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Legal Aspects of Mumbai Metro Fare Hike

Legal Aspects of Mumbai Metro Fare Hike

The long gestation period of the project coupled with price rises led to a bid to increase the Mumbai Metro fares. Legislative changes at that juncture brought into conflict the concessioning authority and the Central Government on this issue.

On March 18, 2015, thousands of Mumbai metro line commuters undertaking their journey on the Versova-Andheri-Ghatkopar Corridor of the Mumbai Metro Line 1 may have been disappointed by the judgement of the Supreme Court in the Special Leave Petition filed by the Mumbai Metropolitan Region Development Authority (MMRDA). The Supreme Court, agreeing with the decision of the Bombay High Court, permitted the Reliance Infrastructure Limited-led Mumbai Metro One Private Limited (MMOPL) to collect the fares at higher rates than those agreed with the Government of Maharashtra until the fixation of fares by the statutorily appointed fare fixation committee (FFC). Subsequently, on July 8, 2015, the FFC recommended the minimum fare to be retained at Rs 10 but proposed the maximum fare be increased to Rs 110 from the original maximum of Rs 70.The genesis of the fare dispute was the MMRDA´s arbitration petition to the Bombay High Court against MMOPL filed in June 2014 challenging MMOPL´s decision to fix the initial fares higher than the fares agreed upon in a concession agreement dated March 7, 2007.

The Original Concession
The GoM, under the Indian Tramways Act, 1886, had authorised the MMRDA as the project implementation agency for the implementation of a rail-based Mass Rapid Transit System or Mumbai Metro Line-1 along the 11.40 kilometres long Versova-Andheri-Ghatkopar corridor on a public private partnership basis. In the month of June 2006, the Government of Maharashtra awarded the Project to MMOPL, a special purpose vehicle formed by a consortium of Reliance Infrastructure Limited, the MMRDA and Veolia Transport SA. The parties executed the agreement under which MMOPL was granted the right to develop, implement, operate and maintain the metro on a build, own, operate and transfer (BOOT) basis to MMOPL for a period of 35 years.

Subsequently, on October 16, 2009, the Central Government extended the central legislation governing the construction and operation of metro railways, i.e., the Metro Railways (Construction of Works) Act, 1978 and the Metro Railways (Operation and Maintenance) Act, 2002 (Metro O&M Act) to the Mumbai Metropolitan area, amongst other metropolitan areas through the country. These acts govern various aspects of construction, safety, operation and maintenance of metro railways, and in some cases conflict with various metro concession agreements executed prior to their coming into force, including the agreement. Without having regard to the provisions of the acts, the GoM, on September 3, 2013, issued an order according approval to the fare schedule appended to the agreement. As per the order, the fare for the year 2014-15 ranged from Rs 9 to Rs 13.

On the other hand, in late 2013, MMOPL through various letters to the Central Government sought constitution of an FFC for fixation of fares. The Metro O&M Act provides for the constitution of an FFC to make recommendations to a metro railway administration (MRA) for fixation of fares under Section 33 thereof. MMOPL contended that the original fares had lost their relevance due to abnormal increases in applicable economic indices. In response, the Central Government clarified that MMOPL was free to fix the initial fares for the project as the first proviso to Section 33 of the Metro O&M Act, permitting an MRA to fix fares at the opening of a metro without a recommendation from the FFC. However, the Central Government clarified that subsequent fare revisions would be subject to the FFC´s recommendation.

Consequently, on May 29, 2014, MMOPL passed a resolution fixing the initial fares at Rs 10 to Rs 40 despite the order, causing the MMRDA to seek an injunction against MMOPL from revising fares exceeding those in the agreement and the order.

The Bombay High Court´s Decision A single judge of the Bombay High Court, however, negated the MMRDA´s contentions in the judgement dated June 24, 2014 and dismissed the said arbitration petition.

The principal questions which the Bombay High Court was concerned with in the arbitration petition were:

(1)Whether MMOPL was entitled to fix the initial fare for the project?

(2)Whether the right of fixation of fares under the agreement was inconsistent with Section 33 of the Metro O&M Act and thus, whether section 33 would apply and not the agreement for fixing of the fares?

The Bombay High Court with respect to the above issues held that fares could be fixed and collected by MMOPL only in accordance with the recommendations made by the FFC, constituted under the Metro O&M Act. The Court further clarified that MMOPL was however empowered to fix the initial fare without recommendation of the FFC by virtue of proviso to Section 33 of the Metro O&M Act. Further, considering that the FFC had not been constituted despite several requests made by MMOPL, the initial fare could logically only be fixed by MMOPL.

The Bombay High Court observed that there was a marked inconsistency between the agreement providing powers to the parties to fix the fares and the powers prescribed under Section 33 of the Metro O&M Act.

It may be noted that Section 103 of the Metro O&M Act provides for the overriding effect of the provisions of Metro O&M Act over any other inconsistent enactment or instrument. Therefore the Bombay High Court opined that the provisions for fixing fares under the agreement would yield to the contrary provisions of Section 33 of the Metro O&M Act. The Bombay High Court further elucidated on the fact that that the GoM was not entitled to exercise to set fares considering the extension of the Metro Construction Act and Metro O&M Act to the project on October 16, 2009. Further, the fare for the initial opening of the project could not have been decided under the agreement under any circumstances.

Aggrieved by the order, MMRDA filed an appeal against the single judge´s order in the Bombay High Court to a division bench thereof. The Division Bench refused to interfere with the above ruling and in its judgement, dated January 8, 2015, and recapitulated that on the extensions of the provisions of the Metro O&M Act to Mumbai, the fixation of fares could be carried out by MMOPL on the recommendation of the FFC under the substantive part of Section 33 of the Metro O&M Act.

Additionally, for fixation of initial fare, MMOPL could not have been held bound by the fare structure provided in the agreement. In this context, clause 6.5.2 of the agreement was also discussed, which provided for upward revision of the fares by approaching the Central Government. MMOPL had complied with this provision. The Division Bench went a step further in outlining that the regime of contractual obligations under the agreement in relation to fixation of fares could not have been straightaway read into the proviso to Section 33 for the purpose of tying down MMOPL to the fare structure under the agreement without any scope for upward revision. The Supreme Court´s Decision The MMRDA then appealed against the Bombay High Court´s order to the Supreme Court. The Supreme Court, however, affirmed of the Bombay High Court´s order and provided carte blanche to MMOPL to fix the initial fares. Further, the Supreme Court directed the FFC that had been constituted on March 11, 2015, to determine rates by the end of April 2015. The MMRDA has now initiated steps towards filing of a writ petition in the Bombay High Court under Article 226 of the Constitution of India. The outcome of the said writ petition is one which is yet to be seen.

Current Position
Despite the recommendations of the FFC to increase the fares, MMOPL has adopted a so to speak ´commuter friendly approach´ by retaining the fares at the current rates of Rs 10 for 1-2 kilometres, Rs 20 for 2-5 kilometres, Rs 30 for 5-8 kilometres and Rs 40 for 8 kilometres and above till October 31, 2015. MMOPL will then have the fares reviewed and accordingly increased depending on the response of the government to various proposals of fare enhancement. The FFC has also recommended the grant of an operational subsidy to MMOPL by the government in order to keep the fares affordable, so as not to increase the burden on commuters. The granting of operational subsidies to transportation services is a recognised practice around the world to ensure fare affordability to the mass commuters of such transportation services. Another reason for the putting forth of such a proposition by the FFC appears to stem from the fact that MMOPL does not have the advantage of concessional interest rate and lower power tariff, which facility has been made available to other companies running metros in other parts of the country. MMOPL has, as a result, asked the GoM to provide a one-time capital grant of Rs 1000 crore, an operational subsidy of Rs 21.75 crore per month and permission to fully monetise the real estate to keep the fares at the ´desired level´.

The entire episode poses some interesting questions from both a legal as well as social perspective such as the sanctity of concession agreements in other states entered into prior to the acts coming into force, the extent of control that state governments have over metros in their state and of course, the overall objective of public and commuter interest. The crucial aspect which can be discerned from this rigmarole, from a common metro commuter´s perspective, is the additional burden he would have to very soon bear on a daily basis in the event of the government refusing to loosen its purse strings and MMOPL failing to live up to its promises of timely review and gradual increase of Mumbai Metro fares.


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