Legal and Regulatory Clarity for Online Aggregators: A Current Necessity

By Falguni Gupta

Introduction

The E-commerce sector has become a favorite of both sellers and consumers in a short span of time. Recently, the Department of Industrial Policy and Promotion introduced certain changes in the FDI Policy permitting 100% FDI under the automatic route, making it applicable to the e-commerce entities[1]. An aggregator model of e-commerce collects or aggregates information regarding various goods and services, incorporating it into one platform. An online aggregator and e-commerce operator are understood synonymously, given the only difference between them is that an aggregator provides the underlying services under its own brand.[2] Such online aggregators enable the customers’ experience to be customized, tailored in order to fit his/her needs and wants and also add value to their feedback and services. The goods or services provider under the aggregator model is not an employee of the aggregators, rather acts as a partner to the business. Thus, resulting in a possibility that the same partner might work for other competitors too making the competition tough in aggregator business market.

Instances of different industries

Hotel Industry

A demand was raised for uniform regulations and taxation structure in the hotel industry. It was said that the five-star hotels need to pay a substantial 38% of room revenue as direct and indirect taxes, while those luxurious bungalows listed on hotel aggregators sites like Airbnb don’t pay a penny for taxes.[3] By amending service tax rules in the Budget of 2015-16, the Centre took its first step towards bringing clarity on the levy of service tax on certain formats in the e-commerce sector. The Finance Minister stated that any service provided under the aggregator model in India, under its own brand name, will be subject to Service Tax. But, if the aforesaid aggregator does not hold any presence, even by way of a representative, then any agent or third-party as appointed by the aggregator is required to pay the tax instead.[4]

Transportation Sector

The most prominent aggregator model based service is delivered in the transportation sector. Cab aggregators such as Ola and Uber are technology-driven companies unlike the traditional transportation companies and as such, do not come under the regular transportation laws. Owing to the non-availability of any clear central policy across the country, each state tried to bring in regulations (For example, the Delhi Govt. on surge pricing) creating a lot of speculation in the country. With the onset and rapid mushrooming of such On Demand Transportation Technology Aggregators (ODTTA) proper regulations of such aggregators was the need of the hour due to the absence of a holistic legislation to govern their affairs.[5]

In October 2015, the Central Government issued certain advisory guidelines to the state governments for implementing necessary laws to regulate the affairs of these aggregators and ensure the safety of passengers availing these services.[6] Later, in August 2016, the Union Cabinet approved the Motor Vehicle (Amendment) Bill, 2016 recognizing such aggregators and mandated them to obtain appropriate licenses. The bill does not clearly distinguish aggregators from taxi companies and as such requires an elaboration of the legal definition of various business models adopted by players of taxi market in India. The rights and duties of these App based Cab Aggregators towards drivers and customers besides their accountability towards the safety and quality of service offered to the customer needs to be ascertained and enhanced which is completely missing at present.

Moreover, both Ola and Uber are running auto services but the prevailing ODTTA rules cover only taxis and therefore little could be done in case of violations by app-based auto aggregators.[7] The Road Transport and Safety Bill, 2014[8], which had elapsed following the controversies, was reintroduced and enacted as the Motor Vehicles (Amendment) Act, 2019[9] empowers the proposed National Transport Authority to “make schemes including schemes for aggregators”. The aggregators are also required to comply with the provisions of the Information Technology Act, 2000. It all majorly depends upon the interpretation of law.

Pharmaceutical Industry

One such issue was in case of services offered by the pharmacy aggregators, where the Pharma Act had no clarity about electronic copy of a prescription and on the other hand, the IT Act provides the validity of digital copy of a document, if there is an original document that can be presented at the time of verification.[10] There are many mobile apps like Netmeds, 1MG, which are aggregators or market-places of medical practitioners, pharmacists, etc. which connect medical practitioners with patients and also collect large amounts of health data so as to provide tracking/monitoring services to their users .

Only just, the Ministry of Health and Welfare introduced the Digital Information Security in Healthcare Act (DISHA or Draft Bill). However, such apps are not included in the definition of ‘Clinical Establishment’ to whom this law applies. One FSSAI official has also stated it to be the responsibility of the aggregator to ensure that a hotel or restaurant operating through its e-commerce platform is compliant with the law. And in case of non-compliance, the liability is of the e-commerce platform.[11]

Position approaches to Paradox

It is observed that the government has well settled guidelines for classification and approval of hotels and homestays under its voluntary scheme to comply with safety, security and service standards. One other view is that compliance to these rules indicates that the homestays and hotels are being regulated therefore what is the need to regulate platforms which only aggregate these. It does not seem to make sense to regulate accommodation and hotel aggregation platforms: it would be like asking Zomato to obtain a license to aggregate restaurants which provide food delivery.[12] Again, regulations tend to have a negative impact on the sharing economy as promoted by the aggregator business model, by imposing regulatory costs which subsequently get transferred to the consumers. As the restrictions and regulatory framework applicable to online aggregators appear to be less stringent than those operating in open market, sellers as well as consumers wish to continue with this model making it more vulnerable to market speculations.

Concluding Note

The government’s acknowledgment of web-based business, being a standard practice of delivering goods and services is obvious from the Draft National e-Commerce Policy as proposed in February 2019. The country’s first exclusive e-commerce policy in its current form, includes buying, selling, marketing or distribution of goods, including digital products and services, through the electronic network, as part of e-commerce. It has been slammed as ambitious and vague by the stakeholders, nonetheless it tends to solve the problems of this unregulated sector. This draft policy reflects the concerns related to definition of e-commerce, data ownership and consumer protection, responsibility and liability on the platform and addresses the lack of clarity of implementation and regulation in the sector. In any case, there is a necessity for such initiatives to transform into timely and reasonable guidelines at all stages of administration, lawmaking and organization. This would go far to impart trust in key partners, for example, business visionaries, speculators and above all buyers.

The author is pursuing her 3rd year of her law degree at the Hidayatullah National Law University, Raipur.


[1] Press Note No. 2 (2018 Series), available at https://dipp.gov.in/sites/default/files/pn2_2018.pdf.

[2] FCMA Sawinder Singh Chug, GST Impact: E-Commerce Sector, TaxGuru (Nov. 2, 2016) https://taxguru.in/goods-and-service-tax/gst-impact-e-commerce-sector.html

[3] Anumeha Chaturvedi, ET Bureau (Mar. 4, 2017) https://economictimes.indiatimes.com/small-biz/startups/india-may-become-next-country-to-impose-strict-guidelines-on-room-aggregators-like-oyo-airbnb/articleshow/57456931.cms

[4] Deepak Chauhan, Using the Aggregator Model in India’s eCommerce, Vocso Blog https://www.vocso.com/blog/using-the-aggregator-model-in-indias-ecommerce/

[5] S.S. Rana & Co. Advocates, On Demand Transportation Technology Aggregator Rules, Mondaq (Jan. 18, 2018) http://www.mondaq.com/india/x/665414/cycling+rail+road/On+Demand+Transportation+Technology+Aggregator+Rules

[6] Jyoti Mukul, Regulatory Net for Taxi Aggregators, Business Standard Column (Jan. 24, 2019) https://www.business-standard.com/article/opinion/regulatory-net-for-taxi-aggregators-116050800700_1.html

[7] Prof. M.P. Jaiswal, Prof. Parul Gupta, Prof. Prageet Aeron, Mr. Rajeev Gupta, Policy Recommendations for Application Based Cab Aggregators (ABCA) in India, https://www.mdi.ac.in/pdf/research/ABCA_Report_MDI-old.pdf

[8] Subsequently replaced by the Motor Vehicles (Amendment) Bill, 2017.

[9] Motor Vehicles (Amendment) Act, No. 32, Acts of Parliament, 2019.

[10] Priyanka Sahay, Will online pharmacies work in India, and are they even legal?, LiveMint (Jan. 14, 2016) https://www.livemint.com/Companies/EGTOILRRNF0T3J4OfUg9SN/Will-online-pharmacies-work-in-India-and-are-they-even-lega.html

[11] Manas Ingle, DISHA – The Future Direction Of Digital Health Information In India, Mondaq (Aug. 17, 2018) http://www.mondaq.com/india/x/728652/Healthcare/DISHA+The+Future+Direction+Of+Digital+Health+Information+In+India

[12] Supra Note 3.