Ola and Uber may have to stop ride-sharing services in Karnataka after the state transport commissioner deemed them to be illegal. The move is likely to impact the businesses of both firms, given that Bengaluru, the Karnataka capital, is one of their top three markets, alongside Delhi and Mumbai.

According to the state transport department, ride-hailing services have contract carriage permits, which do not allow them to pick up and drop passengers during the course of the ride. Such a permit only allows for point-to-point pick-ups and drops. The stage carriage permit, which allows pick-ups and drop-offs along a particular route, can only be accorded to Bangalore Metropolitan Transport Corp.

“Ride-sharing is not possible because they have contract carriage permit, which is for point-to-point drops and not picking up customers in between," said M.K. Aiyappa, state transport commissioner.

Aiyappa conveyed the message to drivers and representatives of the ride-hailing services at a meeting Wednesday, called to address grievances of drivers who have been protesting reduced incentives offered by Ola and Uber which they claim have hit their livelihood.

The transport commissioner said another meeting with drivers and representatives of Ola and Uber will be held on Monday, following which a decision on the fate of ride-sharing services will be taken.

“We believe UberPOOL is clearly within the law. We will continue to engage with the transport department and Karnataka government as ride-sharing products like UberPOOL are the future of urban mobility, helping decongest cities by getting more people into fewer cars and letting riders move around their city more affordably. With the cost of shared rides up to 50% less than travelling solo, response to UberPOOL in Bangalore has been phenomenal. More than 25% of our total trips in the city are POOL trips," an Uber spokesperson said in an emailed response.

Ola did not respond to an email seeking comment.

The state transport department had forced shuttle service provider ZipGo to halt operations in Bengaluru in December 2015 on similar grounds. The regulator said there is no provision in the Karnataka Motor Vehicle Rules of 1989 for services that compete with state-run city buses. Similarly, bike taxis launched by Ola and Uber were deemed illegal by the Karnataka government. Both companies withdrew services within a month of launch in March 2016.

SoftBank-backed Ola (ANI Technologies Pvt. Ltd) and Uber Technologies Inc. have struggled to comply with regulations, which the firms have contended need to be updated to accommodate new-generation products.

Both have drawn flak from regulators over various issues, especially surge pricing, whereby they charge users higher fares when demand exceeds supply.

States such as Maharashtra and Karnataka, among others, have come up with guidelines to regulate these services after protests by traditional taxi operators.

For instance, the Karnataka government notified the Karnataka On-demand Transportation Technology Aggregator Rules 2016 on 2 April which, among other things, made it mandatory for ride-hailing services to get a permit before operating in the state.

Uber dragged the government to the courts, questioning its authority to frame such rules. Rival Ola got a licence in June.

Uber also objected to some clauses in the Maharashtra City Taxi Rules 2016, released by the state government on 15 October, saying the rules will make operations expensive and hurt the quality of service.

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