INDIA Trends and Developments Contributed by: Ajay Kumar, Anchal Nanda and Hetram Bishnoi, KLA Legal
repossessing aircraft when an airline in India became insolvent. This affected the confidence of global avia - tion finance players in dealing with airlines in India. In the past few decades, India has seen the collapse or bankruptcy of some major domestic airlines, such as Kingfisher Airlines, Jet Airways and, most recent - ly, GoFirst. Although there was a timely recovery of assets in Jet, the GoFirst case saw recovery vulner - abilities due to a moratorium, leading to significant risks for the lessors and financiers, and resulting in the Aviation Working Group (AWG) downgrading India’s risk profile. Therefore, legal and institutional changes were neces - sary to reassure aircraft financing entities and to pro - vide legal safeguards for the enforcement of security interests in line with international practices and con - ventions, and to promote aircraft financing in India. To mitigate regulatory hurdles, insolvency moratoriums and legal complexities faced by foreign lenders and lessors, it was imperative to align India’s aircraft leas - ing and financing ecosystem with global standards. Leading up to the enactment of the CTC Act, India was lacking a comprehensive legal framework for the recognition and enforcement of international interests in aircraft because, under Section 31 of the Securiti - sation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAE - SI), aircraft are expressly excluded from the ambit of secured asset enforcement. This meant that banks and non-bank financial companies could not repos - sess or sell aircraft under SARFAESI mechanisms. The Aircraft Act, 1934 regulated civil aviation, licens - ing and safety, but did not extend beyond Indian terri - torial boundaries and lacked provisions for the recog - nition of cross-border interests. It also did not contain specific legal mechanisms for enforcing international security or lease rights, especially when aircraft were located outside India or subject to international con - tracts. Prior to the Ministry of Corporate Affairs Notification dated 3 October 2023, aircraft objects were subject to a moratorium during insolvency proceedings, prevent - ing lessors from repossessing their aircraft, resulting in prolonged grounding and financial losses. Thus, the
aircraft leasing and financing players needed better protection in terms of enforcement of their rights and to repossess the aircraft, as leasing is the predomi - nant mode of acquisition in India. The CTC Act – the statutory incorporation of the Convention and Protocol The enactment of the CTC Act gives legal effect to the Cape Town Convention and its Protocol within India, which was lacking despite India acceding to the Cape Town Convention in 2008. The Convention and Protocol now have the force of law in India, to the extent provided in the Act. This Act prevails in case of conflict with other laws. Besides giving High Courts the authority to deal with related disputes, thereby ensuring speedy relief, it also provides for notification of the registration of security interests and defaults to the Directorate General of Civil Aviation (DGCA). Section 3 of the Act states that the Convention and Protocol shall have the force of law in India, subject to the declarations made by India. The Act provides for statutory recognition of “international interests” cre - ated by security agreements, leasing agreements and title reservation agreements. The Act mandates that an international interest must be registered under the International Registry system in order to be enforce - able. Furthermore, Section 5 of the Act requires credi - tors to notify the DGCA of a declared default, which then becomes the trigger for enforcement. Insolvency regime under the Act Under the Insolvency and Bankruptcy Code, 2016 (IBC), aircraft were often stuck in legal disputes, delay - ing repossession. The GoFirst crisis highlighted the problem as lessors were prevented from repossess - ing their equipment due to the moratorium provision under Section 14 (1)(d) of the IBC, leading lessors and lenders to see India as a risky jurisdiction for aircraft leasing and financing. One of the most significant provisions of the CTC is Article XI, which sets out remedies in case of insol - vency-related events. Article XI offers two alternative regimes, Alternative A and Alternative B, from which a contracting state may select by making a declara - tion. If no declaration is made, the state’s domestic insolvency law will govern creditor remedies.
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