The Ministry of Road Transport and Highways has recently issued an advisory on the regulation of Indian IT-based transport aggregator companies. The advisory, while not mandatory, recommends a licensing regulatory mechanism for online taxi aggregators to be implemented by each State Government.
On 13 October 2015, the Ministry of Road Transport and Highways issued an advisory on the regulation of Indian IT-based transport aggregator companies, such as Uber, Ola and TaxiForSure (Aggregators) that suggested the introduction of a licensing mechanism for these businesses. By doing so, the government has sought to bring a measure of clarity to the manner in which the app-based model of urban transportation in the country will be regulated.
Since the tragic rape of a passenger in an Uber last year, there have been nation-wide calls for stricter regulation of internet-based taxi services. Various State Governments have taken the view that Aggregators would fall within the purview of radio taxi service providers and have required them to comply with regulations that apply to companies that own fleets of taxis and which directly employ their own drivers – all of which are largely inappropriate for the regulation of internet-based Aggregators. Viewed in this context, the advisory is progressive in that it provides a bespoke regulation aimed specifically at regulating an online aggregation based business, rather than attempting to shoehorn this disruptive business model into a regulatory model designed for more traditional operations.
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That said, there are several question marks as to the immediate impact of this new regulation. The first and perhaps most significant issue relates to the enforceability of the advisory as issued.
Road transport is regulated under the Motor Vehicles Act, 1988 (MV Act) which is a federal legislation. However, while the MV Act sets out the broad contours of the law, the actual implementation of the MV Act is left to the States, each of which have promulgated state-specific rules that supplement the MV Act and articulate the manner in which that legislation is enforced in each of the States of the country.
The advisory states that Aggregators must obtain a license from the State Government under Section 93 of the MV Act. This Section provides for licensing of agents that solicit customers for public service vehicles – and stipulates that every license shall be subject to the conditions prescribed by the State Government. It would therefore appear that the State Governments will have the discretion to impose additional conditions on the regulation of the Aggregators – which means that all hopes of having a single unified Aggregator regulation are remote. Nevertheless, the provisions of the advisory bear closer analysis – primarily because they are likely to form the basis of any licensing conditions that State Governments will impose.
The advisory requires all Aggregators to obtain a license under Section 93 from the State Government. It recommends that the license will be granted for a period of 3 to 5 years. It is particularly pertinent to note that every Aggregator which intends to apply for a license, is required to incorporate an entity in India.
The advisory goes on to impose several obligations on licensed Aggregators. These include the requirement to conduct a detailed background verification of drivers and vehicles, maintaining and updating records for each driver, ensuring that each vehicle is capable of being tracked remotely and that the mobile/web applications mandatorily provide passengers with ability to contact the police and two emergency contacts. While these regulations appear reasonable and, for the most part reflect what the leading players in the industry are already implementing out of good corporate behaviour, there are other regulations that could be viewed as being potentially onerous.
For instance, the advisory introduces an obligation to mandatorily provide for a 24x7 call centre operation for customer queries, a feature that is perhaps an excessive imposition on internet-only operations. It also requires Licensed Aggregators to provide an address for service and officer-in-charge in each state for communication by the State Transport Department, greatly multiplying the compliance obligations of these businesses.
There are also a host of driver specific obligations that seem onerous given the fact that by definition none of these drivers are employees of the Aggregator. For instance, licensed Aggregators are required to ensure that drivers do not engage in discriminatory practices and are obliged to implement training programmes for drivers on the use of the technology platform, road safety, and gender sensitization.
While the provisions of the advisory are not mandatory, and likely to be revised by State Governments before they are finally implemented, it is a significant milestone in the regulation of aggregator businesses in India. At the very least, the advisory will serve as the foundation for any licensing conditions to be introduced by State Governments to govern ride sharing operations but could well establish the principles on which other aggregator businesses (such as in the hospitality industry) could be regulated in the future.
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