NCLAT Affirms CCI’s Closure Of NSE Co-Location Case; Holds No Prima Facie Abuse Of Dominance Made Out

NCLAT Affirms CCI’s Closure Of NSE Co-Location Case; Holds No Prima Facie Abuse Of Dominance Made Out

Introduction

The National Company Law Appellate Tribunal (NCLAT) has dismissed an appeal challenging the decision of the Competition Commission of India (CCI) to close allegations of abuse of dominance against the National Stock Exchange of India Ltd (NSE) in relation to its co-location services. The appellate tribunal held that no prima facie case warranting investigation under the Competition Act, 2002 was made out.

Factual Background

The appeal arose from a complaint filed by investor Manoj K. Sheth alleging that NSE had granted preferential and discriminatory access to select brokers through its co-location facility. It was contended that the architecture of NSE’s data dissemination system enabled certain brokers to receive tick-by-tick market data faster than others, thereby creating information asymmetry and conferring an unfair trading advantage.

The informant relied upon whistleblower complaints, media reports, forensic audits and certain findings of the securities regulator to argue that NSE’s conduct violated Sections 4(2)(b)(ii) and 4(2)(c) of the Competition Act, 2002, which deal with abuse of dominant position through denial of market access and discriminatory conditions.

Procedural Background

The CCI, by its order passed under Section 26(2) of the Competition Act, had closed the matter at the threshold stage, holding that no prima facie case of abuse of dominant position was established against NSE.

While the CCI observed that NSE appeared to be dominant in the relevant market for stock exchange services in India, it clarified that dominance per se is not prohibited under competition law. It further held that the provision of co-location services, which are offered globally by major stock exchanges and recognized by sectoral regulators, could not be considered anti-competitive in itself. Aggrieved by the closure of the case, the informant preferred an appeal before the NCLAT.

Issues

1. Whether NSE’s co-location services amounted to abuse of dominant position under Section 4 of the Competition Act, 2002.

2. Whether the CCI erred in closing the case at the prima facie stage under Section 26(2) without directing investigation.

Contentions of the Parties

The appellant contended that NSE’s data dissemination system enabled select brokers to gain faster access to market information, thereby distorting competition. It was argued that such preferential access constituted discriminatory treatment and denial of market access to other participants.

The CCI and NSE submitted that co-location services are standard industry practice worldwide and are regulated by the sectoral authority. It was further argued that the technology complained of had already been phased out and that there was no finding of fraud or collusion by the securities regulator. NSE maintained that its choice of technology was a bona fide commercial decision.

Reasoning and Analysis

The coram of Judicial Member Justice (retd) Faizal Alam Khan and Technical Member Naresh Salecha examined the CCI’s findings and agreed that the existence of dominance alone does not establish abuse under the Competition Act. The tribunal noted that co-location services are commonly provided by major stock exchanges globally and cannot be characterized as anti-competitive merely on that basis.

It further observed that the CCI had considered the relevant material and found no evidence of conduct amounting to abuse of dominance. The absence of any conclusive finding of fraud or collusion by the securities regulator also weighed against directing a detailed investigation. The appellate tribunal held that the CCI’s decision to close the matter under Section 26(2) was based on a reasoned assessment and did not warrant interference.

Decision

The NCLAT dismissed the appeal and upheld the CCI’s order closing the allegations of abuse of dominance against NSE. It affirmed that no prima facie case existed to justify investigation under the Competition Act, 2002.

In this case the appellant was represented by Mr. Nityaesh Natraj, Mr. Vaibhav R Venkatesh, Mr. Udian Sharma, Mr. Akash Srinanda, Mr. Anirudh A Sriram, Ms. Harsha Sadhwani, Mr. Manav Mitra, Ms. Subhika Joshi & Mr. Sahil Saraswat, Advocates. Meanwhile the respondent was represented by Mr. Neeraj Malhotra Sr. Adv. with Mr. Aman Singh Sethi, Ms. Manika Brar, Mr. Parteek Yadav, Mr. Shivek Sahai Endlaw, Mr. Rohan Dembani & Mr. Nimish Gupta, Advocates for R-2 Mr. Rahul Ajatshatru & Ms. Aashima Gautam, Advocates Ms. Sunaina Dutta, Advocate for CCI.