28 August 2019

Regulating App-Based Transport Services

Clarus Law Associates


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The Motor Vehicle (Amendment) Act, 2019 ("MV Amendment Act") which has amended several provisions of the Motor Vehicles Act, 1988 ("MV Act")
India Transport
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The Motor Vehicle (Amendment) Act, 20191 ("MV Amendment Act") which has amended several provisions of the Motor Vehicles Act, 1988 ("MV Act"), received presidential assent on 9th August 2019. Reports indicate that it will come to force after the rules and notifications under it have been finalized.2

A key impact of the amendments is the formal extension of the MV Act to online "aggregators" which have been defined as "digital intermediary or market place for a passenger to connect with a driver for the purpose of transportation".3 This formally brings ride-hailing app-based services such as Uber and Ola, within the scope of the MV Act.

This follows the softer initiatives in the last few years, whereby the Central Government first brought out the Advisory for Licensing, Compliance and Liability of On-demand Information Technology based Transportation Aggregator in 2015, followed by "New Policy Guidelines to Promote Urban Mobility" in 2016, which left it open to State Governments to follow the recommendations specified in such guidelines. This meant that some State Governments have, in a piecemeal manner, regulated app-based taxis, whereas others have not. The MV Amendment Act sets out the roadmap for legally binding principles for app-based taxi services, and harmonisation of approaches for regulating app-based taxi services across all states of India.

Regulation of app-based taxis has been an area where law has been playing catch up with the rapid evolution of technology across most countries. It was only in December 2017 that the European Court of Justice (ECJ) ruled against Uber's argument that it was not a "taxi service", and instead it was simply a computer service business providing a technology platform that connected passengers with independent drivers. The ECJ ruled that Uber would be regulated as a "transportation company", subject to the same rules as taxi services instead of the lighter regulatory framework governing the digital space. In the United States, legal interpretation has evolved to provide employment benefits to Uber drivers (in a New York Department of Labor ruling), rejecting Uber's argument that its drivers are 'independent contractors' and not full-time employees. In August 2018, New York City Council passed legislation authorising limits on the number of licences for ride-hailing taxi services, with a view to regulating the number of vehicles operating on such apps.

Regulating Aggregators

The principle impact of the MV Amendment Act is that "aggregators" have been brought under the purview of Section 93 of the MV Act, 1988. Section 93 was originally a provision mandating that "agents and canvassers" had to obtain licenses subject to conditions as prescribed for engaging in sale of tickets for travel by public service vehicles or soliciting customers for such vehicles. The MV Amendment Act has amended Section 93 to include aggregators within its scope. This means that like an agent or a canvasser, an aggregator would also have to obtain a license to engage in its activities. It is informative to note that the Karnataka High Court had, while upholding the legality of the On-Demand Transportation Technology Aggregators Rules, 2016, enacted by the Karnataka Government, ruled that "aggregator" is a "canvasser" and falls within the scope of section 93.4

Pursuant to the amendments, non-compliance by an aggregator with Section 93 of the MV Act or any rules framed under the same is punishable by a fine up to Rs. 1 lakh, but no less than Rs. 25,000.5 Non-compliance with any license condition of the State Government is punishable by a fine of Rs. 5000.6

The MV Amendment Act further mandates that every aggregator shall comply with the provisions of the Information Technology Act, 2000 and the rules and regulations made thereunder. This includes legal obligations, inter alia, relating to the transmission of data, liability of intermediaries, protection of sensitive personal data or information etc.

Road Ahead

The onus is now on both the Central and State Governments, to operationalize the broad framework set forth under the MV Amendment Act. Some key basic principles can already be found in the earlier initiatives of the Central Government. For instance the Guidelines that the Central Government formulated in 2016 (which had been pursuant to an order of the Hon'ble High Court of Delhi directing that a high-level committee should be constituted to examine all the relevant issues relating to existing permits given to black/yellow taxis, radio taxis, aggregators etc.)7 had recommended several principles such as:

  1. The need to have physical presence/premises in the concerned state as well as provide for a functional grievance redressal system which should be duly publicised.
  2. The need for testing of the algorithms used for distance and fare calculation, etc for accuracy and validation by the Ministry of Electronics and Information Technology ("MEITY"). Quality of these software applications should be audited by the Standardisation Testing and Quality Certification (STQC) or any other agency authorised by MEITY, on a one-time basis.
  3. Curbing surge pricing by recommending a ceiling of taxi fares up to three times the minimum amount (four times for late night rides).
  4. Making available an emergency response centre to handle SOS alerts by passengers as prescribed by the States. Developing and including features in the mobile application that gives riders the ability to share their trips, contact the local police in case of emergency and other safety features.
  5. Preserving and providing on demand, the data regarding taxi trips and customers for a period specified by the State Transport, Police or any other enforcement authorities as per law.
  6. Informing and cooperating with the police in the event of an incident of a criminal nature involving a trip booked through the Radio Taxi Operator, Agent or Aggregator platform.
  7. Implementing a zero-tolerance policy for discrimination or discriminatory conduct while a driver is working on such platforms including conduct such as refusal or service, use of derogatory language, rating a passenger on the basis of sex, race, caste, creed, religion, nationality etc. Upon receiving complaints from a passenger regarding violation of such zero-tolerance policy, the aggregator, agent or radio taxi operator shall suspend the services of the driver for the duration of investigation into the driver's conduct.
  8. Following directions/guidelines of the State in terms of maximum duty hours of drivers to promote road safety and to comply with the applicable labour laws.

Pursuant to this, several states enacted rules, such as: West Bengal ("Directives to regulate the Conduct of On Demand Transportation Technologies Aggregators"), Karnataka ("On Demand Transportation Technology Aggregator Rules, 2016"), Haryana ("NCR Motor Cab (Taxi) Scheme, 2016"), Rajasthan ("Rajasthan On Demand IT Based Transportation by Public Service Vehicles Rules, 2016") and Maharashtra ("Maharashtra City Taxi Rules, 2017"). These state rules and directives provide for license conditions and procedures for app-based aggregators, radio taxis and agents, qualification requirements for drivers providing such services, minimum requirements and permits for vehicles such as integrated GPS tracking unit, penalties for contravention of license conditions etc.

With the enactment of the MV Amendment Act, State Governments, particularly those which have not notified rules will now have to implement similar principles. The MV Amendment Act also leaves it open to the Central Government to notify new guidelines which can form the basis for States to regulate.

Other Laws with regard to regulation of online aggregators

Tax laws in India have been somewhat more prescient; app-based aggregators have been charged service tax since 2015. With the enactment of the laws relating to GST, app-based cab aggregators are required to pay the notified tax under the same. A recent ruling by the Authority for Advance Rulings (Central Excise, Customs & Service Tax), Karnataka has held that it is the aggregator who is liable to pay GST on trip charges and not the drivers.8


A 2016 report for the OECD notes that the "arrival of innovative app-based ride services, generically referred to as Commercial Transport Apps (CTAs)..., challenges established rules. The growing popularity of these services has caught authorities off-guard, as CTAs typically do not fall under established regulatory structures."9 The report then goes on to explain that ride-hailing apps are popular because of the enhanced value to both consumers and drivers that they provide.  At the same time, the report notes that regulation is necessary, especially in order to ensure public safety, consumer protection and tax compliance. The recent developments in India, therefore, are a welcome step.

Further evolution of the law, with the enactment of the pending legislation on data protection, and greater clarity on the provisions of the IT Act as applicable on app-based services, will be the new frontiers for regulatory developments.

* Anuradha is a Partner, and Meghna is an Associate at Clarus Law Associates, New Delhi. Special thanks to Manali Joshi, Student at the Symbiosis Law School, Pune, for her research assistance.


1  Act No. 32 of 2019.

3  New Section 2(1A) inserted pursuant to the MV Amendment Act

Satish N. v. State of Karnataka, ILR 2017 KAR 735.

5  New Section 193(2) inserted pursuant to the  MV Amendment  Act

6  New Section 193(3) inserted pursuant to the MV Amendment Act

Association of Radio Taxis v. Union of India & Ors. (WP(C) 6000 of 2015)

M/s Opta Cabs Private Limited, Advance Ruling No. KAR/ADRG 14 OF 2018 dated July 27, 2018

9  International Transport Forum, App-Based Ride and Taxi Services, Principles for Regulation, Report for the OECD, 2016

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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