India: From Uncertainty To Certainty: Indian Perspective Of Cape Town Convention

Last Updated: 20 July 2016
Article by Purvasha Mansharamani and Sheniza Farid

Indian civil aviation industry has undergone a series of changes since the deregulation in the 1990s to 2004. According to Kanthe, "Indian aviation industry promises huge growth potential due to large and growing middle class population, favorable demographics, rapid economic growth, higher disposable incomes, rising aspirations of the middle class, and overall low penetration levels (less than 3%)."1 Given the massive growth potential, India has taken certain measures to ensure that India's civil aviation industry is nurtured to reach its full potential. One of these steps pertains to deregulation of aircrafts to ensure confidence for international lessors while crediting to the civil aviation industry. Although the position is clear presently, earlier there was a confusion regarding India's stand towards the Cape Town Convention.

This article seeks to address how this position was reached by the controversy arising out of the Kingfisher case. Firstly, the article will examine India's approach to international law. Secondly, it will discuss the Cape Town Convention and its impact on civil aviation regulations in India. Thirdly, the Kingfisher case and the SpiceJet case will be used to demonstrate the incorporation of Cape Town Convention into the Indian legal system by referring to the principle of constructive harmonization. Finally, it will conclude by reiterating India's recognition of international law in accordance with Article 51 of the Indian Constitution.2

Article 51 broadly guides India's approach to international law, although it does not lay down a comprehensive policy, a joint reading of Article 51(c) and Article 253 empowers the executive to enter into international conventions and treaties that are binding on Union of India as a whole. The only stipulation judiciary has reiterated is that international law should not be in contravention with the existing municipal laws.  Therefore, India follows the common law approach of constructive harmonization in terms of international law.

The relationship between international law and municipal law was highlighted during the Cape Town Convention held in South Africa in 2001. India was initially a signatory but ratified the convention in 2008. Amidst the Kingfisher case controversy, the implementation of Cape Town Convention became a contentious issue. Articles 8- 15 of the Convention specify default remedies to creditors, lessors and other financial parties to get swift repossession of aircraft in the event of default.3

Kingfisher Airlines ceased operations in 2012 due to the latent impact of the 2006 financial crisis. The airline was over 1 billion dollars in debt, the creditors DVB Bank and the International Lease Finance Corporation (ILFC) given the looming financial collapse tried to deregister and repossess their aircrafts which were given on lease to Kingfisher. Kingfisher argued that it had ownership rights and refused to comply with the request of DVB & ILFC. This led DVB Bank to file a complaint against Kingfisher Airlines with DGCA to repossess their aircrafts. DVB wanted to proceed with the sale/lease of these aircrafts however they could not till the time they were deregistered by DGCA as deregistration of the aircraft is an essential requirement for repossession, and DGCA was not deregistering it which led DVB bank to file a writ petition against Kingfisher & DGCA with the High Court of Delhi and the court ruled in favour of the lessors and directed the DGCA to deregister the aircraft but this decision was not based on CTC rather it was due to the inadequacies of the claims made by Kingfisher.4

After the Kingfisher judgment, it was evident that the Indian courts believed in creating equity rights for the lessors and lessees and reaffirmed through their ruling that deregistration of aircraft would infringe the rights guaranteed to the lessees. Subsequently, the impact of the Kingfisher case was disastrous for the civil aviation industry in India because it undermined the CTC. As a result, International lessors began demanding premiums to cover risk while leasing aircrafts to Indian airline companies.5

It was only in the SpiceJet case where there was a formal adoption of CTC after India's ratification of CTC. In the present case, SpiceJet defaulted in the payment of rent for their aircrafts. The lessors requested the DGCA to deregister the aircraft accordingly, the DGCA ordered SpiceJet to surrender the aircraft however, SpiceJet did not comply with the orders of DGCA, to which, the DGCA, took no further action. Consequently, the lessors filed a case for deregistration in the Delhi High Court.

On 9th February 2015, the DGCA amended the Aircraft Rules (1937) by adding its adherence to CTC to accommodate the protection guaranteed to lessor under Article 8 of the CTC. In sub-rule 2 (7) it states,  "The registration of an aircraft registered in India, to which the provisions of the Cape Town Convention or Cape Town Protocol apply, shall be cancelled by the Central Government, as provided in the Cape Town Protocol"6

In March 2015, the High Court of Delhi after considering the commitments made in CTC finally directed DGCA to deregister the aircraft on the basis of CTC. It stated, "the DGCA must de-register an aircraft, without a court order and whether or not a government lien exists or is asserted, where an Irrevocable De-Registration and Export Request Authorization under the Cape Town Convention ('IDERA') has been properly submitted by a creditor.  Neither administrative discretion nor reference to a general public interest may be invoked to prevent such mandatory de-registration."7 Given the issuance of the first substantive decision to safeguard the international interests based on CTC, the High Court of Delhi ordered to incorporate CTC in the Indian legal system. Thus, SpiceJet decision reduced the uncertainty regarding India's stand on CTC. 8

Following the SpiceJet case and Aircraft Rules Amendment, Indian courts have reaffirmed the application of this rule in the subsequent judgments.

Footnotes

1 R. U. Kanthe, "Challenges of Indian Aviation Industry in Chaotic Phase", Innovative Journal of Business and Management, 2012

2 Narendra Kadoliya, A Paradigm Shift In The Role Of Domestic Courts In Implementing International Treaty Provisions: An Indian Perspective, available at http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=29c6ccdf-f94e-42e5-8bdd-64f58d2a962c&txtsearch=Subject:%20Miscellaneous

3 Ludwig Weber (2015) Public and private features of the Cape Town Convention, Cape Town Convention Journal, 4:1, 53-66

4 Ludwig Weber (2015) Public and private features of the Cape Town Convention, Cape Town Convention Journal, 4:1, 53-66, DOI: 10.1080/2049761X.2015.1102011

5 Karthikeyan Sundaram, Kingfisher Default Said to Raise Airline Costs: Corporate India, Bloomberg (September 20, 2013), available at, http://www.bloomberg.com/news/articles/2013-09-19/kingfisher-default-said-to-raise-airline-costs-corporate-india

6 The Aircraft Rules, 1937 available at http://dgca.nic.in/rules/1937-ind.htm

7 Release related to Major Indian Court Decision applying the Cape Town Convention, Aviation Working Group available at http://www.awg.aero/assets/docs/India%20Summary%20of%20AWAS-BOCA.pdf

8 Ludwig Weber (2015) Public and private features of the Cape Town Convention, Cape Town Convention Journal, 4:1, 53-66, DOI: 10.1080/2049761X.2015.1102011 

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