evidence relied upon by the CCI for giving finding of immediate
and demonstrable harm to competition, they being :-
(a) NSE has deeper pockets that MCX-SX;
(b) There is no justifiable reason for NSE to continue charging
zero price for a service that costs money to run;
(c) As a result of zero price, MCX-SX is slowly bleeding to death;
and
(d) The unfairness of price is accentuated by the inequality in
available resources between NSE and MCX-SX.

75

96. The counsel again repeats about the theory of deeper pockets. We
have already shown that the financial power of MCX, the promoter of
MCX-SX is irrelevant in this situation. It is again repeated that the so
called zero pricing was with an idea to increase liquidity in the market.
We have already pointed out that, that may be so in the beginning, but
there was no justification to continue with the same policy after 20
th
May,
2009. Frequent references in these written submissions have been made
to the entry of BSE and USE. In our opinion, USEs entry and exit and
BSEs entry in the market would go to prove nothing. Very strangely, a
reference is made that the MCX-SX has followed the zero price policy in
the other segments it has entered. Thereby, the learned counsel wanted
to draw our attention at the facts, which were much posterior to the
relevant period. The learned counsel relied on a singular factor that USE
decided to enter the market and ensured that the zero transaction fee
policy did not have the exclusionary effect. We do not agree. We have
already given our reasons in the earlier part of the judgment. The
learned counsel then relied on the Genesis exclusionary conduct note
dated 19.02.2011 to say that by their calculations MCX-SX would have
taken 80 years to quit the market. This was very seriously doubted by
the other side. Be that as it may, it is not a question as to when the
competitor would have exited the market, once it is proved that the
competitor was suffering losses year after year. The learned counsel
tried to convince us that the zero price had its own benefits. It is then
argued that the unfair pricing was liable to be considered qua all the
concerned parties namely competitors, consumers, the relevant market
and NSE itself and then it should have been balanced against the alleged
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unfairness qua MCX-SX. We do not agree with this proposition, so long
as we are convinced that the zero transaction fee policy was a well
intentioned policy to oust the competitors from the market. Much has
been stated about the sentence that this policy was unfair to MCX-SX.
Shri Balbir Singh on behalf of CCI argued that even if a statement is
made only about MCX-SX, firstly, it was not only against the MCX-SX that
the matter was being considered, the reference to MCX-SX came because
the MCX-SX being the competitor was an Informant also. He also pointed
out that when NSE was proved to be a dominant player in the market, it
was not supposed to be abusive and if it targeted the only competitor in
the market for first few months, that too consciously after the advent of
the section 4 would still be an abuse of breach of section 4. We do not
consider that the finding of the CCI was only with regard to MCX-SX and
that any comparison as such was made only with MCX-SX. Though, the
learned counsel made much of this so called unfair only vis--vis MCX-SX,
we are of the clear opinion that the finding of the CCI is general in nature
and not only vis--vis MCX-SX. Much was said about the financial power
of MCX-SX and its expenditures even in the other segments. We do not
think all that is relevant in the present controversy.
97. The learned counsel also urged that this could not amount to an
unfair conduct vis--vis the consumer. It has been repeated again and
again that in applying predatory pricing, though initially the enterprise
suffers the losses, it then can start charging higher prices vis--vis the
consumers. Much was said about the effect of the transaction fee being
charged. We do not think that it is in any way relevant to the present
controversy. Much was said about the fact that selling at cost was not
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predatory, but was merely an example of forging profits and that other
competitors also could have chosen to follow the same price policy by
forgoing their profits. We have already shown that NSE had nothing to
lose in this, whereas MCX-SX had no other segment except the CD
segment and would have incurred tremendous losses, which it actually
did. The learned counsel urged that there was no evidence to state that
NSE planned to continue the zero price strategy for eternity. We do not
think the learned counsel is right in that behalf. After the last Circular in
which zero transaction fee policy was to last only upto 30
th
J une, 2009,
thereafter no Circular came and the zero price policy continued till the
impugned order of CCI. The learned counsel also urged about the actus
reus and the cause of action. In our opinion, the cause of action started
right on 20
th
May, 2009, when the zero transaction fee policy was in
operation and thereafter it continued everyday during the continuation of
that policy.
98. The learned counsel criticized the reliance by MCX-SX at AKZO
Chemie vs. Commission C-62/86. All that we say is that in AKZO, there
was at least an allegation that the price was below AVC. Here is an
example where there is no price whatsoever. In this behalf Shri Balbir
Singh for CCI and Shri Haksar for MCX-SX has rightly relied on AKZO and
the observations made therein.
99. In paragraph 174 of the written submissions made by NSE, there
are repetitions of the earlier argument that NSE had not priced below
cost. The learned counsel tried to point out that NSE had provided
extensive financial cost data for its CD segments for the financial year
2008-09 and 2009-10 in the First Genesis Report and in the Second
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Genesis Report. We have already given our reasons why we are unable
to rely on these reports, particularly on the claim that there was no
variable cost. We have given our reasons during our discussion on the
Cost Regulations. In that behalf, we fully agree with the finding of the
D.G. as well as the CCI . Much was said about the management accounts.
We are not impressed by that argument at all. The fact of the matter is
that NSE had failed to submit its statutory audit in respect of the CD
segment on the special plea that it did not maintain the same. The other
arguments are merely repetitions of the earlier arguments on this aspect.
The other arguments about the costs are again repetitions of the earlier
arguments. Once we have rejected the theory of Genesis that the
variable cost was zero, in fact the argument should end there itself.

100. It is urged that NSE did not intend to reduce the competition or
eliminate competitors. The learned counsel argued that the standard of
proof should be the civil standard of preponderance or balance of
probabilities. We agree with the learned counsel. We also agree with
the learned counsel that the finding of predatory pricing should be on the
basis of strong evidence. Once it is accepted that the civil law standards
would apply, then the D.G. as well as the CCI were quite justified in
handing out that finding on the basis of the circumstances discussed
earlier. The facts in this case are telling themselves. In fact, it was for
NSE to justify the zero transaction fees policy. It has miserably failed to
do so. Two orders of Securities Appellate Tribunal (SAT) and one of SC
were relied upon. They being Sterlite Industries (India) Ltd. vs. SEBI,
Appeal No.20/2011 (Order dated 22.10.2001) and Dilip Pendse vs. SEBI,
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Appeal No.80 of 2009 (Order dated 19.11.2009) as also Mousam Singha
Roy vs. State of West Bengal, (2003) 12 SCC 377. The two judgments of
the SAT speak about the standard of proof, while the Supreme Court
judgment deals with the murder case. We have nothing to say about the
laid down standards, but we fail to see, as to how the judgments apply
here. A judgment of Competition Appeal Tribunal (CAT) of UK was also
referred to, where the UK Tribunal held that the infringements were not
classified as criminal offences and had further expressed that the issues
regarding relevant market, dominance, abuse etc. have to be decided on
the basis of economic data and also the conflicting expert evidence. That
Tribunal also held that the burden of proof in civil matters applies in such
matters. We have already shown earlier that in this case the facts were
plain and simple. We have also made reference to the minutes of the
Pricing Committee. We have also seen that a player like NSE chose to
ignore the advent of section 4 on the legal scenario. We are left with no
doubt that the whole exercise to continue with zero price policy was
deliberate. Very interestingly, an argument was made on the basis of a
decision by the Ontario Supreme Court in R vs. Hoffman La Roche
Limited (1981) 33 OR (2d) 694 that while Hoffman La Roche engaged in
zero pricing in response to a new entrant, unlike in the CD Segment
where NSE imposed a zero price when it was the only player for pro-
competitive and profit maximizing motives. We fail to see any rationale
behind this argument. Question was not on the date of imposition. The
relevant question is of continuation of such policy indefinitely. It is
further argued that there was no foreclosure from the market as was in
the case of Hoffman La Roche. We do not have to wait for the actual
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foreclosure to happen, even if there is any possibility of the competition
being affected that is sufficient for the purpose of section 4(2). In this
case, it is quite clear that the idea was to oust MCX-SX from the market,
which was the only competitor. Very strangely a reference has been
made to suggest the bona fides on the part of NSE to NSEs Pricing
Committees regular assessment of the nascency of the market after for
the alleged period of 3 years was vindicated on the levy of the fee. We
have already made extensive comments on the minutes of the Pricing
Committee and we need not say anything more. We do not know on
what basis it is then contended that the market continued to be nascent.
In short, we do not accept the six points, which are as under :-
a. All documentary evidence available on the record evidence
good intent;
b. NSEs Pricing Committees regular assessment of the nascency
of the market after for the alleged period of 3 years was
vindicated on the levy of a fee;
c. Economic analysis also shows that the market continued to be
nascent;
d. Promotional or penetration pricing is a legitimate business
strategy, especially in stock exchanges;
e. NSE was meeting its competition; and
f. NSEs past conduct in other segments have been grossly
misinterpreted and in fact demonstrates that NSE did not
have any anti-competitive intent.

In our opinion, the concept of nascency is extremely fluid.
101. As regards the documentary evidence available, the learned
counsel relies on the Pricing Committee agenda and minutes. We have
already made our extensive comments on the relevant meetings. Indeed
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if Pricing Committee was and we believe it comprised of experts, we
would have expected it to take notice of the advent of section 4 of the
Act before deciding to continue with the zero transaction fees policy. We
see an admission to that effect, which is as under :-
NSEs Pricing Committee could not have predicted a brightline test
as to when the CD Segment would be mature as such a
consideration requires an assessment of a host of factors including
the size of the CD Segment, the growth of the CD Segment, the
current and projected volatility of the Rupee, state of the Indian
economy, etc. What the Pricing Committee can do, and the
evidence on record shows that they did so, was consider the status
of the CD Segment when they made their decisions and determined
that, at that time, the CD Segment was not mature enough to levy
a fee;

Strangely enough, it does not even distinctly mention about the effect of
promulgation of section 4 of the Act. The other contentions on these
Circulars are mere repetitions and we have already considered them
earlier.
102. A reliance has been placed on so called letters by Mr. S.B. Mathur
and Mr. Vijay Kelkar. We have mentioned these letters only to be
rejected as initially the introduction of zero transaction fee policy may be
justified, but its continuance after 20.05.2009 was certainly not justified.
103. The learned counsel argued on the good intention of NSE and
suggested that NSE had not destroyed any evidence. That may be so,
however, the intent of NSE was apparent enough and we have given our
reasons for holding so.
104. The learned counsel argued that since the market had not become
mature, they continued with the transaction fee waiver policy. This is
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wholly incorrect. In this, there is no evidence to show that NSE ever took
the promulgation of section 4 of the Act into account as also the other
factors like MCX-SX not having any other segment than the CD segment.
The learned counsel tried to argue about the facts which are posterior to
the passing of the order of the CCI about the MCX-SX entry into Equity
and F&O segment. In our opinion, this argument is irrelevant. The
written submissions mention about some other stock exchanges offering
transaction fee waiver to develop the market like Chicago Mercantile
Exchange and NYSE Matchpoint. In our opinion, these facts are
irrelevant, as the facts in this case are entirely different. It was then
urged that the transaction fee waivers are a legitimate new market entry
strategy. That may be so, but the continuance thereof in the wake of the
available facts was wholly incorrect.
105. The submissions then referred to the aspect of nascent market and
the claim made on behalf of NSE that the market throughout remained
nascent, which justified the continuance of zero transaction fee policy.
We are not impressed by this argument at all, as the nascency of the
market does not appear to be the only reason for indefinite continuance
of zero transaction fee policy.
106. We are also not impressed by the five grounds given in support of
nascency of the market. In any circumstance, in our opinion, the
nascency could not continue forever, justifying the zero transaction fees
policy for an indefinite period and particularly after 20.05.2009. I t was at
least bound to be considered afresh. The other contentions raised are
mere repetitions of the arguments for nascency of the market.
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107. The impugned order of the majority was criticized on the ground
that a distinction made by majority in nascent, infancy, immature and
mature market is devoid of logic. Again this is nothing but repetition of
earlier plea about the nascency.
108. An argument was raised about the Bolton Test and the following
three factors were suggested as the conditions thereof :-
(a) Enhanced efficiency gains : meaning falling unit costs, and
increase in the hedging activity;
(b) No less restrictive means of gaining efficiency : includes the
low prices to attract users.
(c) Recoupment due to efficiency : refers to lower per unit cost
to recoup all cost, to recoup all costs.
109. The submission also refers to the Test proposed by the European
Commission in the ECs Guidelines on the Commission enforcement
priorities in applying Article 82 to abusive exclusionary conduct by
dominant undertakings, they being :-
(a) Efficiencies brought about the conduct;
(b) The conduct is indispensable to realize those
efficiencies;
(c) Efficiencies outweigh way any likely negative effects on
competition and consumer welfare;
(d) Conduct does not eliminate effective competition.

110. Speaking strictly about Bolton test, we agree that the lower prices
are key to attract users. We also agree that the falling unit costs would
increase the hedging activity on the CD segment. However, that is not the
be-all and end-all of the matter. In fact, the last two factors in European
Commissions Guidelines speak clearly about the negative effect on the
competition as also elimination of effective competition. This is precisely
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what has happened because of the indefinite continuance of the so called
policy. In our opinion, even if we accept these tests as valid tests, NSE has
clearly failed in the same, in view of the reasons given above. It was very
interestingly suggested in para 244 of the written submissions as under :-
NSE submits that even dominant enterprises should be allowed to
compete on merits and NSE was constrained to continue its zero
pricing to meet the competition posed by both, BSE and MCX-SX.

111. It is very interesting to note that NSE describes itself as a dominant
enterprise and then speak about its constraints for continuing the
competition posed by BSE and MCX-SX. BSE was nowhere in the picture
and MCX-SX was the only competitor, whom they wished to eliminate
altogether by introducing zero transaction fees policy, fully knowing that
MCX-SX did not have any other segment to deal with. The written
submissions mention about the schedule of the Circulars right upto 26
th

March, 2012. Very significantly, we do not see any Circular after 30
th

March, 2009 even to cover the period after 20
th
May, 2009. All the other
contentions are repetitions of the earlier arguments, which have been
considered earlier.
112. A reliance placed by MCX-SX on the decision in Napp Pharmaceuticals
([2012] CAT 1) was criticized in the written submissions and it was
suggested that Napp was selectively pricing below AVC to see off
competitors and hence it was found guilty. It was then urged that NSE
did not price below its AVC, nor did it had any intention to see off its
competitors. We hasten to add that the contention is about the price being
below AVC is completely incorrect for the reasons given earlier. In our
opinion, MCX-SX correctly relied on the above mentioned decision.
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Lengthy submissions were made about the questions posed by the D.G.
and the answers thereto, as also about the Equity, F&O and WDM
segments of NSE, so also Gold ETF. We find all these contentions to be
irrelevant. It was further suggested that the argument that NSE was
aware of MCX-SX potential entry and hence in the very first decision it
decided to waive transaction fees was incorrect and flawed. This argument
is in fact termed as being too remote. We do not think so. The action on
the part of NSE in continuing with the zero transaction fees policy,
according to us is a classic example of exclusionary conduct. Same
argument are repeated in respect of data feed waivers and the same plea
of nascent market etc. are repeated in the written submissions. We have
already dealt with data feed waivers. We have no doubt that, it was also a
part of the strategy on the part of NSE. Some facts about the DotEx were
also pleaded. We have already pointed out that, this issue was no more
open. We would therefore not go into that issue.
113. Similar arguments appear to have been addressed in the written
submissions in respect of admission fees and deposit fees. Admittedly, the
same arguments in respect of transaction fees waiver are also repeated in
respect of both these aspects. We endorse the finding of the majority that
these waivers too were anti-competitive in nature. We are therefore, fully
convinced that the conduct on the part of NSE in waiving various fees,
such as transaction fees, data feed fees, admission fees etc. was absolutely
anti-competitive. We also confirm the finding of the majority that this
caused the breach of section 4(2) of the Act and was a classic example of
abuse of dominating position by NSE. This takes us to the issue of
leveraging covered under section 4(2)(e).
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114. We are fully convinced that majority order was incorrect in holding
the NSE guilty of the breach of section 4(2)(e). We have gone through the
order and the acrobatics therein for seeing two markets. We wonder as to
how a second market could be found out. We will discuss this in the
further paragraphs. However, Shri Haksar very fairly submits that if we
hold that the market, as we have held, being the security exchange
services, there would be no question of section 4(2)(e) being breached. As
it is, he did not very seriously press this issue, nor did he support the
finding of the majority on the question of the breach of section 4(2)(e), i.e.
leveraging for the same.

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115. The language of section 4(2)(e) of the Act itself suggest that there
have to be two markets, one in which the enterprise has a dominant
position and the other in which it intends to enter or protect. However,
both the markets must be relevant markets distinct from each other. In
the wake of our finding, as also the finding by the D.G. that the relevant
market in this case is the services by the stock exchange, there is no
question of two markets and on that short ground itself the allegation
about being guilty of the breach of section 4(2)(e) of the Act must fail. I n
our opinion, that will be the correct position in law.
116. However, we must at the same time take stock of the finding of CCI,
since we do not agree with their finding of the relevant market being the
market for services of stock exchange only in the CD segment. The CCI in
its discussion on the subject first discussed the language of the section and
goes on to consider the concept of associational link. The CCI also seems
to have taken into consideration the language of Explanation to section
4(2) of the Act. I t has also taken into consideration the fact that both the
markets envisaged in section 4(2)(e) of the Act have to be relevant market.
We must add that what is required to be guilty of the breach of section
4(2)(e) is under :-
(1) That the enterprise has a dominant position in one market;
(2) That the enterprise is dealing in not only the market in which it
is dominant, but some other market also; and
(3) It wants to enter into an entirely new market or protect the
same.
117. In paragraph 10.83 of the impugned order an incorrect proposition of
law appears as under:-
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While its conduct in the second market has to be separately
examined for abuse if and after it acquires a dominant position there,
the fact that it has used the strengths from the first market to
wrongfully enter into or to protect the second market is
independently considered harmful to competition under the Act.

118. We must point out that it is not necessary for the breach of section
4(2)(e) of the Act to be dominant in the second relevant market. It is
enough, even if the enterprise wishes to use its strength in the market in
which it is dominant to enter into or to protect the other (second market).
In paragraph 10.84 of the impugned order, the CCI considered the
differences in the language of sections 4(2)(a) to (d) of the Act on one
hand and section 4(2)(e) of the Act on the other. Then a very interesting
differentiation is made in the two markets. The first being the CD segment
as X market, and the second being the non-CD segment as the Y market.
The CCI then referred to the so called complexity on the basis of the fact
that NSE has been considered dominant in the CD segment due to its
strengths in all the non-CD segments. The CCI asked itself a question, as
to how, once determined as dominant in the CD segment, could the charge
of leveraging the position in the that market to enter or to protect the
same CD segment itself be made. Then it goes on to say that this question
assumes that once the CD segment has been taken as the relevant market,
then wherever the word relevant market occurs in clauses 4(2)(a) to (e) of
the Act, it should automatically refer to CD segment. I n our opinion, this
discussion is completely illogical.
119. In paragraph 10.85 or the impugned order, the CCI goes on to
explain that the relevant market for clause 4(2)(e) of the Act can be
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different from the relevant market for clauses 4(2)(a) to (d) of the Act, but
the aspects of dominance given in explanation (a) would apply equally to
both. We also do not approve of this statement of law. We also do not
approve of the further inference in fact the scheme of the section,
particularly when read with section 19(4) is such that it is possible to take
one market as the relevant market for sub-sections (a) to (d) of section
4(2) and the same market as the other relevant market for section
4(2)(e). Reliance is then placed on section 19(4) in paragraph 10.88 of
the impugned order, which is as under :-
In the Indian Competition Act, under section 19(4), the ability
to leverage, in itself, is taken as one of the factors of dominance.
This revalidates our observation above that both "position of
strength" as well as the concept of leveraging has slightly different
nuances in the Indian Act. Phrases like "size and importance of
competitors", "vertical integration", "relative advantage" etc. are
concepts that indicate the strength to leverage based on strengths in
other markets. It is this strength that would render an enterprise
dominant in the relevant market itself and would expose its conduct
therein to evaluation of any other abuse of dominance separately. At
the same time, the wrongful exercise of that strength by itself is also
held as abusive conduct in its own right, under section4(2)(e).

120. The CCI has completely misdirected itself on the basis of incorrect
and faulty logic. In paragraph 10.89 of the impugned order, the CCI
proceeded on the ground that in both X as well Y market the enterprise
was dominant and held that same was the situation in this case, meaning
NSE was dominant in both CD market as well as in the so called non-CD
segment. After thus discussing the law, the CCI posed four questions,
which were:-
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(a) Whether NSE held a position of strength in the CD segment
market comparable to its position in the CD and non CD
segment markets as a whole?
(b) Whether NSE enjoyed advantages in the CD segment market
by virtue of its dominance in the non CD segment market?
(c) Whether NSE customers in one market were potential
customers in the other?
(d) Whether NSE and its competitors could become competitors in
both markets?

121. It then proceeded to hold that the two relevant markets had
associational links and therefore, NSE used its position of strength in non-
CD segment to protect its position in the CD segment. The CCI then
answered all these questions in positive, on the basis of non-existent fact
that MCX-SX was likely to be a competitor of NSE, since it had applied for
the other segments. We do not think that the order of CCI was for valid
reasons and was based on the correct interpretation of section 4(2)(e) of
the Act. In our opinion, if the relevant market as held by the CCI was only
the CD segment, then there could not be any other market like non-CD
segment. There was no necessity of putting all the other segments in one
group and indeed it could not have been done, much less to hold it as
another relevant market. The logic of the CCI on this question is flawed
and we reject the same. We, therefore, hold that the NSE could not have
been guilty of the breach of section 4(2)(e) of the Act, basically on the
logic that there was only one market and that market was the services of
the stock exchange. Merely because at the relevant time period, the
services of the stock exchange of MCX-SX were limited to CD segment, it
does not mean that the relevant market had to be held as a CD segment
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market. We set aside the finding of the CCI on this issue. This brings us
to the question of penalty.
122. Detailed submissions were addressed to us on the question of
penalty. The CCI while considering the penalty considered the following
contentions raised by NSE in respect of the imposition of penalty. They
are:-
(1) Novelty : Meaning thereby that the alleged violations being
based on novel concepts and principles, they were incapable of
having been anticipated for the purpose of compliance;
(2) Uncertainty on application of law : It was suggested that since
in the absence of guidance papers or a case law from the
Commission, there was large element of uncertainty in the law;
(3) Lack of cogent or convincing evidence;
(4) Lack of intention or negligence : In this it was suggested that
there was no ill-intention, nor was there any negligence on the
part of NSE, in commencing the zero transaction policy;
(5) No foreclosure : In the sense that since there was no
foreclosure in the CD segment, there could not be an abuse of
dominance. In this, it was pointed out to the CCI the losses
incurred by MCX-SX as a result of zero pricing policy of the NSE
were small in comparison with MCX-SX excess capital and MCX-
SX not being harmed;
(6) Benefit to ultimate consumers;
(7) Expansion of the market;
(8) Contribution to economic development;
(9) Meeting the competition;
(10) Full support and cooperation;
(11) Principle of Proportionality;
(12) Order contrary to foreign precedents;
(13) Miscellaneous arguments made before them on the basis of
case laws of European Commission.

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123. It was also argued that the OECD document mentioned that lighter
measures should be used when such a subject was never dealt with by the
Courts in past. Even section 53N of the Act was referred to press the
contention that no penalty should be imposed. Arguments were also made
before CCI on the question of behavioural remedy. It was also urged that
the cost estimates provided by the D.G. were incorrect. Further, the
concept of turnover was also attacked and it was suggested that since
turnover was zero in the CD segment, there was no need of penalty. The
CCI seems to have discussed all these aspects in details in paragraph 18 of
its order and answered each such aspect, particularly on the question of
novelty and uncertainty on application of law. We are generally satisfied
with that discussion. The CCI has also commented on the other aspects
like lack of cogent or convincing evidence and lack of intention or
negligence. A thorough discussion was done by the CCI in its order and
practically on all the aspects it has given its comments. We are completely
satisfied with the views expressed in this behalf while considering the
penalty under section 27 of the Act. Lastly it was mentioned that even the
mitigating factor wherever justifiable were not taken into consideration. It
has been held by the CCI that besides the abuse of dominant position in
terms of section 4(2)(a)(ii), it has cross subsidized from other segments of
business; that it also camouflaged its intentions by not maintaining
separate accounts for the CD segment; that NSE created a faade of the
nascency of market for not charging any fees on account of transactions in
the CD segment; it expressed that the small pockets were bound to be
thrown out of the market, if they had also followed the zero transaction fee
policy, which was adopted by NSE by incurring huge losses. The CCI also
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took into consideration the past conduct of NSE and its conduct in the CD
segment suggesting longing on its part for dominance in any segments and
therefore, it proceeded to pass on the order prohibiting the NSE from the
practice of unfair pricing, exclusionary conduct and unfairly using its
dominant position in other markets to protect the CD segment market.
The CCI also directed NSE to maintain separate accounts and further
directed it to modify its zero price policy in the CD segment and ensure
that appropriate transaction costs were levied. It then proceeded to hold
that in view of this behavior on the part of NSE the penalty at the rate of
5% at the average turnover was liable to be levied. Accordingly, it took
into account the turnover being Rs.3328.98 crores, the average turnover
being Rs.1109.66 crores. Accordingly, the CCI ordered the penalty @ 5%.
In our considered opinion, the CCI has in fact practiced restraint on itself in
ordering only 5% of the average turnover, when it could have gone right
upto 10% of the average turnover. Considering the total turnover, the
average turnover, in our opinion the CCI was quite justified in ordering the
penalty at the rate of 5%. It was also repeated before us that this was a
new law and like European Union in two cases, no penalty should have
been levied. I t was also argued that in past the CCI had imposed either no
penalties or symbolic penalties. The examples of Distribution of package
tours during the 1990 World Cup, [(1992) OJ L 326/31] as also Clear
Stream (Clearing and Settlement), 2009 [OJ C 165/7] case were given
where no impositions of penalty was ordered. The CCI has thoroughly
discussed all these arguments, which were placed before it. We are quite
satisfied with the appreciation of the material put before the CCI as also
before us. The uncertainty in the application of law was also pressed into
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service like it was done before the CCI. We agree with the CCI 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. We
agree with the CCI for the reasons given for rejecting these contentions
and for the same reasons, we also reject these contentions. Much was
made about penalty levied @ 5% of the average turnover. Our judgment
in the case of M/s. Excel Crop vs. CCI 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 our finding that the relevant market in this case IS the
services of stock exchange in all the segments. In M/s. Excel Crops
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, we were therefore asked to adopt a notional turnover
figure. We have already 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. We, therefore, reject the contention that the turnover for
the CD segment should be the relevant turnover. In our opinion, we have
given enough reasons to hold that the whole turnover of NSE should be
taken into consideration, in view of our finding on the relevant market.
We, therefore, do not propose to modify the order of CCI in this behalf. As
regards, the other remedies imposed, the NSE has submitted that it should
95

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
our 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. We, therefore, do not approve of this direction by the CCI and it
is ordered to be deleted. Before closing, some submissions were filed on
behalf of the NSE on 30
th
J uly, 2014. In fact, these submissions have been
filed much after the time granted for the same and therefore, they should
not have been accepted by the Registry. We refuse to consider them on
this ground alone. We do not see any merits in the Appeal and dismiss the
same. Accordingly, the Appeal is dismissed.
Pronounced in open Court on 5
th
day of August, 2014.


( J ustice V.S. Sirpurkar)
Chairman




(Rahul Sarin)
Member