The Indian skies, once seemingly boundless with potential, have recently witnessed a few turbulent patches. The insolvencies of Jet Airways and Go First Airways sent ripples of concern through the aviation sector, illuminating the financial tightropes that airlines often walk. These insolvencies weren't just about balance sheets gone awry; they threw a spotlight on a fundamental friction point: how does India's insolvency framework under the Insolvency and Bankruptcy Code (IBC), grapple with the unique beast that is an airline insolvency, especially when the fleet largely comprises leased aircraft owned by global lessors and financiers?
Enter the Cape Town Convention on International Interests in Mobile Equipment (CTC) and the Aircraft Protocol. This dynamic duo provides a comprehensive, globally recognized rulebook for everything, from creating and registering security interests and leases to ensuring that lessors and financiers have clear pathways to enforce their rights when things go south. It establishes a unified system for registering interests in an international registry, ensuring that creditors can enforce their remedies – be it repossession, a quick sale, or interim relief – and crucially, maintain their priority over other competing claims.
The Aircraft Protocol tackles the nitty-gritty of cross-border enforcement, ensures that these rights are respected even when an airline undergoes insolvency, and ultimately aims to inject a healthy dose of confidence back into the hearts of international financiers and lessors who are entrusting their multi-million dollar assets to airlines across the globe.
The stories of Jet Airways and Go First serve as cautionary tales. Jet Airways, once a proud flag bearer with a substantial fleet and an expansive network, succumbed to a crippling cash crunch in 2019, ultimately leading to its grounding. Similarly, Go First, a significant player in the low-cost carrier segment, filed for insolvency in 2023, its woes largely attributed to the domino effect of engine failures on its leased aircraft. These cases laid bare a critical conflict: the IBC's primary focus on rescuing the corporate debtor and maximizing its value through a moratorium on asset recovery versus the fundamental contractual rights of lessors to repossess their aircraft.
The initial interpretation and application of the IBC's moratorium on aircraft repossession, as witnessed in the rulings of Jet Airways (India) Limited vs State Bank Of India & Anr and Smbc Aviation Capital Limited vs Go Airlines (India) Limited, threw significant spanners in the works for lessors. The National Company Law Tribunal (NCLT) rulings, prioritizing the IBC's overarching objective of resolution over sector-specific considerations, effectively tied the hands of the Directorate General of Civil Aviation (DGCA), preventing them from deregistering aircraft during the crucial Corporate Insolvency Resolution Process (CIRP). This stance, while arguably aimed at preserving the airline's operational capacity for a potential turnaround, had a chilling effect, significantly eroding the confidence of foreign lessors in the Indian market.
The loopholes and uncertainties in the pre-existing Indian legal framework created a significant risk for global lessors and financiers, making them understandably wary of conducting business with airlines in India. The Jet Airways and Go First sagas starkly highlighted these enforcement gaps, leaving behind a trail of stranded aircraft and substantial unpaid dues.The enactment of the Protection of Interests in Aircraft Objects Act, 2025, and the Bharatiya Vayuyan Adhiniyam, 2024, are not just legislative footnotes; they are seismic shifts in India's legal landscape, specifically designed to align domestic law with the standard set by the CTC and its Aircraft Protocol, signed way back in 2001. For India, ratifying the CTC and enshrining it in domestic law wasn't just a matter of ticking an international best-practice box. It was an economic imperative. To foster a thriving aviation sector, India needed to provide robust legal safeguards for the enforcement of security interests, aligning itself with global norms. This alignment is the key to unlocking foreign capital, driving down the often-astronomical costs of aircraft leasing, and injecting much-needed confidence into the credit markets that underpin the entire industry.
Key Measures to Strengthen the Legal Framework
Laying the International Foundation : India's initial act of signing the Cape Town Convention and its Aircraft Protocol in 2001 was a crucial first step, signaling its intent to align with international best practices in securing interests in mobile equipment like aircraft.
Notification under Section 14 of the IBC (October 3, 2023): This notification from the Ministry of Corporate Affairs under Section 14(3)(a) of the IBC, was a game-changer. By explicitly exempting aircraft and aircraft engines from the automatic moratorium that kicks in during insolvency proceedings, the government directly addressed a major concern of lessors and financiers. This exemption now allows them to reclaim their aircraft during the CIRP and proceed with deregistration and export without being held hostage by the insolvency moratorium – a clear signal that their rights would be respected.
Bharatiya Vayuyan Adhiniyam, 2024: Replacing the 1934 Aircraft Act, this new legislation establishes a modern and comprehensive regulatory framework for the Indian aviation sector. It significantly empowers the Directorate General of Civil Aviation (DGCA), granting it the authority to issue directions for enforcing international aviation rules and safety measures and even to detain aircraft when necessary.
Enactment of the Protection of Interests in Aircraft Objects Act, 2025: Under this powerful legislation, creditors now have a clear and legally backed right to repossess and deregister aircraft upon the occurrence of a defined default. Crucially, the Act includes an override clause, stating that its provisions will take precedence over any other laws, with specific exceptions carved out only for essential public services. To ensure the speedy resolution of related disputes, the Act designates the High Courts as the exclusive judicial bodies to handle such matters. Furthermore, it mandates the formal notification of the registration of security interests and defaults to the DGCA, which acts as the designated domestic registry authority.
Role of the DGCA and Registry System: The DGCA, operating under the authority of the Bharatiya Vayuyan Adhiniyam, 2024, has been empowered to serve as the primary domestic registry authority for aircraft objects within India. In its designated role under the Aircraft Objects Act, the DGCA acts as the key domestic interface for receiving official notices of default and providing essential support for deregistration requests filed under the Cape Town Convention framework. It's important to understand the division of labor here: while the DGCA handles the domestic aspects, the International Registry (currently managed by Aviareto, based in Ireland) remains the central global hub for the registration of international interests in aircraft objects.
Article XI of the Aircraft Protocol to the CTC lays out the specific remedies available in the event of insolvency. It offers two distinct alternative regimes – Alternative A and Alternative B – from which a Contracting State can choose by making a formal declaration upon ratification. If a state chooses not to make such a declaration, its domestic insolvency law will continue to govern the remedies available to creditors.
India, demonstrating its commitment to providing a clear and predictable framework, has formally adopted Alternative A of Article XI, specifying a 60-day waiting period (which means a moratorium period of 2 months) in its declaration under the Aircraft Protocol. This strategic choice provides a clear and time-bound remedy to creditors, significantly bolstering certainty and enforceability in aircraft financing and leasing. Crucially, during this 60-day window, the aircraft must be diligently maintained under the terms explicitly laid out in the transaction documents. A key advantage of Alternative A is that, upon the expiry of this waiting period, no further court approval is typically required for the creditor or lessor to repossess their aircraft. This makes the remedy far more automatic and significantly less susceptible to the often lengthy and unpredictable delays associated with judicial processes.
Conclusion
India's implementation of the Cape Town Convention through the Protection of Interests in Aircraft Objects Act, 2025, represents a significant step towards the enactment of domestic law for aircraft financing and leasing. By addressing key issues related to creditor protection, enforcement of security interests, and harmonisation with international standards, India has enhanced its attractiveness as a key player in the global aviation finance market.
The true effectiveness of the new enactment will lie in its practical implementation and its interaction with the existing IBC framework. Striking a delicate balance between protecting the rights of lessors and providing a viable pathway for the revival of stressed airlines will be crucial for the long-term health and stability of the Indian aviation sector. While this 2025 Act offers clarity for lessors, the onus now lies on the judiciary and insolvency professionals to navigate these new provisions in a manner that fosters both investor confidence and the potential for successful airline resolution, ultimately benefiting all stakeholders in the aviation ecosystem.
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