Technology Innovations: A need for a flexible regulatory regime

Technology Innovations: A need for a flexible regulatory regime

July 10, 2018 Compliance Blog 0

For a moment, let us imagine that it is the year 2008. On a hot and humid day in May, you are, waiting to hail a taxi to work. You notice that the first few already have passengers on board and just drive past you. The next two do not stop and finally when one does, the driver bluntly refuses to drive to your destination. Exasperated and drenched with sweat, you are left with no choice but to hop onto the footboard of an overcrowded bus, which drives you to work half an hour late. Your terrible experience motivates you to develop this mobile application (“app”) which connects drivers with commuters. Your research convinces you that this is a novel idea and that there is no similar application to address the pain point you have just faced. In no time, millions of people across the world are using this app to hail their next ride. You are rich, famous and wanted by several governments, for having violated archaic local laws – most of which date back to an era before the birth of the Internet and smartphones!

Snap out of it. It is 2018. You did not make a billion dollars making a taxi hailing app. You need to come up with a new idea. But, when you do you must be aware of regulatory regimes of all locations you intend to operate in, else your dreams of disrupting an existing industry might be disrupted by an unknown archaic regulation. The above-mentioned situation is a common occurrence that most e-commerce companies, have faced. Twentieth – and sometimes even nineteenth century laws – trying to govern twenty-first century businesses which are in a tearing hurry to blast ahead.

Who’s to blame?

The crash of Tesla’s driverless car a couple of years ago, as well as recent reports of a self-driving Uber car hitting a woman on the road, highlight the fact that while technology driven by artificial intelligence is progressing at a whirlwind pace, regulators cannot afford to lag behind and rely on obsolescent laws to regulate such eventualities. While self-driving cars are yet to hit the Indian market, app-based taxi aggregators such as Uber, Ola and Shuttl do operate in the country. Regulators must frame laws to address ambiguous questions, such as determination of liability in the following cases

  • Will an app provider be exempted from the liability of an assault on a woman by a taxi driver because the car company is only an ‘aggregator’?
  • In the event of an incorrect medical solution, will a company programming AI- enabled healthcare chatbots be held liable for medical negligence?
  • In the event of an accident of a self-driven car, will the driver solely be liable or will the car manufacturer share the liability?

In this article, we look at some potential aspects that a government can try to address through such guidelines in industries which are currently amongst the most disrupted – the transportation, hospitality and food aggregators. While our suggestions are focussed on India, they are largely jurisdiction neutral.

Regulating taxi service aggregators

In our earlier post, we had used the example of the Indian taxi aggregator industry to discuss about the pressing need for Indian laws to keep pace with technology, so that companies using advanced technologies do not get the opportunity to use the excuse of lacunae in Indian legislations. We had also discussed that regulatory sandboxes can perhaps be an effective solution to curb such a problem.

Initially, Ola and Uber had been categorized as radio taxi service provider for various purposes such as, service tax, STAs, etc., merely due to the lacuna of legislation in India for such advanced technologies. Initially, these companies had initially blissfully denied responsibility by arguing that they do not classify under any existing legislation. Uber’s services were contrary to the Motor Vehicles Act, 1988 but they stated that these do not apply to them, since they are not taxi operators.

It was only after a series of unfortunate safety issues for women, that the governments of different states stepped in to try and create their own regulatory environment. Unfortunately, however, most failed to find the right balance. Here are some thoughts that we have on what could possibly be done to balance the needs of disruptive transportation aggregators and the general public:

  1. Transportation aggregators must provide proof of criminal background check of their driver partners. This criminal background check should be conducted in given frequencies and information about non-compliant drivers should be reported to the authorities.
  1. Universal rating system for drivers; vehicles and aggregators – similar to Uber’s driver rating app – should be floated by the government and should be available to the general public. Instead of the usual penalty of a fine or suchlike, a rating system which the general public can access and themselves rate through – will be a far greater deterrent for the aggregators in this hugely competitive market.

Regulating cloud kitchens

With the rising popularity of online food delivery players, regulators are now determined to strictly regulate the online food business.

A pending amendment requires food aggregators to undertake a series of compliances – from obtaining a license to entering into separate contracts with every outlet from where they deliver food to ensuring that each such outlet has a valid food safety license [See inset for details].

This seems like the government is trying to pass on obligations to the delivery guy. It is like expecting the ‘dabbawalas’ in Mumbai to ensure that the food they are carrying is cooked in a permitted medium. Most of the obligations being proposed to be assigned to the “E-commerce food business operators” as they are called are onerous and counterproductive.

When a consumer orders food through an aggregator’s app, their expectations are a few, ranging from quality of the food, its timely delivery to the return and refund policies offered. The regulator should have focussed on the safety of food during the transport.

Amendments to FSSAI Regulations*

1.  E-commerce FBO’s need to obtain registration and license.

2.  Sellers / Brand owners / manufacturer on e-commerce platform need to display their license / registration and their hygiene grading of FBO.

3.  All e-commerce FBOs need to sign an agreement with the sellers / brand owners / manufacturers stating that they are compliant with FSS Act & Rule and the liabilities will rest with these FBOs.

4.  The pre-packed food sold through e-commerce platforms should display the best before, expiry date, date of manufacturing/packing and MRP.

5.  Food articles being delivered by e-commerce FBO shall have shelf life of 30 or 45 days before expiry at the time of delivery.

6.  Restaurants / caterers receiving order through electronic media, must deliver only fresh food items.

7.  Trained delivery personnel must do the last mile delivery and ensure food delivered is safe.

8.  Complaints relating to the quality or any other issue with the food needs to be immediately communicated by the E-commerce FBO to the seller/brand owner / manufacturer for quick resolution.

9.  E-commerce FBOs providing listing/directory services on their e-platform shall not require registration license but if they are facilitating orders/transaction/delivery of food they will require to take e-commerce FBO registration and license.

*Food safety and Standards (Licensing and Registration of Food Business) Amendment Regulations, 2018

Regulating peer-to-peer hospitality exchange services

While peer-to-peer exchange services in the hospitality industry is on the rise, industry players like Airbnb came under the radar of regulators around the world, for having violated local laws. Like any other aggregator, this business model too connects the hosts with short-term sub-letters and as such, should not be guided by conventional rules and regulations but rather there should be clear guidelines regulating their business model.

There is an ambiguity around what laws would apply to regulate this kind of business. For example, some regulators restrict the ability to host for short periods, while others mandate hosts to maintain registers, get permits, or obtain one or more licenses before listing one’s property or accept guests. Further, there is lack of clarity around tax aspects as well.

And that’s how the curtain falls

In this age of Internet disruption, brick and mortar industries are being negatively affected by the rise of e-commerce. With the persistent increase in the adoption of digital innovation, regulators should employ a proactive approach by actively participating with start-up incubators. This will enable them to envision the opportunities presented by digital disruption and accordingly frame a regulatory environment that does not hold them back.  This way, real disruptions can be foreseen much earlier than they actually hit the market.

For further queries or clarifications, please feel free to contact us at inquiries@lexplosion.in

Authors:

  • Aditya Saraswat (Manager- Legal Operations)
  • Baishali Bhattacharjee (Assistant Manager-Legal Operations)
  • Anchit Chaturvedi (Legal Intern)

Supported by: Sharanya Mukherjee (Legal Associate)

Disclaimer

All material included in this blog is for informational purposes only and does not purport to be or constitute legal or other advice. The Blog should not be used as a substitute for specific legal advice. Professional legal advice should be obtained before taking or refraining from an action as a result of the contents of this blog. We exclude any liability (including without limitation that for negligence or for any damages of any kind) for the content of this blog. The views and opinions expressed in this blog are those of the author/(s) alone and do not necessarily reflect the official position of Lexplosion. We make no representations, warranties or undertakings about any of the information, content or materials provided in this blog (including, without limitation, any as to quality, accuracy, completeness or reliability). All the contents of this blog, including the design, text, graphics, their selection and arrangement, are Copyright 2018, Lexplosion Solutions Private Limited or its licensors.

ALL RIGHTS RESERVED, and all moral rights are asserted and reserved.

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