World of shared economy and aggregation

The Practical Lawyer November, 2018
www.practical-lawyer.com ⏐ 1
Legal Roundup
RESPONSIBLE CORPORATE CITIZENSHuman Rights
Responsible Corporate CitizensResponsible Corporate Citizens
Human Rights
This column will be dedicated to the discussion on areas of Responsible Corporate Citizens
in association with AK & Partners and Bridge Mediation and Consulting. The views expressed
in this column are those of the authors alone. The Practical Lawyer neither endorses nor
subscribes to the views expressed.
UBERISATION: UNICORNS TETHERED AT REGULATORY
FENCES
Anuroop Omkar and Kritika Krishnamurthy, Partners at AK &
Partners and Directors at Bridge Mediation and Consulting; and
Prachi Wankhede, Consultant (Public Policy) with
Bridge Mediation and Consulting
Cite as: (2018) PL (RCC) November ###
Anuroop Omkar,
Partner and Director
In 1995, a software engineer decided to build an online auction website over a Labour Day weekend. He had a
broken laser pointer which he decided to list. He was surprised to find a buyer who bought it for $14.83. After 20
years and a corporate net worth of more than $70 billion, the first website user who bought the broken pointer
became an icon of modern day consumerism, often cited as an example that people would buy anything online.
Mark Fraser sent a video to the website owner Pierre Omidyar then. Mark Fraser was a travelling salesman. He was
fascinated by laser pointers and wanted to own one for his work. But a laser pointer cost more than $100 at that
time and he could not afford it. He came across a broken laser pointer on a website online and bought it thinking
he could fix it and use it. The website that touched his life and made him feel empowered that fateful day was eBay.
Technology and the startup revolution clubbed with the great recession of 2008 has given us the new business
model of aggregators. Their industry is known by many names — sharing economy, collaborative consumption,
collaborative economy, on-demand economy, gig economy, peer-to-peer economy, zero marginal cost economy,
and crowd-based capitalism. The business model does not aim to create new products or market demands like
mouthwash made bad breath a taboo decades ago. An aggregator’s job is to recognise the gap of demand and
supply in an existing goods and services market, evaluate reasons for the gap and bridge that gap. But the sweet
spot of the business model is limited contractual liability towards the consumer as well as the supplier and most
importantly, absence of market entry hurdles created for run-of-the-mill manufacturers, sellers and service provid-
ers by sectoral regulations.
Kritika Krishnamurthy,
Partner and Director
Prachi Wankhede,
Consultant

2⏐ www.practical-lawyer.com
Legal Roundup
RESPONSIBLE CORPORATE CITIZENS
Business structures of the mythical world
Although the fundamental commonality between these market players is bridging demand and supply, there
are various business models under which these businesses operate.
What is it? Illustrations How does it work? What does it look like?
Business to
individual
Collaborative
consumption
InstaOffice;
EasyRentals2U;
Tax2win
A business rents out its goods
to individuals.
For a periodical fee, get a vehicle, furniture
or office cubicle/office space, Chartered
Accountant when you want one.
Marketplace
aggregator (Kayak
for X Model)
MakeMyTrip;
BookMyShow;
Trivago;
Booking.com;
Lawrato;
CAClubIndia
Advertises information on
products and services and
assists consumer with availing
them.
Connect with others to share information
of travel, social events, hotel bookings,
legal or tax advice.
Marketplace
facilitator
Uber; Flipkart;
Swiggy; BigBasket;
UrbanClap
Creates access to sellers and
buyers and also provides
ancillary services like delivery,
loans for business expansion
to sellers. Also lists its goods
and services for sale in the
marketplace.
Use an application to find goods/services
near you with doorstep delivery.
At the same time Uber gives loans to its
drivers to help them buy cars, Ola owns
part of its car fleet with employee drivers,
Amazon sells refurbished goods, Zomato
runs its own kitchens in addition to
aggregating.
Marketplace
redistributor
eBay; Airbnb; OLX;
Cars24;
People, sell, swap, rent or
giveaway their pre-owned
goods.
Via website sell what you no longer
want and buy what you need; rent your
apartment to people when you are not in
town.
Hybrid
aggregator
Amazon; Ola;
Zomato; Netflix;
Grofers
Market facilitator who also
gives loans for business
expansion to sellers, consumer
loans to buyers and uses the
marketplace to sell its own
goods and services also.
On a website find goods or services you
wish to avail, buy them with cash or get
a loan to afford the goods. While most
goods will be listed by other sellers, some
goods are manufactured or owned by
aggregator.
The possibilities of these business models are endless. Wherever we need a bridge to bring buyer and seller
closer, there is an aggregator. However, we have focused on the following key industry sectors in this article:

Legal Roundup
Changing definitions of trust, possession and employment
“Theconnectioneconomythrivesonabundance.Connectioncreatesmoreconnection.Trustcreatesmoretrust.Ideas
create more ideas.”
— Seth Godin, DotCom Era Entrepreneur and International Bestselling Author
The unicorns tethered at the edge of regulation have also disrupted various assumptions underlying economic
theories. Since ever, the law of demand and supply assumed scarcity of goods. These business models have now
proved that we are now in an era of abundance of choice thanks to them. Enter Copianomics — the science of
choice assuming abundance instead of scarcity. Demand and supply become unlimited because companies do not
need to create demand, they only need to capture existing value through their on-demand and transaction-centric
business models.1
At the same time, the millennials (biggest consumers of this market) are heavily invested in convenient access
rather than ownership or possession so long as the comparative cost on the face of it is lower. So, we have philo-
sophical discussions on minimalism and Hygge — a generation looking for experiences, meaning and conveni-
ence over everlasting asset creation. At the same time, we have an economy of abundance fed by regular market
demand driven by consumerism.
To make convenience and abundance of choice a fulcrum of the industry, feedback and rating of goods and
services becomes important. Adam Smith remains classic by pointing out that a base level of trust in society is nec-
essary for specialisation and the economic growth that accompanies it. If we did not trust the butcher to give us
quality meat without having to inspect the cow every time or worse yet, if we needed to litigate after every grocery
run — the whole system would come to a screeching halt.2
The sharing economy boom is due to the incredibly
high degree of trust on peer ratings often based on little more than a profile picture and star rating. One needs
only a few examples to realise how much trust is actually involved. The leap of faith needed before getting in the
backseat of a stranger’s car was just surprising a few years back. The idea of staying in a complete stranger’s apart-
ment was unthinkable. However, Uber and Airbnb have successfully flipped this dynamics on its head.
As the majority population struggles with commitment issues overabundance of choice, permanent employ-
ees are giving way to gig economy. Students turn chauffeurs on their days off. Skilled labour prefers to deliver
food or groceries and enjoy convenience of no work timings. Pop-up food, transport and grocery businesses have
become regular. Need for physical infrastructure for a profitable business is reducing day by day. High infrastruc-
ture businesses like lawyers and Chartered Accountants in jurisdictions like Singapore are contemplating a world
where even these services shall have to become asset light to compete with online models relying on algorithms
and artificial intelligence to reduce cost of advisory services.3
At the same time, more and more employers are finding it difficult to hire full-time drivers and office sup-
port staff. Accountability of the workforce has reduced because one can resign any time and live the “aggregator
dream”.
These platforms have also developed very complex and sophisticated algorithms. These advanced algorithms
developed by these platforms calculate the price based on supply and demand. This ensures that consumers get
a fair price for products and services on the network. This community of users is also connected by means of
technology and social networking media that operates on a 360 degree feedback mechanism which helps rate
a service or a platform based on their delivery potential. Interestingly, there is generally no feedback collection
on the services of the facilitator. They also predict consumer behaviour and promote repeat, complementary and
supplementary purchases.
1 Barbara Gray, The Sharing Economy: A High Stakes Game of Snakes and Ladders…, Last accessed on 8-10-2018 at <https://medium.com/@
barbcfa/the-sharing-economy-a-high-stakes-game-of-snakes-and-ladders-42dc4d7a9bee>.
2 Edwin Cannan (ed.), The Wealth of Nations: Adam Smith; Introduction by Robert B. Reich, New York, Modern Library, 2000.
3 ‘Uberisation’ of professional services brings challenges and opportunities, Canon Think Big Leadership Series 2016, last accessed on
8-10-2018 at <https://www.businesstimes.com.sg/technology/uberisation-of-professional-services-brings-challenges-and-opportuni-
ties>; The 60 second interview: The uberisation of the legal profession is already underway, last accessed on 8-10-2018 at <https://www.
thelawyer.com/60-second-interview-uberisation-legal-profession-already-underway/>.

Legal Roundup
This trust building exercise not only profiles consumers but also service providers. The debt market of India and
related credit rating is on the cusp of a revolution. The industry is dissatisfied with existing credit rating systems
which focus on defaults to generate credit scores. A person who has never availed a loan does not have a credit
score reducing financial inclusion of majority population. If a person does not have a credit score, banks are reluc-
tant to give loans. To break this cycle, the Reserve Bank of India (RBI) is in the process of creating a unified “Public
Credit Registry” which shall provide a more holistic picture of a person’s credit viability using all regulatory pro-
ceedings as well as positive attributes like regular payments to utilities like electricity and telephone bills. This will
also reduce unlimited access to credit data except for analysis by private credit rating agencies.
On the other hand, artificial intelligence companies are generating “trust scores” for blue-collar workers based
on their constant evaluation of a blue-collar worker’s personal, professional and social conduct. Some of these
parameters include family structure, education, salary history, salary hikes over a period of time, the employee’s
willingness to learn new things, how quickly he or she acquires new skills, social network, financial worth, work
experience, and how many jobs they have switched. These applications attempts to chart the social graph of
India’s informal workforce — some 415 million workers who do not get benefits such as provident fund, insurance
or retirement support.4
Since these workers in the gig economy do not have a steady income, banks shy from giving them loans. Since
they were never eligible for loans, they also do not have credit scores making it difficult to assess their creditwor-
thiness and repayment capacity. The alternative for getting a credit facility for the workers in the gig economy lies
with the company that they are working for. These companies become lenders and lend money based on the trust
scores of these individuals. At the same time, the trust scores assist employers struggling to conduct background
checks owing to high rate of labour migration from rural areas to metropolitan cities. The trust score allows for easy
background checks for hiring and ensuring safety of consumers. The process also weeds out fake skills, unskilled
hires and workers with hidden criminal records.
The employment in the gig economy also throws up an interesting trend in the calculation of unemployment
index. In a developing and growing economy like India, where 97% of the workforce is in the informal sector, how
do we account for the workforce in the gig economy and how this would change the dynamics of the employment
statistics in the country?
The manufacturing industry in the country is also in its growing stage and with the concepts like shared econ-
omy becoming a trend, there is a paradigm shift within the sector. The industries typically require significant capi-
tal expenditure and investment on physical assets such as factories and machines. Widespread effects would result
if consumers choose to decrease spending on physical assets and utilise the sharing economy instead. This trend
could cause a long term decline in consumer spending and the amount of capital investment by businesses, which
would put downward pressure on GDP growth and inflation. However, in the short-run the sharing economy may
result in a transfer of wealth between users and other industries. The ability of consumers to monetise assets they
already owned on a flexible schedule could increase their earning power at the expense of workers in the dis-
rupted industries. This explains why there has been fierce opposition from incumbents.
At the same time, the “Google it” revolution has changed the way human beings are looking for not just life
partners but also friends. Reducing need to step out of your home or office has also led to isolation. The United
Kingdom has officially set up a Ministry of Loneliness to address related problems like depression and anti-social
behaviour like shootouts in the USA. The aggregators are also catering to this sad yet unusual social trend by com-
ing up with websites where you can rent a friend to take to public gatherings and family weddings. While some
websites are genuine, others may act as a garb for human trafficking and prostitution.
Time to whitewash the fences?
New entrants and new business models are particularly tricky in the case of regulated industries. On the one
hand, they might be vectors of change, both because they enrich the portfolio of services available to the users,
and because they increase the competitive pressure on incumbent firms. On the other hand, they can hinder the
4 Unlocking the Indian blue collar social graph with deep learning, trust scores (Factor Daily), last accessed on 8-10-2018 at <https://unitus.
vc/updates/unlocking-the-indian-blue-collar-social-graph-with-deep-learning-trust-scores-factor-daily/>.

Legal Roundup
capability of funding infrastructures and other public goods, providing services of general interest and managing
public policies.
Such trade-offs are difficult to manage. First, these disruptive business models question in some cases the
rationales for regulation and show that its principles, scope and tools should probably evolve. Second, at this stage
it is still difficult for the regulatory authorities to estimate the costs and the benefits of these innovative processes
and at which time and pace (if ever) regulation should intervene. It is a double-edged sword. However, many coun-
tries like India and United Kingdom have had to attempt to regulate these business models owing to public pres-
sure to social events like rape, violence or labour strikes. However, as the recent Facebook and Uber experiences
have shown, regulators all over the world are unsure of when and how to regulate aggregators.
Restriction on market entry
Out of the sectors studied by us, the fastest to come under a regulatory scanner were FinTech companies.
While the demonetisation drive of November 2016 increased the pie of digital payments by as much as 300%5
,
the Reserve Bank of India (RBI) foresightedly in its Financial Stability and Development Council-Sub-Committee
(FSDC-SC) meeting on 26-4-2016 decided to set up a working group to report on the granular aspects of FinTech
and its implications so as to review and reorient appropriately the regulatory framework.
On November 2017, RBI released the Report of the Working Group on FinTech and Digital Banking. It recom-
mended and RBI went ahead to regulate peer-to-peer lending. However, technology facilitators who do not directly
participate in payment systems and facilitate tapping of digital market base continue to remain unregulated under
the tag of “FinTech”. RBI has laid out a transition plan where they have pitched soft regulation for FinTechs going
forward like innovation labs and regulatory sandboxes.
When road transport was included in the Concurrent List of the Constitution of India, nobody would have
ever imagined consolidation of transport sector by technology. Then the rape in the aggregated taxi happened
for the first time. Transport for London which issues the coveted London taxi licences also faced similar dilemma.
Various rape and assault cases by drivers of aggregated taxis were reported over coming years all over the world.
Indian regulators suddenly woke up and realised that transport aggregators were operating without a licence and
consequent accountability. Since they did not own the vehicles or “employ” the drivers, they were not “taxi service
operators”. Although many of them voluntarily conducted background check of drivers, they were not obligated
by law. Many State Governments mandated taxi licences for the transport aggregators. The Central Government
issued advisory guidelines for operation of transportation aggregators but it did not have a legislative backing.
Much like how the Aadhar fiasco began.
Now, the Government has proposed amendment to Motor Vehicles Act, 1988. The Motor Vehicles (Amendment)
Bill, 2016 has been passed by Lok Sabha in April 2017. The Bill defines taxi aggregators, guidelines for which will
be determined by the Central Government. State Governments will issue licences to taxi aggregators as per the
Central Government guidelines.
Finally, lawyers, Chartered Accountants and Company Secretaries are not allowed to advertise or solicit ser-
vices. These sectors are informal and unorganised. Most State Bar Associations of India do not have updated direc-
tories of members enrolled with them even in a physical book format. The available directories including those
of Institute of Chartered Accountants of India (ICAI) do not provide any contact information for fear of invasion of
privacy. Only Institute of Company Secretaries of India (ICSI) has an open access platform with member informa-
tion. In the digital boom, many professionals have come up with digital solutions which indirectly solicit their ser-
vices. Then there are aggregators who host information of professionals and where the first legal query is resolved
for free. While aggregation of professional services may be considered surrogate advertising, access to justice has
become a concern owing to the elusiveness of these professions.
Restriction on foreign investment
5 RBI Bulletin, April 2016 to September 2018.

Legal Roundup
For a long time, e-commerce was not recognised as a separate sector in the foreign direct investment policy
of India. It was categorised under multi-brand retailing with limited scope for foreign investment requiring prior
Government approval. In those days, e-commerce companies had developed the most innovative structures to
overcome foreign investment restrictions placed on them. Most e-commerce companies ran multiple business
entities. While high investments are required to run an e-commerce website, the foreign investment was brought
in the logistics entity of the business which handled warehousing and delivery and enjoyed 100% foreign invest-
ment under automatic route. The policy has since been revised and the e-commerce entities are covered under
marketplace model of e-commerce with foreign investment allowed 100% under automatic route.6
The multi-
brand retailer Walmart was eyeing Indian market since many years and this policy liberalisation benefited Flipkart
which was acquired by mutli-brand retailer Walmart for a whopping valuation of $16 billion.7
The FDI policy also clarifies that those online platform which assist in trading or sales of food products manu-
factured in India shall be allowed to obtain foreign investment without limitations thus, freeing food and grocery
delivery applications. FinTechs enjoy the same freedom since they are not classified as RBI regulated entities like
banks and non-banking finance companies with specific foreign investment norms.
Social and employment benefits
With great power comes great responsibility. When the gig economy kicks in, social and employment benefits
available to employees such as provident fund, regulated working hours, holidays, etc. walk out. Drivers engaged
with transport aggregators regularly go on strike on these demands which have no statutory backing unless they
commit to become employees. Similar situation was faced by Uber in London and New York.8
In June 2018, the Westminster Magistrate’s Court granted Uber a 15-month probationary licence to operate
in London. This comes after transport for London, London’s road and transport regulator, did not renew Uber’s
private hire operator licence on the grounds that it was not a “fit and proper” operator. Uber will now be subject
to certain guidelines that have forced them to make changes to the app and will also have transport for London
conduct security and regulatory checks every six months. Uber must provide training for drivers, complicating the
company’s stance that drivers are contract workers and not employees. Uber will have 48 hours to report and deal
with safety complaints about its drivers, and it will have to notify authorities whether a driver is being kicked off
the platform. Uber has tried to be more socially responsible by tightening the number of hours a driver can work
continuously based on a press statement issued by transport for London that it proposed to regulate work hours
of contract drivers.9
Safety and security
One of the reasons why Uber’s licence to operate in London was held up was also because Uber did not pay
proper emphasis on public security by failing to report crimes to London police. The transport aggregators has
faced security issues of its passengers in many jurisdictions including India. However, India still does not have a law
requiring background check of drivers before hiring them. Even the Motor Vehicles (Amendment) Bill, 2016 leaves
this open under guidelines that may be prescribed after the amendment.
But while safety and security in transport aggregators is now a public issue, many issues like poisoning or adul-
teration of food during delivery, sale of spurious products on e-commerce website and theft and adulteration of
groceries delivered by facilitators are little thought of.
Quality assurance
6 Para 5.2.15.2, E-commerce activities, Consolidated FDI Policy Circular of 2017.
7 How Walmart’s $16 billion buy of Flipkart will change India’s startup map, Economic Times, 13-5-2018.
8 New York Plans to Cap Uber and Lyft, The Wall Street Journal, 8-8-2018.
9 Uber wins 15-month probationary licence to work in London, The Guardian, 26-6-2018.

Legal Roundup
Interestingly, a person cannot sue an aggregator under Consumer Protection Act, 1986 even for damaged
goods because most deliveries are free. At the same time, the aggregator can deny liability for damaged goods
because they are not the sellers of the goods, they just run the marketplace.
Manye-commercecompaniessellrefurbishedgoodsonlinewithoutatagthattheyarerefurbished.Refurbished
goods are second hand items or factory rejects which are bought by the aggregator, restored to factory conditions
and sold at almost half the price. There are no guidelines for sale of refurbished goods in India which is a big market
in economies like United States of America and an upcoming market in India. Refurbishing is an emerging answer
to the increasing electronic waste problem the country is facing. At the same time, refurbished goods are a con-
sumer dispute segment waiting to blow up.
Privacy and profiling
EU Regulations define “profiling” as any form of automated processing of personal data consisting of the use of
personal data to evaluate certain personal aspects relating to a natural person, in particular to analyse or predict
aspects concerning that natural person’s performance at work, economic situation, health, personal preferences,
interests, reliability, behaviour, location or movements.10
Social networks providers, search engines, e-mail service providers, messaging applications have extensive
knowledge of our movements, financial transactions, conversations — both personal and professional, health,
mental state, interest, travel locations, fares and shopping habits. As we move towards becoming a digital econ-
omy, knowledge about a person gives a power over that person. The personal data collected is capable of effecting
representations, influencing decision-making processes and shaping behaviour. The security and privacy concerns
from data collection by aggregators was best summed up by the Hon’ble Supreme Court in what is now famous
as the privacy judgment:11
594. George Orwell created a fictional State in Nineteen Eighty-Four. Today, it can be a reality. The techno-
logical development today can enable not only the State, but also big corporations and private entities to be
the “big brother”.
With behavioural data collected online, algorithms are now capable of creating profiles of individuals — not
just consumers but also people working for aggregators. These profiles can be used to predict human behaviour
which even the person herself could not have predicted. This is regulated in the European Union. India awaits Data
(Privacy and Protection) Bill, 2017. Section 42 of the Bill bars targeted individual profiling except for marketing pur-
poses which does not provide much protection. An option to the consumer to avail services without volunteering
data and a right to remove all online cookies and data trails (popularly known as “right to be forgotten”) needs to
be included in the Bill.
Discipline of the aggregators
We live in a country where if we lose a wallet, the probability of getting it back by filing a complaint is very low.12
We rely on high-priced accommodation in gated societies, multiple locks, car sirens and insurances to self-regulate
law and order and self-protect.
Believe it or not, the aggregators are one of us, most of the times. They are a self-regulated industry. Like a
well-oiled corporate machinery, the aggregators are known to troubleshoot through industry and public concerns
voluntarily. They have been known to adapt to regulatory changes before their rollout. Where there is no support-
ing infrastructure, they have been known to create alternate industries like algorithm-based background check
and appraisal of the workers they engage.
10 The European Union Regulation of 2016 [ Regulation No. (EU) 2016/679 of the European Parliament and of the Council of 27-4-2016 on
the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing
Directive No. 95/46/EC (General Data Protection Regulation).
11 K.S. Puttaswamy v. Union of India, (2017) 10 SCC 1.
12 Crime in India 2016, National Crime Records Bureau, Ministry of Home Affairs, Government of India Charge-sheet was filed in 15% of cases
of theft. More than 40% were disposed off due to lack of evidence and other procedural grounds.

Legal Roundup
The Indian legislature and regulators have taken a cautious approach to regulating aggregators in India. Policies
and laws are famous for making or breaking a business. Yet, there is past evidence of industries booming because
of regulation. In the past, regulations have brought stability to industries. They also weed out non-serious and
delinquent players.
When asked for their comments on the kind of regulation the industry would appreciate, some of the entrepre-
neurs gave us their valuable feedback:
“Prohibition on advertisement — how does the common man find the right advice and the right lawyer for their legal
matter?”
— Rohan Mahajan, Lawrato — website which facilitates free legal advice and connects clients to lawyers
“None of the bigger names like Amazon and Flipkart are in rentals business as of now. Government needs to evaluate
thenormsforallowingtheseMNCbrands to startrentalsbusiness inIndia.Whetherduelicencehasbeengrantedto them
for rentals as well.…”
— Manish Verma, EasyRentals2U, website/app for furniture rental
“Key conflicts arise from poor maintenance and service standards of buildings we operate in. These standards are
neither very well articulated, nor enforced in spirit.”
— Vikas Lakhani, InstaOffice, Co-sharing workspace and Technology enabled startup ecosystem
The key takeaway is that there is a need for balance between promoting innovation, improving existing systems
and allowing co-existence of traditional players with disruptive business models. Taking a leaf from the FinTech
industry, it is necessary to create regulatory sandboxes where Governments, regulators and industry players can
experiment. As an industry matures and stabilises uniform rules may be more appropriate. Policies should promote
co-existence of traditional market players and aggregators. Without a level playing field, one of the players will get
eliminated and effectively take the economy ten step backwards instead of twenty steps forward.
Anuroop Omkar and Kritika Krishnamurthy are Partners at AK & Partners and Directors at Bridge Mediation and Consulting; and
Prachi Wankhede is a Consultant (Public Policy) with Bridge Mediation and Consulting. The authors can be contacted for queries
at anuroop@akandpartners.in; kritika@akandpartners.in and publicpolicy@bridgemediation.in

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