INDIA Law and Practice Contributed by: Nitin Sarin and Vistasp Irani, Sarin & Co
3.2 Security 3.2.1 Typical Forms of Security and Recourse Typical forms of security granted in aviation finance transactions in India could include taking over the security of the immovable property by way of a mort - gage or movable property/bank accounts, etc, by way of a deed of hypothecation. 3.2.2 Types of Security Not Available If executed properly (and if it satisfies the test of being a valid contract between two parties competent to contract), a security agreement would be upheld as being valid in relation to the aircraft, engines, warran - ties or insurance. 3.2.3 Trust/Trustee Concepts Indian law recognises the concept of a trust, with the relevant national legislation being the Indian Trusts Act, 1882. India is not a party to the Hague Conven - tion on Trusts, 1986. 3.2.4 Assignment of Rights to an Aircraft by a Borrower to a Security Trustee Pursuant to a security assignment or mortgage, the borrower may assign their rights to the aircraft under an aircraft lease to a security trustee. 3.2.5 Assignment of Rights and Benefits Without Attendant Obligations It is possible to assign the rights and benefits only without also assigning the attendant obligations of the lessor, as long as such assignment is valid under the governing law. 3.2.6 Choice of Foreign Law A security assignment or a guarantee may be gov - erned by English or New York law, and does not need to be governed by Indian law to be fully enforceable. 3.2.7 Formalities/Mandatory Terms to Create and Perfect Security Assignments No particular form of security assignment is required in India, nor does an assignment need to be registered in India. However, the security assignment should pref - erably be filed and recorded with the DGCA, which will endorse the name of the mortgagee and/or the details of the hypothecation on the certificate of registration.
tion, 2000 and other regulations. The borrower would require prior approval from the RBI to grant security to foreign lenders. 3.1.4 Downstream, Upstream and Cross-Stream Guarantees Prior approval of the RBI would be required for any guarantee involving the guarantee of debt owed to a foreign entity by an Indian entity. 3.1.5 Lenders’ Share in Security Over Domestic SPVs In practice, there are no cases involving a domestic special purpose vehicle that owns the financed air - craft. 3.1.6 Negative Pledges The question of whether material restrictions/require - ments are imposed on intercreditor arrangements is assessed on a case-by-case basis. 3.1.8 Syndicated Loans The concept of agency and the role of an agent under a syndicated loan are recognised in India. 3.1.9 Debt Subordination The usual practice is the issuance of bonds as sub - ordinated debt instruments. There are extensive RBI guidelines on what forms of subordination are permis - sible and restrictions on the percentage of debt that may be subordinated. 3.1.10 Transfer/Assignment of Debts Under Foreign Laws The transfer of outstanding debt is permissible and recognised, subject to RBI approval, which may be required on a case-by-case basis. 3.1.11 Usury/Interest Limitation Laws There are no usury or interest limitation laws. However, courts in India always have the power to fix interest rates if an opinion is formed that the applied interest is harsh or excessive. Negative pledges are recognised. 3.1.7 Intercreditor Arrangements
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