INDIA Law and Practice Contributed by: Nitin Sarin and Vistasp Irani, Sarin & Co
2.4.2 Effects of Leasing on the Residence of a Foreign Lessor A foreign lessor would ordinarily not be deemed to be resident, domiciled in or carrying out any business in India by virtue of being a party to a lease or because of enforcement of a lease. However, it is always pru - dent to have a tax expert study the relevant double tax avoidance treaty between the country of domicile of the foreign lessor and India. 2.4.3 Engine Maintenance and Operations Unless the direct involvement and consequent neg - ligence of the foreign lessor are proven in respect of aircraft or engine maintenance and operations, no liabilities would be imposed on the foreign lessor as a result of their being a party to such a lease. 2.4.4 Damage or Loss Caused by an Asset A lessee under a dry lease remains primarily liable for loss or damage caused by the aircraft to third parties and for injuries to the person or property of third par - ties or passengers, and is responsible for any breach of environmental laws; in the event of a claim, howev - er, both the lessor and the lessee would generally get sued. Needless to say, both the lessor and the lessee will be liable for negligence in relation to the aircraft arising as a result of their own acts and omissions. The Indian law on vicarious liability confines the liabil - ity of the master to the torts committed by their serv - ants and agents where these were within the scope of the servant’s/agent’s authority. As the relationship between the lessor and lessee is on a principal-to- principal basis, there will be no vicarious liability either. However, there are four exceptions to the above rule: • where the lessor retains control over the lessee and interferes with and/or makes themselves a party to the tortious act; • where the act contracted to be done is wrongful or illegal; • where a legal or statutory duty is imposed on the lessor; and • where the act contracted to be done is, by its nature, likely to cause danger to others – in such a case, there is a duty on the part of the lessor to take all reasonable precautions against such a risk.
2.4.5 Attachment by Creditors Creditors of a domestic lessee may exercise a lien over the aircraft, but do not have the right to sell the leased aircraft. 2.4.6 Priority of Third Parties’ Rights The following third-party rights would take priority over a lessor’s rights under an aircraft or engine lease: • the Airports Authority of India can exercise a lien on the aircraft for any unpaid dues, such as landing and parking charges – this also includes the private airport operators exercising under the powers vested to the Airports Authority of India; • an unpaid bailee can exercise a mechanic’s lien; • statutory dues such as taxes, workmen’s wages, etc, form the first charge on the asset; and • the government or its agencies can confiscate, detain or requisition aircraft (whether foreign- owned or otherwise) under certain circumstances, such as if the central government declares an emergency or if the aircraft is involved in criminal activity. 2.5 Insurance and Reinsurance 2.5.1 Requirement to Engage Domestic Insurance Companies Indian registered aircraft may be insured by an Indian insurer, which in turn would seek reinsurance on the international insurance market – provided, however, that there is a 4% reinsurance retention (ie, obligatory cession), which is mandatorily required to be reinsured with the General Insurance Company of India. 2.5.2 Mandatory Insurance Coverage Requirements The operator must have insurance coverage for liabil - ity towards the hull, crew, passengers and third par - ties. Insurance is also mandatory for baggage, etc, as may be required under the Carriage by Air Act, 1972. 2.5.3 Placement of Insurance Outside of Jurisdiction A 4% reinsurance retention is mandatorily required with the General Insurance Company of India. 2.5.4 Enforceability of “Cut-Through” Clauses “Cut-through” clauses are enforceable in India.
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