Air accident compensation: The economics of an unfortunate loss

The tragic crash of the Air India flight AI171 flying from Ahmedabad to London on June 12, leading to a loss of over 250 lives, shocked the world. Experts are still trying to determine the cause of the crash which saw the plane in the air for only about 32 seconds before colliding into a hostel building of a medical college.

Immediately after the accident, the TATA Group announced on X that a compensation of ₹1 crore will be given to family members of each person who died in the accident, besides covering medical expenses of those who suffered injuries.

When an air crash occurs, victims and their families are entitled to compensation, irrespective of fault, under both international and Indian law.

The Montreal Convention, 1999

The Montreal Convention, 1999 was conceptualised with the aim of unifying rules for international carriage by air. India ratified the Convention on May 1, 2009 and it came into force on June 30, 2009. The Convention establishes the liability of airlines in view of an accident causing death or injury to the passengers, as well as other related incidents like delay of luggage, loss of cargo, etc.

Article 1, dealing with the scope of the Convention, states,

“This convention applies to all international carriage of persons, baggage or cargo performed by aircraft for reward."

Article 1(2) goes on to define ‘international carriage’ as a carriage in which the place of departure and the place of destination are situated within the territories of two State-parties.

Chapter III of the Convention deals with liability of the carrier. Article 17 states that the carrier is liable for damage sustained in case of death or bodily injury of a passenger if the accident took place on board the aircraft or in the course of embarking or disembarking. In the present case, the loss happened on board, thus rendering the airline fully liable for damages.

The Convention has a two-tier compensatory regime - (i) no fault liability or strict liability, where the minimum compensation amount is to be paid despite any defence; and (ii) unlimited liability where the carrier has the right to defence and can deflect payments beyond the first tier.

The Convention originally provided for compensation of 1,00,000 special drawing rights (SDR) for each passenger, which was increased to 1,28,821 SDR and thereafter to 1,51,880 SDR from October 18, 2024 onwards. As of June 17, SDR is trading at ₹121.93, which roughly means the compensation would be about ₹1,85,18,728. This amount falls within the first tier of compensation.

 This also means that despite TATA’s immediate declaration of ₹1 crore compensation, the company will still need to shell out more than ₹85 lakh per person more. However, there is one massive roadblock to that compensation, which we will see in the next section.

The Carriage by Air Act, 1972

The Carriage by Air Act, 1972, as amended in 2009, incorporated the relevant provisions under Schedule III in conformity with the Montreal Convention. The Act empowers the Central government to extend the Convention’s provisions to domestic carriage, which it has done. Thus, passengers are covered by the same compensation rules whether they are on a domestic or an international flight.

Interestingly, under the Act, the compensatory cap is still at 1,25,000 francs (See Rule 22 of the First Schedule). The Rule provides that unless otherwise agreed between the parties through a special contract, the carrier will not be liable for a compensation of more than 1,25,000 francs. This is certainly lesser than what the International Civil Aviation Organization (ICAO) mandated under the Montreal Convention. 1,25,000 francs translates to about ₹1,32,68,750, which is roughly fifty lakh lesser.

In the case of S Abdul Salam v. Union of India, the victim had died in an Air India Express plane owned by the erstwhile Air India Corporation. The company offered a sum of ₹35,00,000 as a one-time settlement against which the heirs of the victim went to the Kerala High Court for mandatory compensation under the Montreal Convention. The carrier company had argued that the compensation of 1,00,000 SDR does not mean that the company has to pay exactly that much. It argued that the compensation was dependent on factors like age, job and salary of the victim. Rejecting the contention, the Court held:

“39. The Carriage by Air Act is a special statute by itself, taking care of the situation, particularly in the light of the steps being taken by India to join hands with other countries, to give effect to various international conventions such as Warsaw, Hague and Montreal. This is with intent to have “uniformity and certainty” in the related spheres, particularly when the international flights operated by various Carriers across different countries in the world, carrying passengers from different countries and in the event of casualties, all such victims have necessarily to be treated on an equal platform, providing atleast the minimum extent of compensation, both in the case of persons and property. When the statute does not refer to payment of compensation with reference to age/income/loss of dependency etc., it can never be connected to any such considerations upto the level of ‘One lakh SDR’, beyond which, it will be for the claimants to substantiate the position as to have higher amounts and it will, of course, be open to the Carrier as well, to put forth their defence as to the absence of negligence and the lack of liability to pay any amount over and above ‘One lakh SDR’.”

There is another case pending before the Supreme Court relating to an Air India incident in Kozhikode where the victims are seeking enhanced payments under the Montreal Convention.

Who can claim compensation?

The legal heirs or dependents of the deceased can file a claim for compensation. In case of injury, the passenger themselves can do so. The amount depends on the proof of damage or loss (for claims beyond the strict liability limit).

Jurisdiction for filing claims

Under Article 33 of the Montreal Convention and Chapter III of the Schedule 1 of Carriage by Air Act, the plaintiff can file cases in:

• The country of destination or departure;

• The airline’s principal place of business;

• The deceased’s place of residence, if the airline operates in that jurisdiction.

In times of grief, legal remedies can never substitute the lives lost, but they do form part of a just society’s response where accountability, support and redress follow tragedy. May the victims' souls rest in peace.

Mohit Pandey is an Advocate.