2026 (2) TMI 846 - AT - Law of Competition

Prima Facie Assessment: Regulatory and expert reports can inform but absence of AAEC bars a DG inquiry.

The article explains that at the prima facie stage the Competition Commission must form an opinion on market definition, dominance and whether conduct ... Abuse of dominant position by National Stock Exchange (NSE) - indulging in practice of granting preferential market access to select brokers on account of manipulation of Co-Location Facilities - prima-facie opinion - unfair advantages to selected brokers having Co- Location Facilities, restricting market access to others Trading Member - equal, fair and transparent access - load balancer and randomiser - rule of reason - violation of Section 4(2)(a)(i), 4(2)(b)(ii) and 4(2)(c)(iii) of the Competition Act - HELD THAT:- It is the case of the Appellant that the NSE deliberately created flawed architecture in order to favour select few brokers and further the NSE also allowed advantage to select few brokers by providing arbitrarily market access through use of its secondary server which was less crowded than the primary server. The Appellant also tried to impress us during hearing that selected few brokers had always access to secondary servers which was provided to them in connivance with the employees and management of the NSE and thus, the NSE was responsible for denying fair market access to large number of brokers and investors. Appellant filed an information under Section 19(1) of the Competition Act, but the CCI after examining the relevant facts and giving opportunity of being heard to the concerned parties as well as after examining the submissions made by the parties, the CCI formed an opinion that no prima-facie case existed and thus, passed the Impugned Order communicating to all parties including the Appellant. Prima-facie case does not mean a case proved to be to the finality but means a case which is set to be established if the evidence which is furnished by the informant like the Appellant herein lead to support the same. In such cases, a summary enquiry is done by the CCI by taking evident of the concerned stakeholders including written submission as deemed to be adequate for summary enquiry. We note that the CCI in the present case, based on the allegations of the Appellant, indeed called the NSE, who submitted all the required information to the CCI. We further take into consideration that the CCI, evaluated such evidence and the documents furnished by the NSE before concluding that prima-facie did not exist. It is the case of the NSE that to establish a Section 4 violation, the impugned conduct and the anti-competitive harm must emanate from an 'overt act' by the dominant enterprise, the NSE herein and not by misconduct by a third-party like its employees, if at all Section 4(2)(a)(i) violation necessitates an element of compulsion by the dominant enterprise. It is also the case of the NSE that section 4 violation, even prima-facie, cannot be established without evidence of anti- competitive harm, and prior to directing an investigation and therefore, the CCI needs to ensure that all elements of a Section 3/4 violation have been satisfied. On this issue, it is the case of the Appellant that no overt act on the part of the NSE was needed. All evidence, documents, information submitted by the Appellant to the CCI, were more than adequate to form prima-facie opinion by the CCI for causing further investigation. We note that the Appellant could not make any concrete case as what harm Co-Location Facilities or even the access to secondary servers caused to the investors or consumers. At the cost of repetition, it may be reiterated that Co- Location Facilities was exclusively meant for Trading Members of the NSE and not for investors. Hence, we do not find in any merit in the Appellant’s argument that Co-Location Services harmed the interest of the consumers. The CCI correctly assumed the situation and passed reasoned the Impugned Order. We do not find any error in the Impugned Order. We hold that while the CCI and SEBI (‘act’) in their own domain, in accordance with the applicable laws to them i.e., Competition Act and SEBI Act, respectively, however, one cannot ignore the fact that SEBI is sectoral regulator with requisite expertise to look into such matter. The CCI therefore, was correct in taking help of SEBI order, to the extent needed, to form its prima-facie opinion. Hon’ble Supreme Court of India in the case of Competition Commission of India vs. Bharti Airtel Limited & Ors. [2018 (12) TMI 1683 - SUPREME COURT] found that the CCI was correct in placing reliance on the Sectoral Regulator’s factual and technical aspects while considering the Appellant’s Information. No error in the Impugned Order on this aspect especially since the CCI formed its opinion in accordance with Section 3, 4 and 19 of the Competition Act, albeit, taking into consideration various information, reports, documents including SEBI/SAT order. We find this was right approach adopted by the CCI in the present case especially keeping in view the ratio of Bharti Airtel, provided by the Hon’ble Supreme Court of India. Upon consideration of the record, we hold that the CCI was justified in passing the impugned order and in declining to direct an inquiry against the NSE under Section 19(1) of the Competition Act, 2002. The CCI rightly examined the issues relating to co-location facilities and correctly concluded that no case was made out by the Appellant regarding denial of market access or grant of preferential access to select trading members. The allegations concerning the absence of a load balancer and randomiser were also found to be not established. We hold that the CCI is not required to order an investigation by the Director General unless a prima facie case is made out. In the present case, the CCI formed its opinion after hearing the parties and considering the SEBI order and various expert reports, including those of SEBI TAC, Deloitte, Ernst & Young, and ISB. We do not find any error in the Impugned Order or approach of the CCI. Thus, we find that the impugned order warrants no interference. The appeal is devoid of merit and is dismissed. Issues: (i) Whether the Competition Commission of India (CCI) erred in declining to order an inquiry under Section 19(1) of the Competition Act, 2002 into alleged abuse of dominance by the National Stock Exchange (NSE); (ii) Whether the CCI correctly addressed allegations that NSE's co-location facilities resulted in discriminatory or restrictive market access in violation of Section 4(2)(a)(i), 4(2)(b)(ii) and 4(2)(c) of the Competition Act, 2002; (iii) Whether absence of a load balancer and randomiser in NSE's earlier TCP/IP architecture established denial of equitable access; (iv) Whether the CCI was required to ignore or decline reliance on SEBI and related expert reports when forming its prima facie view.Issue (i): Whether the CCI erred in declining the Appellant's request to direct an inquiry under Section 19(1) of the Competition Act, 2002.Analysis: The statutory scheme permits the CCI to direct an investigation only upon forming an opinion that a prima facie case exists. The threshold for prima facie satisfaction requires adequate material on record to justify further probe, but does not mandate a full adjudicatory hearing at the prima facie stage. The CCI evaluated the information submitted by the informant, the responses and submissions of NSE, and relevant reports and orders from SEBI and SAT before forming its view.Conclusion: The CCI did not err in declining to direct an inquiry under Section 19(1) because it lawfully formed the view that no prima facie case was made out.Issue (ii): Whether the CCI correctly considered and decided the allegations that NSE's co-location facilities caused discriminatory or restrictive market access in violation of Section 4(2)(a)(i), 4(2)(b)(ii) and 4(2)(c).Analysis: The assessment required identification of the relevant market, dominance, descriptive clause fit, and whether conduct produced or was likely to produce an appreciable adverse effect on competition (AAEC). Evidence on record, including SEBI, TAC, forensic reports and SAT findings, was considered for both technical and commercial effects. The materially contested points included whether co-location as offered was exclusionary, whether fees or first-come allocation amounted to discriminatory conditions, and whether any asserted preferential access produced demonstrable harm to competition or consumers.Conclusion: The CCI's conclusion that the co-location facility, as offered, did not disclose a prima facie abuse of dominance under the cited clauses of Section 4 was correct; no AAEC was established at the prima facie stage.Issue (iii): Whether, in the absence of a load balancer and randomiser, NSE failed to ensure free and equitable access to all trading members.Analysis: Technical architectural choices were examined in context of contemporaneous market conditions, regulatory guidance, and subsequent migration to multicast. The record showed that TCP/IP was selected for reasons of accessibility and phased adoption and that SEBI and SAT findings identified procedural and monitoring deficiencies but did not establish deliberate preferential access or fraud that would, per se, satisfy the effects requirement under Section 4.Conclusion: The absence of a load balancer and randomiser, on the material before the CCI, did not suffice to establish a prima facie denial of equitable access requiring a DG inquiry.Issue (iv): Whether the CCI erred in relying on SEBI and other expert reports when forming its prima facie opinion.Analysis: Sectoral regulator findings and expert reports bear directly on technical and factual questions that inform the competition assessment. Reliance on such material at the prima facie stage is permissible to the extent the material is relevant to the identification of market effects and dominance attributes; the CCI remained required to form its own prima facie view on competition law elements.Conclusion: The CCI acted within lawful bounds in considering SEBI and related expert findings in forming its prima facie opinion.Final Conclusion: Taken together, the pleaded materials and regulatory/expert findings did not establish, on the record before the CCI, a prima facie case of abuse of dominance by NSE under Section 4 of the Competition Act, 2002; the appellate challenge therefore fails and the impugned order declining a DG inquiry is sustained.Ratio Decidendi: At the prima facie stage under Section 26/19 of the Competition Act, 2002, the Commission must form an opinion based on adequate material that the alleged conduct falls within the descriptive clauses of Section 4 and is likely to cause an appreciable adverse effect on competition (AAEC); absent such material showing effects or probable harm, reliance on regulatory and expert reports to test allegations does not require directing a Director General investigation.