The Indian aviation sector has entered a transformative period characterized by the replacement of century-old colonial statutes and the assertion of aggressive regulatory oversight. The enactment of the Bharatiya Vayuyan Adhiniyam, 2024, which superseded the Aircraft Act, 1934, provided a modernized statutory framework for the manufacture, possession, use, operation, and sale of aircraft.
This legislative shift occurred as the domestic market evolved into the third largest globally, defined by a highly concentrated structure where InterGlobe Aviation Limited, operating as IndiGo, and Air India Limited collectively control over 90% of the market share. This concentration has prompted significant legal scrutiny under the Competition Act, 2002, and the Indian Contract Act, 1872, particularly concerning the fairness of cancellation charges and the limits of dominant market power.
The governance of Indian aviation involves a complex interplay between the Directorate General of Civil Aviation, which manages safety and operational standards, and the Competition Commission of India, which regulates economic conduct. The year 2025 and early 2026 saw these authorities addressing fundamental questions regarding collective dominance, the distinction between liquidated damages and penalties, and the introduction of a new consumer protection regime via the 2026 Civil Aviation Requirements.
Statutory Framework and the Bharatiya Vayuyan Adhiniyam 2024
The transition to the Bharatiya Vayuyan Adhiniyam, 2024, represents a fundamental restructuring of aviation law in India. This new legislation aims to provide a more responsive regulatory environment for an industry projected to grow multifold in the coming decades. While the Aircraft Act, 1934 focused primarily on the physical control and safety of aircraft, the 2024 Act incorporates broader parameters for determining airworthiness and maintenance in a contemporary technological context.
Parallel to this, the Protection of Interest in Aircraft Objects Act, 2025, was introduced to empower the Directorate General of Civil Aviation to implement the Cape Town Convention on International Interests in Mobile Equipment. This is particularly critical given the recent insolvency of Go First and the legal battles regarding the repossession rights of aircraft lessors. The 2025 Act seeks to harmonize Indian insolvency law with international standards, ensuring that the rights of lessors under the Cape Town Convention are protected even when a domestic airline undergoes liquidation.
The regulatory framework is further supported by the Aircraft Rules, 1937, which remain relevant for operational and tariff-related oversight. Under Rule 135 of the Aircraft Rules, 1937, air transport undertakings are required to establish tariffs with regard to relevant factors such as the cost of operation and reasonable profit.
However, as noted in recent Competition Commission of India orders, the oversight provided by the Directorate General of Civil Aviation under these rules does not preclude the application of the Competition Act, 2002, as the two bodies operate in distinct but complementary domains.
Competition Dynamics and the Rejection of Collective Dominance
The market structure of Indian aviation has increasingly been described as a duopoly. In Case No. 42 of 2025, Kannadiputhur Sundararaman Suresh v. Interglobe Aviation Limited and Air India Limited, an informant challenged the cancellation charge policies of both major carriers. The informant alleged that IndiGo, with a market share of approximately 65%, and Air India, with approximately 27%, acted in concert to maintain unconscionable and illegal cancellation rates.
The legal challenge centered on Sections 3 and 4 of the Competition Act, 2002. Section 3 prohibits anti-competitive agreements, while Section 4 prohibits the abuse of a dominant position. The informant argued that the two airlines together controlled 92% of the market and should be held liable for what was termed a duopolistic arrangement.
The Competition Commission of India, in its order dated March 11, 2026, dismissed the information under Section 26(2) of the Act. The primary legal reason for this dismissal was the rejection of the concept of “collective dominance”. Under Section 4 of the Competition Act, 2002, dominance is defined in terms of “an enterprise or a group”.
The term “group” is defined under Section 2(a) to include entities under the same management or control, such as a parent company and its subsidiaries. Because IndiGo and Air India are independent, competing entities not under common control, they cannot be considered a single “group” for the purpose of establishing dominance.
The Commission relied on its earlier precedent in Airen Metals Private Limited v. Hindalco Industries Limited (Case No. 31 of 2024), where it held that the absence of collective dominance provisions in the Act means that parallel conduct by two independent firms cannot be prosecuted under Section 4 unless one of them is individually dominant.
While jurisdictions like the European Union recognize collective dominance under Article 102 of the Treaty on the Functioning of the European Union when independent firms are linked by economic factors, the Indian legislature deliberately omitted this concept from the 2023 Amendment Act.
Adjudicating Cartelization and Price Parallelism
In the same Case No. 42 of 2025, the allegations of acting “in concert” were examined under Section 3 of the Competition Act, 2002. Section 3(3) creates a presumption of anti-competitive effect for agreements between competitors that determine prices or limit supply. However, the Commission noted that an “agreement” under Section 2(b) of the Act, though defined broadly to include informal arrangements or understandings, still requires evidence of a “meeting of minds”.
The informant alleged that the near-identical cancellation fees charged by both airlines indicated collusion. The Competition Commission of India held that price parallelism alone is insufficient to establish a contravention of Section 3.
In a transparent market, firms may adopt similar pricing strategies in response to competitive forces without engaging in a formal or informal agreement. Without evidence of communication or a coordinated strategy, the similarity in cancellation charges was deemed a commercial decision rather than a cartel activity.
The Commission further observed that both airlines offer multiple fare categories, including fully refundable tickets, and that the terms of these cancellations are disclosed to passengers in advance. The fact that a passenger selects a non-refundable or high-penalty fare category despite the availability of other options suggests a commercial choice rather than a systemic exclusion of competition.
Abuse of Dominant Position and Service Restrictions: Case No. 44 of 2025
While Case No. 42 focused on cancellation charges, Case No. 44 of 2025 presented a different legal scenario involving IndiGo’s mass flight cancellations in December 2025. In this instance, the Competition Commission of India ordered an investigation under Section 26(1) of the Act, finding a prima facie case of abuse of dominance.
The Commission defined the relevant market as the “market for domestic air passenger transport services in India”. Within this market, IndiGo’s individual share of over 60% of domestic passenger traffic and its presence on more than 330 exclusive routes were seen as indicators of a dominant position. The investigation focused on Section 4(2)(b)(i) of the Act, which prohibits a dominant enterprise from limiting or restricting the provision of services.
The mass cancellation of approximately 4,500 flights over a ten-day period was found to have created artificial scarcity in the market. The Commission noted that passengers were effectively “locked in,” as the disruption to IndiGo’s vast network left them with few viable alternatives. Furthermore, the airline allegedly charged significantly higher fares for alternative flights on the same routes immediately following the cancellations.
This conduct was viewed as an exploitation of market power, causing an appreciable adverse effect on competition by denying consumers access to services and imposing unfair pricing during a period of peak demand.
IndiGo contested the jurisdiction of the Competition Commission of India, arguing that the matter fell exclusively under the oversight of the Directorate General of Civil Aviation and the Aircraft Rules. The Commission rejected this, citing the Supreme Court’s judgment in CCI v. Bharti Airtel Limited, AIR 2019 Supreme Court 113, which held that sectoral regulators and competition authorities operate in distinct domains.
The Commission observed that while the Directorate General of Civil Aviation focuses on safety and operational compliance, it does not perform the economic analysis required to determine abuse of dominance under the Competition Act.
Contractual Validity of Cancellation Fees under Section 74 of the Indian Contract Act
The informant in Case No. 42 of 2025 heavily relied on the Indian Contract Act, 1872, to argue that cancellation charges are legally impermissible penalties. Under Section 74 of the Act, when a contract is broken, the party complaining of the breach is entitled to receive “reasonable compensation” not exceeding the amount named in the contract as a penalty, whether or not actual damage is proved.
The informant presented a specific instance where a total of Rs. 12,488 was paid for two tickets, but after cancellation within minutes, only Rs. 3,054 was refunded. A penalty of Rs. 9,434, representing 75.54% of the booking amount, was characterized as an extortionate charge that bore no relation to the actual loss suffered by the airline. The informant argued that an airline only suffers a loss if the flight is fully booked and the seat remains unsold after cancellation, a situation unlikely to occur in the modern aviation market.
Section 74 jurisprudence, established in cases like Fateh Chand v. Balkishan Dass and Kailash Nath Associates v. DDA, 2015 AIR SCW 759 mandates that stipulated sums in contracts must be a genuine pre-estimate of loss and not a disguised penalty. If the amount is found to be in the nature of a penalty, the court will only award reasonable compensation.
In the context of standard form contracts like airline tickets, where there is no negotiation between the parties, courts have historically been more willing to scrutinize the reasonableness of such terms.
However, the Competition Commission of India clarified that its role is not to adjudicate the reasonableness of contractual terms under the Indian Contract Act. Dissatisfaction with a contractual condition or a desire for more favorable terms does not constitute a violation of the Competition Act. Remedies for breach of contract or the assessment of “reasonable compensation” under Section 74 lie before civil courts or consumer forums.
The 2026 Civil Aviation Requirements and Enhanced Passenger Rights
To address the growing volume of grievances regarding cancellation charges and refund delays, the Directorate General of Civil Aviation issued revised Civil Aviation Requirements (CAR) effective from March 26, 2026. These rules represent a significant move toward economic consumer protection in the aviation sector.
A major feature of the new rules is the mandatory “Look-in option”. Airlines must provide a 48-hour window after booking during which a passenger can cancel or amend their ticket without paying any additional cancellation charges. This facility is available if the booking is made at least seven days before departure for domestic flights and fifteen days for international flights, provided the ticket is booked directly through the airline’s website.
While passengers must still pay the difference in the prevailing fare for amendments, the removal of fixed cancellation fees during this window provides a substantial safeguard against accidental bookings and changing plans.
The 2026 rules also establish strict timelines for refund processing :
- Credit Card Payments: Refunds must be processed within seven working days of cancellation.
- Cash Transactions: Refunds must be made immediately by the airline office where the ticket was purchased.
- Travel Agent/Portal Bookings: The onus of refund lies with the airlines, as agents are their appointed representatives, and the process must be completed within 14 working days.
Crucially, the new requirements prohibit airlines from defaulting a refund into a “credit shell”. The option to keep funds in a credit shell for future use is now at the sole discretion of the passenger. Additionally, airlines are mandated to refund all statutory taxes and fees, including the User Development Fee (UDF), Airport Development Fee (ADF), and Passenger Service Fee (PSF), even for non-refundable tickets or promotional fares.
Jurisdictional Clarity and Regulatory Oversight
The interplay between the Competition Commission of India and the Directorate General of Civil Aviation has been clarified through both administrative orders and judicial review. The 2026 scheduling crisis and the resulting investigations underscore that sectoral regulation and competition law are not mutually exclusive.
The Ministry of Civil Aviation imposed a penalty of ₹22.2 crore on IndiGo for the disruption, while the Competition Commission of India simultaneously pursued an investigation into the abuse of dominant position arising from the same events.
The Commission’s decision to reject IndiGo’s jurisdictional challenge reaffirms that the presence of a sectoral regulator like the Directorate General of Civil Aviation does not oust the jurisdiction of the Competition Commission of India over matters of market conduct.
This is consistent with a broader trend in Indian law where the Competition Commission of India acts as the primary authority for ensuring that enterprises, regardless of the sector, do not use their economic power to the detriment of competition or consumers.
Conclusion
The legal framework of the Indian aviation sector as of 2026 is defined by a rigorous application of competition principles and an expanded consumer protection regime. The Competition Commission of India has maintained a firm stance against the expansion of Section 4 to include collective dominance, choosing instead to focus on individual abuses and the necessity of proving coordinated action for cartelization under Section 3.
The investigation into IndiGo’s mass cancellations demonstrates the Commission’s willingness to define the relevant market broadly to protect consumers from artificial scarcity and systemic market shocks.
Simultaneously, the 2026 Civil Aviation Requirements issued by the Directorate General of Civil Aviation have institutionalized transparency and provided immediate financial relief to passengers through the 48-hour free cancellation window and strict refund timelines. While the Indian Contract Act, 1872, continues to provide the foundational rules for reasonable compensation, the regulatory interventions of 2026 have effectively bypassed the need for protracted litigation over the reasonableness of cancellation charges in most common scenarios.
Issues of market power and unfair practices explored in Abuse of Dominant Position: Provisions and Case Studies often intersect with regulatory and contractual challenges in the aviation sector.
