Business Standard

Regulatory net for taxi aggregators

With the Centre and states determined to regulate the services of technology-driven companies, the argument that existing rules do not apply to them will no longer hold ground

Motor Vehicles Act  |  Ola  |  Uber

Jyoti Mukul 

Uber, Ola, Softbank
Uber, Ola, Softbank

Last month, when Karnataka notified On-demand Transportation Taxi Aggregators Rules, it used provisions in the Motor Vehicles (MV) Act, 1988, not just to get companies like Ola and Uber registered with the transport department but also to regulate such operators, which have so far maintained that they do not come under any legal framework.

Karnataka has used its powers under Sections 93, 95(1) and 96(1) of the MV Act, 1988, to frame the rules. Though these companies have raised issues on this with the state and so far not registered, the Delhi government, too, is in the process of framing rules for aggregators of taxis and buses. The Union government, on its part, had last year come up with an advisory for "licensing, compliance and liability of on-demand information technology based transportation aggregator". It said cab aggregators should obtain licence under Section 93 of MV Act, 1988 which provides for licensing of agents that solicit customers for public service vehicles. A detailed questionnaire sent to both Uber and Ola for their point of view remained unanswered.

The aggregators, unlike conventional taxi services, do not own vehicles, but provide an on-line market place to drivers and customers. In 2015, Uber, along with other cab providers, was barred from plying in Delhi. The government said, "Uber's services were also in contravention of the MV Act, 1988, and rules framed under it'' but the companies maintained that the Act did not apply to them since they were not taxi operators. The crackdown came after the December 2014 rape incident in an Uber taxi. The Delhi government later amended the Radio Cab Scheme to include aggregators and service providers which do not own a vehicle. In addition, the aggregators were brought under the purview of the Information Technology Act, 2015. Almost at the same time, the local administration in the Salt Lake area of West Bengal came out with regulations that brought drivers under the MV Act and the companies under the IT Act. In case of Karnataka rules, both IT and MV Act will apply to the service provider.

Amit Jain, partner, BMR & Associates LLP, says the rules issued by the Karnataka government are based on the Centre's recommendatory guidelines. They mandate the licensing requirements for taxicab operators in the state. "Even in countries like the UK, a standard operator's licence is required for operating private taxicabs. Similar licensing requirement is applicable across the US," said Jain.

The latest crackdown by the Delhi government came because of surge pricing, a demand-linked fare system, that led to complaints of overcharging. Usually, the fares rise only during peak traffic hours, but during the odd-even scheme of the Delhi government, the demand for taxis shot up and fares rose. Surge pricing was not only banned during that period hurting the business model of the companies but the Arvind Kejriwal government declared it would ban it permanently. Karnataka has already shown the way by capping the fares of aggregators, says Jain.

Surge pricing in some form is prevalent in other sectors, too. Fares of private airlines increase during peak season. Even during natural calamities, like the Chennai floods and when train and road services were impacted due to the Jat agitation in Haryana, airlines jacked up fares. Government-operated Indian Railways, too, introduced dynamic pricing in 2014, which meant higher fares when demand is higher but later decided to regulate the pricing. Jain says even FMCG companies have varying retail selling price, depending on the channel and place of sale. "Implementing such restrictions for taxi aggregators only appears to be selective and discriminatory. However, given the current provisions of law, the operators will have to keep the pricing within the limits provided under Karnataka rules, although the prices can fluctuate within such limits."

Jain says the Karnataka rules are a much needed piece of legislation in the current era. With advancement of technology and fast changing urban lifestyle, cab business has seen unprecedented growth in the last one decade and is already valued at $6-$9 billion. Most provisions of the Karnataka Rules, such as control over fares to prevent surge pricing, vehicle age restriction, requirement for licensee to have an office and officer in charge in the area of operation, requirement to furnish details of cars, drivers, number of trips, fares, origin and drop destinations etc are largely aimed at safeguarding the larger public interest, he says. "Some provisions, however, do not adequately factor in business realities and market dynamics, like restrictions on surge pricing, the requirement to have an office in the area etc," says Jain.

Also in the works is a whole new legislation called the Road Transport and Safety Bill, which will provide an umbrella framework for regulation. Section 2 of the Bill drafted by the Union government defines 'aggregator' as including a digital intermediary or online marketplace for a passenger to connect with a driver for the purposes of transportation. Its Section 87 empowers the proposed National Transport Authority to "make schemes including scheme for aggregators". With the Centre and states now determined to regulate the services of these technology-driven companies through these frameworks, the argument that existing rules do not apply to them might no longer hold ground.


Karnataka On-demand Transportation Technology Aggregators Rules
  • Necessity for Licence: No person shall act or permit any other person to act as an aggregator unless he holds an effective licence issued under the rules
  • Licencees are required to comply with applicable rules under the Motor Vehicles Act and Information Technology Act, 2000
  • Should have minimum 100 taxis, either owned or through a pact with individual permit holders
  • Hire charges capped at govt approved rates. Not more than Rs 19.5 per km for AC cabs and Rs 14.5 per km for non-AC cabs, inclusive of all taxes
Provisions in the draft Road Transport and Safety Bill
  • Section 2 defines 'aggregator' as including a digital intermediary or online marketplace for a passenger to connect with a driver for the purposes of transportation
  • Under Section 87, National Transport Authority has power to "make schemes including scheme for aggregators"

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First Published: Sun, May 08 2016. 22:05 IST