Thursday, May 19, 2016

Designing taxi regulations for the 21st century

App-based aggregators are disrupting the transportation business world-wide. Existing regulatory and policy frameworks were not designed for this new reality. This has resulted in some knee-jerk reactions globally to do something. 

Nearer home, this is exemplified by Delhi Government. On May 1, the State Chief Minister had tweeted a fresh warning after Uber resumed surge pricing: “…Surge not allowed under law. They are warned that strong action will be taken against them”. This was a replay of April 18; when the CM had threatened permit cancellation and impounding of taxis that charged fares beyond the government rates. US based Uber and homegrown Ola had then suspended surge pricing.

The tweet led ban is an example of rule of law being compromised. The State implicitly allows a gap between policies and accepted market practice. The government has let the aggregator market take shape under this incompatible legal regime instead of acknowledging the new technology by issuing new rules. This displeased neither the entrenched incumbents (fixed fare auto and taxis) nor the disruptors (Ola and Uber) – a stable equilibrium.

Depending on the political situation, the regulatory muddle allows the governments to either stay mum or wash its hands off and claim that this new market was always illegal. This attitude increases the cost of doing business and the State gets stuck in a stable low-level equilibrium.

Politicians and bureaucrats tend to miss the fundamental reason for regulation: Government should intervene to address market failures - when the competitive market outcomes are not satisfactory for the society as a whole.

Realising the policy gaps, the Indian central government has now constituted a Committee to prepare a policy framework for taxi and other transport operators.

Pratik Dutta & I have an article in Business Standard (May 18, 2016) discussing how should policy makers think about taxi regulation? What are the market failures? 

Wednesday, May 11, 2016

Case Summary: NCDRC order against Jaypee Group

The National Consumer Dispute Redressal Commission (NCDRC) has in record five months ordered Jaypee Group to compensate home buyers for delay in construction. The case summary is discussed below.

The gist of the order dated May 2, 2016 is:

1. Give possession within 3 months. After that pay penalty @ Rs 5000 per day.
2. Pay delayed interest @ 12% on total amount paid by the consumer (from the original proposed allotment date to actual handover).
3. Taking money separately for parking was illegal. Refund any such amount with 12% interest.
4. Pay litigation cost @ Rs. 50,000 per complainant.

Read  the complete order: Consumer Case NO. 1479 of 2015

In the above case, the buyers of Kalypso Court apartments were promised delivery of homes in less than four years but only the structure was completed after eight years.

It is interesting to read Jaypee's defence at the NCDRC:

1. Delay has been beyond the control of the Company: (a) There was shortage of labor, scarcity of water, restrictions in excavations etc., which continued to exist for a period of 3-4 years, (b) In view of the environment order by the National Green Tribunal (NGT), the relevant authorities have been restrained granting Completion Certificates to the OP herein, since 28.10.2013.

2. Increase in saleable area at a later date was justified: After construction, upon measurement, it was realised that the area of the subject matter apartment had increased due to functional engineering necessities.

3. Fair terms: There is a provision for damages in case of delay @ Rs.10/- per sq.ft., per super area of said premises. The allottee had option to cancel the allotment.

4. The home buyers might be investors and not consumers so they should not be heard at NCDRC. This they did by asking buyers to prove that they did not purchase any other home.

On the question of delay, NCDRC noted: "This is an indisputable fact that no stay was granted by the National Green Tribunal at any time.  The complainant has raised much ado about nothing.  There was no rub in constructing the houses/flats. The OP (Jaypee) has failed to bolster its case with any kind of evidence.  It should have produced solid and unflappable evidence to show that there was shortage of labour, scarcity of water, restrictions in excavations, etc." OP refers to Opposing Party i.e. Jaypee Group in the order.

NCDRC did find some force in Jaypee's plea on increase in the area. However, this contention was rejected when it noted: "Although,  the internal area has not  been changed, even by an inch, yet, the OP (Jaypee) is claiming that the super area of the apartments has increased on account of increase in common areas,  a consequence of which, would be a financial  burden on Home Buyers...If there is any increase in the internal area, the OP (Jaypee) is entitled to get the additional amount, that too, at the rate fixed at the time of booking.  However, no such proof has been produced on record.   Consequently, we hereby hold that the OP is not entitled to any additional amount."

On the issue of parking charges, NCDRC relied on the Supreme Court judgement in Nahalchand Laloochand Private Limited Vs. Panchali Co-operative Housing Society Ltd (Civil Appeal No. 2544 of 2010) and reiterated that the promoter has no right to sell `stilt parking spaces' as these are neither `flat' nor appurtenant or attachment to a `flat'. Therefore, it rejected its claim to charge separate cost for parking.

As regards fairness of terms, the NCDRC noted that while the builder was charging interest @ 18% for any delay from the buyer, it provided for a token payment if the delay was from its side.

One the last point above, NCDRC noted:"...The OP (Jaypee Group) has made a vain attempt to make bricks without straw..."

NCDRC rejected all the allegations of Jaypee Group. It noted that the story advanced by Jaypee Group did not stack up.

NCDRC had passed an order on similar lines (Consumer Case NO. 427 of 2014) against Unitech, another defaulting builder, in 2015.

It is not at all expensive to approach the NCDRC. You don't even need to hire a lawyer though it might be a good idea to have one on your side. With the above judgement already in place, getting a similar order might not even take five months.

One can approach the NCDRC if the claim is over Rs. 1 crore. NCDRC's above order reiterates that consumers can combine and file cases together and each individual consumer need not have a claim of this limit.

It noted: "as per Section 2(1) (c) of the C.P. Act, 1986, which lays down that “one or more
consumers, where there are numerous consumers, having the same interest, with
the permission of the District Forum, on behalf of, or for the benefit of, all consumers, so

There are thousands of buyers who are stuck with Jaypee for 5-10 years.  Many other face similar predicament with their builders. Only 10 buyers came together to file the above case. It is high time more buyers rolled up their sleeves and took the first real step to a fair deal. Lack of regulatory oversight and enforcement has resulted in this situation.

Builders are betting that they can get away with huge delays and non-delivery of homes after taking bulk of the money from buyers. This needs to change.