COVID Flight Cancellation and the ‘Credit Shell’ Dilemma

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Commercial flights were banned in India starting 25th March for a two-month-long period owing to COVID-19 lockdown, until 25th May, when the government finally resumed 1/3rd of the operations. Amidst all this, passengers found themselves in a muggy situation with money strapped with airlines despite flights getting cancelled. The Directorate General of Civil Aviation [Hereinafter ‘DGCA’] through its circular dated 16th April 2020, however, provided some relief, ordering airlines to issue a full refund for all bookings made starting 25th March for any travel period extending till 03rd of May. Now, this circular is strange for it is only limited to bookings made after the implementation of the ban. For instance, bookings made in February for travel in April are not covered under this circular despite flights getting cancelled due to lockdown. While a petition on the issue (refunds for bookings before the ban) lies pending before the Hon’ble Supreme Court, it is important to note the regulatory framework in India and understand how airlines are blinding passengers with unruly refund policies.

Extraordinary Circumstance

An extraordinary circumstance leading to the cancellation of flights is generally a situation in pursuance of a government order or a natural calamity, beyond the control of airlines. COVID-19 outbreak and the resulting lockdown is well classified as an extraordinary circumstance due to which, airlines have to refund the full amount without deducting cancellation charges and, the passenger has to forfeit any claims of compensation, as per Passenger’s Charter of Rights. People in India are facing a larger crisis of hunger, poverty, work furlough, and amongst all of this, airlines have strapped in close to Rs.3,700 Crores from bookings that got cancelled.

Credit Shell: Prerogative of the passenger

Airlines have refused cash refunds and have instead announced compulsory ‘Credit shell’ for all bookings outside the purview of DGCA circular (16th April). Credit Shell is essentially an option of holding a refund amount as credit by the airlines, which can be used for subsequent bookings within a definite period. It is understood that in the absence of any relief package for the aviation sector, airlines want to curtail losses. However, this default practice of holding passengers’ money in these circumstances is totally in contravention of Civil Aviation Requirement, 2008 [Hereinafter ‘CAR, 2008’] regulations. As per clause 3(f) of the CAR, 2008, it is clear that ‘Credit shell’ is a prerogative of the passenger and shall not be a default practice of the airline. There are no exceptions to this rule under the DGCA guidelines. Further, it is argued that, when tickets are booked for certain dates, it is for a particular purpose, which may or may not arise in the near future. Holding money and forcing passengers to do good the credit within a period, irrespective of the necessity of such travel, is arbitrary and unlawful given the clear rules governing refunds.

Unjust Enrichment Prohibited

Section 65 of The Indian Contract Act, 1872 embodies the basic principle of disallowing any party to a contract from unjust enrichment. Further, in Govindram Seksaria vs Edward Radbone, a 5-judge bench of the Hon’ble Bombay High Court had clarified the concept of ‘unjust enrichment’ whereby the court had categorically stated that, “The money already paid in advance was recoverable, as having been paid for a consideration which had frustrated”. Therefore, it is argued that, parties are bound to restore any benefits received as part of a contract which is subsequently frustrated and the obligations thereby rendered impossible to be performed. To elaborate, in the present scenario, if the scheduled flights are cancelled for events beyond human control, the passengers are expected to receive full amount as refund. The airlines under no circumstances can enrich on the amount paid for a ticket, which subsequently got cancelled due to the outbreak of COVID-19. The purpose of this contract between an airline and an aggrieved passenger was air travel which was hit by impossibility due to the ban, ultimately affecting the performance. Combining this with the CAR, 2008 obligations mentioned earlier, airlines have a duty to refund the entire amount to the source of such payment made by each and every passenger. Therefore, it is argued that airlines cannot unjustly enrich through this contract which now appears to be frustrated under Section 56 of the Indian Contract Act, 1872. Parties under the Contract Act have an unequivocal obligation to refund/return any benefit so received, even if it was in advance of a consideration which was subsequently frustrated.

Clearing the Covid Cancellation Dilemma

Unfortunately, air travellers in India are very uninformed about the policies and regulatory framework governing their right of refund. While credit shell may seem attractive and comfortable at the outset, people comfortably ignore the real necessity of air travel in the near future, to redeem such credit held for their previous booking.

An NGO, Pravasi Legal Cell, has moved the Hon’ble Supreme Court seeking full refund from airlines instead of Credit shell for the tickets cancelled due to the outbreak of COVID-19. The petitioners have argued on the airlines’ obligation to refund under the Civil Aviation Requirement, 2008, as mentioned above. Hon’ble Supreme Court has now sought a response from airlines on the issue. MCA have been directed to hold a meeting too. However, the refund guidelines are clear that passenger refund rights for bookings prior to the ban are the same as those booked during the lockdown. There cannot be a statutory classification discriminating between pre-lockdown and post-lockdown bookings.


Airlines can, in good faith, offer a credit shell but the same can never be forcefully thrust upon passengers contrary to their willingness. Facing an unprecedented pandemic is difficult and when it comes to our survival, it is natural human tendency to make priorities based on necessity and a fight for an airline refund will certainly be the least preferred. The Regulatory framework in India is very clear but the larger picture is blurred due to the lack of knowledge amongst passengers. While DGCA has covered up for bookings made during the lockdown, it is only fair that bookings made before the lockdown are treated fairly and in an equitable manner. While the Hon’ble Supreme Court continues to preside over the issue, we can reasonably construe that in light of this contract being impossible to perform, airlines cannot enrich on booking amount. Moreover, the requirements of CAR, 2008 make it very clear to provide credit shell only when it is sought for. Anything contrary to this is unlawful and cannot be a ground for unjust enrichment for the fact that most of the passengers do not raise concerns.


(This post has been authored by Abhishek Iyer, a fourth year law student at Gujarat National Law University, Gandhinagar)

Cite as: Abhishek Iyer, ‘COVID Flight Cancellation and the ‘Credit Shell’ Dilemma (The Contemporary Law Forum, 02 July 2020) <> date of access.

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