In 2014, COMPAT upheld the CCI order where it found National Stock Exchange (NSE) guilty of abuse of dominant position as per Section 4(2)(a)(ii) of the Act and imposed a penalty of Rs. 55.5 crore. The said judgement becomes important not only from the point that it is pending in front of Supreme Court for a decision, but also acts as a stepping stone for understanding framework of predatory pricing by a dominant entity in a market in compliance with the Competition Act.

The significance of the order can be drawn from multiple point of views. One being the matter discussed here, i.e. predatory pricing putting a restriction on the pricing policies of enterprises. Another is that the order is against India’s largest stock exchange company (in terms of volume traded), which is also promoted by India’s biggest financial institutions like LIC, SBI and IDFC, thereby having obvious economic implications.

The significance of the order can be drawn from multiple point of views. One being the matter discussed here, i.e. predatory pricing putting a restriction on the pricing policies of enterprises. Another is that the order is against India’s largest stock exchange company (in terms of volume traded), which is also promoted by India’s biggest financial institutions like LIC, SBI and IDFC, thereby having obvious economic implications.

The imperative question however remains, what is predatory pricing and its potential harm to Indian competition law regime. As per Sunil Barthwal in Economic Times, “predatory pricing is a device used by a competitor to not benefit the consumer but to eliminate the competitor and once the object is achieved the price returns back to normal or even higher, if recoupment is also desired. Thus, the predator succeeds in such a strategy; it is not the competitor alone but the consumer who is ultimately hurt in the long run”. As is made clear by the definition, predatory pricing seeks to establish monopoly in the long term, by offering low prices to end-consumers in the short term. This ultimately not only harms the economy, but also the end-consumer.

COMPAT in this particular case has held that NSE had an intention to eliminate the competitor from the market by using predatory pricing policy. It accuses NSE’s price committee of being negligent of competition law while advising on products’ price under currency derivatives segment. However the tribunal’s order is not free from gaps. Section 4(2)(1) of the Competition Act states that no enterprise or group is allowed to abuse its dominant position. It also defines predatory pricing as the price which is below the cost with a view to reduce competition or eliminate competitors. While the dominant position of NSE is established in the relevant market, other two conditions, i.e. an intention to eliminate the competition and also the price to be predatory remains to be established.

The evidence used by COMPAT against NSE to prove that it had an intention to eliminate the competition was that it has a history of dominating BSE in equity and F&O segments. Therefore it is likely to continue with the same in currency derivatives segment as well. It has also interpreted the “zero pricing” as predatory pricing given that it eliminates the competitors operating in the same market. However the said line of reasoning seems less convincing as certain behavior in the past is no guarantee of it being repeated in the future. The tribunal also failed to take cognizance of the fact that “zero pricing” is also a matter of pricing policy to enhance market and attract more participants.

Overall reading of the order also suggests that NSE failed to make a consistent argument to defend its pricing policy. When COMPAT ordered NSE to stop having a zero price for central derivative segment, NSE also kept changing its stance on why it has adopted zero pricing. As per the statutory definition, predatory pricing is when the price is less than the company’s cost for the product. A company which is on the verge of sinking its business can be held suspicious if it is having a pricing like this, however in this case NSE is in no such condition.

Example of Zerodha Securities Private Limited, popularly known as discount broker and emerged as a fastest growing stock broker in India, is of relevance here. The two major reasons for its success are, first is usage of fin-tech approach to the capital market (clearly what NSE followed) and the second is zero brokerage for equity delivery trades. Zero brokerage is in fact Zerodha’s unique selling point, because of which investors in equities have increased in India to a great number. Following this many start-up brokers have also adopted similar pricing and indeed it has helped in roping young investors. To forgo a marginal profit for a more efficient market in the long run seems in no way a malpractice from competition law lens.

While CCI and COMPAT have both taken a generalist’s stand here, this case becomes important as it directly affects the pricing policy of the company, which ultimately serves as a catalyst to enhance the market and relevant products. Supreme Court is yet to deliver its judgment on the same and it remains to be seen if it addresses the said gaps.