SUPREME COURT RULES THAT AIRLINES ARE BOUND TO MAKE FULL REFUNDS OF AIRFARE CHARGED FOR TRAVEL DURING COVID-19 LOCKDOWN

In a recent Judgment dated 1-10-2020 passed by the #SupremeCourt, in Pravasi Legal Cell v. Union of India and other connected matters, the controversies regarding refund of money by #Airlines was finally decided and disposed of by a Bench of Justices Ashok Bhushan, R. Subhash Reddy and M.R. Shah.

In a Writ Petition filed under Article 32 an NGO called #Pravasi Legal Cell had challenged the policy of Airlines which were giving “credit shells” instead of refunding the passenger’s money for cancelled trips. It was alleged that the offer by Airlines in providing “credit shell” instead of refunding the full amount collected for the tickets cancelled on account of lockdown is a clear violation of the law. It further was alleged that the #MinistryofCivilAviation (MoCA) during the period of #Lockdown had issued an advisory to all stakeholders in the Civil Aviation Sector on 16-04-2020 for refund of full amounts collected without levy of cancellation charge to be made within three weeks of cancellation.

Contrary to the above directions the concerned Airlines were not refunding the amounts paid by the passengers and were instead offering a “credit shell” to be utilised by the passenger on or before 31-03-2021. The Petitioners who had moved the Writ Petition challenged the policy of the Airlines that were not ready to refund the full amount collected for the tickets and claimed that though the Airlines provided a “credit shell” with a validity of one year, the said act is contrary to the Civil Aviation Requirements (CAR). It was further held that as per CAR the option of holding refund in a “credit shell” by Airlines is the prerogative of the passenger and cannot be a default practice of the Airline. The Petitioners referred to the Office Memorandum (OM) of 16-04-2020 issued by MoCA and submitted that the said  OM only considered the tickets that were booked during the lockdown period and left out the majority of passengers who had booked tickets before flights were banned. That having done so it appeared that the Government had indirectly approved the practice of Airlines for providing “credit shell” for tickets booked before the lockdown and that such acts of the Airlines was contrary to the law and in violation of CAR. The Petitioners therefore approached the Supreme Court of India for directions to the Respondent to refund the full amount collected for the tickets booked anytime for travel.

Writ Petitions were filed by Air Passengers Association of India, Col. Ashok Prehar and Travel Agents Federation of India with similar grievances and seeking similar reliefs. These Writ Petitions were clubbed with the first Writ Petition namely, Pravasi Legal Cell and were decided together.

The Airlines tried to explain their conduct by pleading that due to COVID-19 all businesses suffered including airlines and by giving a “credit shell” they were looking at “a workable solution in view of the interest of passengers as well as Airlines”.

The Directorate General of Civil Aviation (DGCA) filed an Affidavit and submitted to the Supreme Court that the meeting was held on 2-07-2020 under the Chairmanship of Secretary Civil Aviation to discuss issues relating to refund of airfare by Airlines. The said Minutes were also placed on record. Thereafter, follow up Meetings were held on 8-07-2020 and 11-07-2020 with representatives of Online Travel Agents and other similar Organizations. The DGCA submitted that refund of fares is governed by CAR. It further stated that cancellation of flights due to force majeure puts a responsibility on the Airlines to refund the full fare to the passengers but does not allow compensation to the passenger. The DGCA further submitted that any enforcement action taken by the DGCA for violations of CAR against Airlines may result in reduction/suspension of approved schedule of Airlines which is already operating with limited capacity. Imposition of penalties or enforcement action against Airlines would only further jeopardize the generation of cash by the Airlines making it impossible to refund money to the passengers. The DGCA therefore, provided a workable solution keeping in mind the Airlines as well as the passengers and arrived at a formulation that is reproduced after the Article for the reader’s reference as Annexure-A attached below:

Though various contentions and issues were raised by parties on both sides and suggestions and formulations were given, the Supreme Court accepted the suggestions that were acceptable to the majority of stakeholders. The Court held that in the ordinary course modalities and timelines on refund for cancellation are governed by CAR Policies dated 22-05-2008, 6-08-2010 and 22-07-2019. In exercise of its powers under the provisions of Aircrafts Act, 1934 and the Rules made thereunder.

The Supreme Court further held “we cannot lose sight of the present situation prevailing in the country and across the globe, i.e. the effect of pandemic COVID19.

It cannot be disputed that the civil aviation sector, which is one of the important sectors, is seriously affected in view of the ban imposed for operating flights. Added to the same, air passenger traffic has come down heavily and which is gradually being restored. At this moment any strict enforcement action of the CARs would further restrict/reduce their operations and such enforcement action may further jeopardise the possibilities of generation of cash by airlines which can further adverselyaffect/delay the refund cycle.

Strict enforcement of Civil Aviation Requirements at this moment may not yield any meaningful result for any stake holder. In view of the suggestions and formulations arrived at in the meetings held by respondent nos.1 and 2, which are acceptable to the majority of stake holders, have to be implemented in letter and spirit.

The Supreme Court further held that bearing in mind the contentions of all it considered it appropriate to dispose of the batch of cases with the following directions:

“1. If a passenger has booked a ticket during the lockdown period (from 25th March, 2020 to 24th May, 2020) for travel during lockdown period and the airline has received payment for booking of air ticket for travel during the same period, for both domestic and international air travel and the refund is sought by the passenger against that booking being cancelled, the airline shall refund the full amount collected without any cancellation charges. The refund shall be made within a period of three weeks from the date of cancellation.

2. If the tickets have been booked during the lockdown period through a travel agent for a travel within the lockdown period, in all such cases full refund shall be given by the airlines immediately. On such refund, the amount shall be passed on immediately by the agent to the passengers.

3. Passengers who booked tickets at any period of time but for travel after 24th May, 2020 – refund of fares to the passengers covered under this category shall be governed by the provisions of Civil Aviation Requirements (CAR).

4. Even for international travel, when the tickets have been booked on an Indian carrier and the booking is exIndia, if the tickets have been booked during the lockdown period for travel within the lockdown period, immediate refund shall be made.

5. If the tickets are booked for international travel on a foreign carrier and the booking is exIndia during the lockdown period for travel within the lockdown period, full refund shall be given by the airlines and said amount shall be passed on immediately by the agent to the passengers, wherever such tickets are booked through agents. In all other cases airline shall refund the collected amount to the passenger within a period of three weeks.

6. In all other cases, the airlines shall make all endeavours to refund the collected amount to the passenger within 15 days from today. If on account of financial distress, any airline / airlines are not able to do so, they shall provide credit shell, equal to the amount of fare collected, in the name of passenger when the booking is done either directly by the passenger or through travel agent so as to consume the same on or before 31st March, 2021. It is open to the passenger either to utilize such credit shell upto 31st March, 2021 on any route of his choice or the passenger can transfer the credit shell to any person including the travel agent through whom he / she has booked the ticket and the airlines shall honour such a transfer.

6.1. The credit shell issued in the name of the passenger shall be transferable which can be utilized upto 31st March, 2021 and the concerned airline shall honour such a transfer by devising a mechanism to facilitate such a transfer. It is also made clear that such credit shell can be utilized by the concerned agent through whom the ticket is booked, for third party use. It is also made clear that even in cases where credit shell is transferred to third party, same is to be utilized only through the agent who has booked the ticket at the first instance.

7. In cases where passengers have purchased the ticket through an agent, and credit shell is issued in the name of passenger, such credit shell is to be utilized only through the agent who has booked the ticket. In cases where tickets are booked through agent, credit shell as issued in the name of the passenger which is not utilized by 31st March, 2021, refund of the fare collected shall be made to the same account from which account amount was received by the airline.

8. In all cases where credit shell is issued there shall be an incentive to compensate the passenger from the date of cancellation upto 30th June, 2020 in which event the credit shell shall be enhanced by 0.5% of the face value (the amount of fare collected) for every month or part thereof between the date of cancellation and 30th June, 2020. Thereafter the value of the credit shell shall be enhanced by 0.75% of the face value per month upto 31st March, 2021.”

Sushila Ram Varma

Advocate and Chief Consultant

The Indian Lawyer & Allied Services