1 Legal framework
1.1 Which laws typically govern aviation finance transactions in your jurisdiction?
There is no specific legislation which governs aviation finance transaction in India. Various statutes may apply to aircraft finance and leasing transactions, such as:
- the Indian Contract Act, 1872;
- the Aircraft Act, 19341;
- the Aircraft Rules, 1937; and
- as most aviation finance transactions involve foreign exchange, the Foreign Exchange Management Act, 1999 and the rules and regulations thereunder, along with the Reserve Bank of India ("RBI") rules, regulations, circulars and notifications.
Footnote
1. The Bharatiya Vayuyan Vidheyak Bill, 2024 (the "Bill") aims to replace the existing Aircraft Act, 1934. As of September 2024, the Bill has been passed by the Lok Sabha (lower house) and will be presented to the Rajya Sabha (upper house) for consideration in order to become an official Act.
1.2 If aviation finance documents are governed by laws other than your local law, what local law requirements (documentary and procedural) are required to ensure that foreign law documents are recognised and enforceable locally?
The parties to a contract are free to choose any law to govern their contract. Typically, aviation finance transactions in India are governed by the laws of England or of a US state, most commonly New York.
Notarisation (and in certain cases apostillation) is recommended. If a document is executed in a language other than English, a translated copy must be presented for its proper enforcement. Certain documents attract stamp duty, to be paid within three months of their entry into India. The Indian courts may refuse to enforce a document if they conclude that it has not been properly stamped in accordance with the relevant laws.
2 Finance structures
2.1 What aviation finance structures are most commonly used in your jurisdiction?
Sale and leaseback (SLB) transactions, vanilla loans and finance leases are the most common modes of financing for aircraft acquisitions by operators in India. While more complex structures exist and are sometimes used, most of the narrow body fleet in India has been taken on operating leases through SLB transactions. While Indian lenders have been slow to introduce new products, they are increasingly becoming more active in the pre-delivery payment financing market.
2.2 What are the advantages and disadvantages of these different types of structures?
SLBs are widely used in India, as they afford lessees greater flexibility in managing their fleet and enable them to manage their working capital. Traditionally, this method has been used to keep aircraft off the airline's balance sheet; however, due to changes in accounting standards, there has been a shift in how operating leases are accounted for by airlines.
Plain vanilla loans from both national and international banks are also increasing in popularity. Loans from overseas banks require a higher level of legal compliance; but local laws have hampered the financing of aircraft by Indian banks. However, the industry has overcome some of these obstacles and has thus made this method a feasible option for some, especially in the private jet category.
In the case of a finance lease, the risks and rewards arising from ownership of the aircraft are transferred to the lessee. The lessee builds equity in the aircraft over the lease period and usually becomes the owner at the end of the lease. The disadvantage is that the compliance aspects of finance leases in India – which are treated by the RBI as external commercial borrowings – are significant and the prior approval of the RBI or its delegate bank is required.
2.3 What other factors should operators bear in mind when deciding on a financing structure?
Other factors include tax considerations such as withholding tax, general anti-avoidance rules and so on. RBI regulations and permissions must also be scrutinised before the structure of an aircraft financing project is finalised.
2.4 Who are the most common providers of aircraft finance in your jurisdiction? Do any restrictions apply in this regard?
The most common providers are foreign banks and financing companies. Several transactions are supported by export credit agencies in the countries in which the aircraft are manufactured. Local Indian banks have also increased their activity in the aircraft financing market; however, the opportunities for growth remains stunted due to prevailing laws and regulations that prohibit the repossession of aircraft by local banks from a defaulting Indian party.
3 Title transfer
3.1 How is title to an aircraft legally transferred in your jurisdiction?
The title to an aircraft may be transferred by written agreement or contract between the parties. The Directorate General of Civil Aviation ("DGCA") recognises a bill of sale as a legal method of transferring title.
3.2 What are the formal and documentary requirements for transferring title?
A document transferring title in an aircraft should fulfil all of the essential requirements for a valid contract as per the Indian Contract Act, 1872. It should satisfy the test that a valid contract has been entered into – that is:
- there has been an offer by the transferor;
- the offer has been accepted by the transferee; and
- the transfer has been made for some valid consideration.
The DGCA will need to be informed of any change of ownership in an aircraft. Until that change is incorporated on the certificate of registration, it is illegal for anyone to operate the aircraft. The owner or operator must apply to the DGCA for permission to operate the aircraft under the old certificate of registration while the new certificate is being processed. Once the transfer has been completed, the owner or operator must apply to the DGCA for the issue of a new certificate of registration through Form CA-28 and must pay the applicable fee. Among other things, the DGCA will request:
- the constitutional documents of the new owner;
- a copy of the executed bill of sale; and
- an affidavit from the previous owner that it has received the sale proceeds in full from the new owner.
In order for the transfer document to be accepted by the DGCA, it must be duly stamped, together with payment of stamp duty (if applicable). Further, notarisation (and in certain cases apostillation) of copies of the transfer document is also required.
3.3 What is the process for transferring title?
Please see question 3.2. Where an aircraft that is already in India undergoes a change of ownership, the operator must apply in advance to the DGCA for permission to continue operating the aircraft under the old certificate of registration while the new certificate (with details of the new owner) is being processed.
3.4 Are any charges, fees or taxes levied on the transfer of title?
If executed while the asset is in India, a document transferring title in an aircraft, risks incurring several taxes in India, such as capital gains tax, goods and services tax and stamp duty. If the transfer document is executed overseas, then under Indian law it must be affixed with the requisite stamp duty within three months of its first receipt in India. Certain states also impose stamp duty on copies of agreements.
The fee for recording the transfer of title in the Indian aircraft register maintained by the DGCA is nominal and will depend on the weight of the aircraft.
3.5 Other than in case of insolvency, are there any laws under which the registered title holder may be forced to relinquish ownership of the aircraft (eg, expropriation, confiscation)?
Under the Aircraft Act, 1934 (the "Aircraft Act"), the central government may, in the interest of public safety or peace, direct that any aircraft or class of aircraft be delivered forthwith or within a specified timeframe to an authority named by the Central Government, to be at the disposal of the government for public service. Anyone that suffers direct injury or loss by reason of such order will be entitled to compensation, as determined by an authority appointed by the Central Government.
Further, any authority so authorised by the Central Government can detain an aircraft if, in the opinion of that authority:
- the flight of the aircraft would endanger persons in the aircraft or any other person or property;
- detention is necessary to ensure compliance with any of the provisions of the Aircraft Act or the aircraft rules applicable to that aircraft; or
- detention is necessary to prevent the contravention of any rules made under Sections 5(2)(h) and (i) of the Aircraft Act.
Detention during emergency: The government or its agencies can confiscate, detain or requisition aircraft (whether foreign owned or otherwise) during a general emergency. The Central Government can also seize:
- any aircraft belonging to the enemy;
- any aircraft or class of aircraft that is owned or operated by, or in the possession or custody of, any person domiciled or resident in an enemy territory; or
- any aircraft or class of aircraft whose operation is likely to aid or assist the enemy, or to be prejudicial to the defence of India or to public safety.
Such an order may also require any aircraft or class of aircraft to be placed at the disposal of any authority specified therein.
Where it appears necessary in the interest of the defence of India and civil defence to do so, any person so authorised by the Central Government can order that any particular aircraft at any place in India may not leave that place until permitted to do by such authority or person as may be prescribed in that order. This power was exercised by the government during the state of emergency declared in India in 1962 and 1971 under the Defence of India Acts, 1962 and 1971 and the rules made thereunder. The acts and the rules remained in force until six months after revocation of the emergency order.
Rule 42 of the Aircraft (Security) Rules, 2023 also permits the Director General or any other person authorised in this behalf by the Central Government to detain an aircraft for security purposes if so required.
As per the Epidemic Diseases Act 1897, the Central Government is empowered to take measures to inspect and detain any conveyance, including an aircraft, leaving or arriving at any land port, port or aerodrome of India, as the case may be.
Aircraft may also be detained and in extreme circumstances sold under the customs and other tax laws of India.
4 Registration
4.1 What body administers the aircraft register in your jurisdiction?
The DGCA, which is the civil aviation authority in India, is responsible for maintaining the aircraft register in India.
4.2 What information is included in the aircraft register? Is this publicly accessible?
Aircraft registered on the Indian aircraft register are given a three-letter registration number prefixed with the letters 'VT' – for example, 'VT-XYZ'.
The DGCA records various parameters in relation to an aircraft. The following details are contained in the certificate of registration and the aircraft register:
- the type of aircraft;
- the manufacturer serial number/certification number;
- the year of manufacture;
- nationality and registration marks;
- the full name, nationality and address of the owner or lessor;
- the full name, nationality and address of the lessee;
- the usual station of the aircraft;
- the date of registration;
- the period of registration; and
- the name of the mortgagee or hypothecator.
The register is accessible to the general public.
4.3 What are the formal and documentary requirements for registration of an aircraft? What is the process for registration? What is the effect of registration? What is the effect of deregistration?
The applicant must file notarised copies of the following documents with the DGCA along with the CA-28 aircraft registration form:
- the customs clearance certificate/bill of entry of the aircraft;
- a certificate of de-registration from the previous registering authority, if any;
- evidence to the effect that the aircraft has been purchased or wholly owned by the applicant;
- in case of aircraft purchased from a previous owner, an affidavit to that effect;
- where the aircraft is taken on a dry lease, a copy of the lease agreement;
- if the aircraft is owned by a company or corporation, a document of registration of the company and the names, addresses and nationalities of the directors;
- a copy of the import licence issued by the director general of foreign trade or permission for import of the aircraft issued by the Ministry of Civil Aviation/DGCA; and
- where the aircraft has been mortgaged/hypothecated, the owner or operator is required to submit his or her consent for the same and the papers to this effect.
Registration of an aircraft and issue of the certificate of registration generally takes from two to four weeks. There is a fee for registration of an aircraft in the Indian aircraft register, which is based on the weight of the aircraft. No other taxes or duties are payable to register an aircraft.
The DGCA records various parameters in relation to an aircraft, such as details of the owner, lessor, operator and mortgagee. Registration in the aircraft register serves as notice to all third parties regarding the existence and details of such an interest in that aircraft.
Once an aircraft has been deregistered, it may no longer be flown in India. An aircraft may be deregistered on the application of the lessee/operator, the owner, the lessor or an irrevocable deregistration and export request authorisation ("IDERA") holder.
The consent of the lessee or operator is required in all situations, except where an IDERA holder applies to the DGCA for deregistration on the basis of the IDERA.
4.4 If your jurisdiction has ratified the Cape Town Convention, can a local law deregistration power of attorney be acquired by a lessor/financier, and if so, does it provide any additional protection for such parties?
A local law deregistration power of attorney is generally issued in favour of the lessor or financier, to provide additional comfort to the lessor or financier.
While in theory, a deregistration power of attorney should enable an owner or mortgagee to freely deregister and export the aircraft from India, in practice there may be variations as to how the deregistration power of attorney is perceived by the DGCA. As a result of the introduction of Aeronautical Information Circular ("AIC") No. 12 of 2018, the deregistration power of attorney has virtually lost its significance in relation to deregistration and export, and the IDERA is thus considered a superior tool to facilitate deregistration and export. Further, it is advisable that a deregistration power of attorney be executed on Indian stamp paper and attested by a notary public. It is also recommended that it be executed in English. Advance recording of the deregistration power of attorney with the DGCA is not required, but is recommended. If the deregistration power of attorney has been executed properly, it cannot be revoked. A deregistration power of attorney can be issued in favour of more than one person.
4.5 What are the formal and documentary requirements for registration of an aircraft lease? What is the process for registration? What is the effect of registration? What is the effect of deregistration?
There is no separate procedure for registration of an aircraft lease. Registration of an aircraft amounts to registration of the lease. This is because the owner, lessor and operator must be identified when applying for the certificate of registration of the aircraft, and must meet the requirements under the DGCA rules and regulations. Among other things, the applicant must file a copy of the lease agreement with the DGCA.
The consequence of failure to file the lease with the DGCA is that the aircraft will not be registered in India. Also, there is no separate register for recording leases in India.
For details of the effect of registration, please see question 4.3
4.6 What are the formal and documentary requirements for registration of an aircraft mortgage? What is the process for registration? What is the effect of registration? What is the effect of deregistration?
At the time an application for registration of an aircraft is submitted, the existence of a mortgage over the aircraft must be disclosed to the DGCA. The name of the mortgagee will be duly endorsed on the certificate of registration of the aircraft. Other typical documents that are required are request letters from the mortgagee, the owner of the aircraft and the operator of the aircraft. If a mortgage comes into existence once an aircraft has already been registered, an application must be filed for amendment of the certificate of registration to endorse the name of the mortgagee thereon.
It normally takes between two and four weeks for the DGCA to endorse the name of a mortgagee on the aircraft's certificate of registration. The cost may also vary, depending on the documentation requested by the DGCA and the time it takes to clarify any queries from the parties concerned.
Registration in the aircraft register serves as notice to all third parties regarding the existence of such an interest in that aircraft.
Deregistration of an aircraft mortgage means that the security granted is discharged. An aircraft mortgage is deregistered by submitting the discharge details, among other things, to the DGCA.
4.7 Can aircraft be registered in your jurisdiction even if the operator is not from your jurisdiction?
India has entered into Article 83-bis agreements whereby Indian operators can operate aircraft that are registered on a foreign register; however, these are used sparingly and in fact are permitted only in extraordinary circumstances.
Aircraft that are habitually based in India must be registered in the country. There are very few circumstances in which a foreign registered aircraft can operate habitually in India – the most common being in relation to a wet lease (when a foreign registered aircraft is permitted to operate in India). Wet leases are also permitted only in exceptional circumstances.
5 Operating leases
5.1 Are there any mandatory or advisable terms that should be included in an operating lease from a local law perspective?
While there are no mandatory terms that must be included in a lease, the lease itself must be a valid and binding contract entered into between two parties that are competent to contract. The parties must ensure compliance with the Aircraft Leasing Manual (CAP 3200) issued by the DGCA and other relevant laws. Various other provisions relating to the export of the aircraft from India may be included; and provisions relating to insolvency proceedings should be carefully drafted and included.
5.2 What charges, fees or taxes arise from the execution of an operating lease?
The execution of an operating lease per se will not attract any charges, fees or taxes. There may be stamp duty implications, however, and the jurisdiction in which the lease agreement is being executed should be chosen carefully. Also, most aircraft operating leases are executed and kept overseas.
5.3 Can either the lessor or the lessee assign or novate its rights in an operating lease in your jurisdiction?
India recognises the concept of both contractual assignment and novation. As long as the assignment and assumption agreement or novation agreement is a valid contract under Indian law – that is, it is not a result of fraud, coercion or misrepresentation; and it records an offer and the acceptance of the offer for valid consideration – the Indian courts will uphold the validity of such an agreement. The lessee's consent will also be required in order for such an agreement to be valid and enforceable. As long as the agreement itself does not contravene public policy, there are no mandatory terms that such agreement must contain in order to be valid under Indian law. The assignment or novation of an operating lease agreement by a lessee will depend on the terms of such lease agreement and will require the prior approval of the DGCA.
5.4 What are the respective obligations and liabilities of the lessor and lessee under an aircraft lease?
The obligations and liabilities of the lessor and lessee will flow from the specific aircraft lease agreement.
In general, lessees must:
- pay the lease rental and supplemental rent (if any);
- ensure that they operate the aircraft safely; and
- maintain adequate insurance for the aircraft.
The lessor, on the other hand, must allow the lessee to have quiet enjoyment of the aircraft as long as the latter is meeting its obligations.
5.5 In the event of default, what options are typically available to enforce the operating lease? Do all or some enforcement actions require court applications? If so what are the associated costs and timescales involved?
In the event of default, the lessor may notify the lessee of the occurrence of an event of default and specify a timeframe within which to remedy the default. Where that is unsuccessful, the lessor may terminate the agreement and take possession or control of the aircraft. Where the defaulting lessee does not cooperate, the lessor has the option of approaching the court. The only remedy that the lessor can pursue without leave of the court is deregistration pursuant to an IDERA. If an IDERA has not been executed and filed with the DGCA and/or a deregistration power of attorney has not been executed, the lessor must approach a court of law.
The legal costs involved vary significantly and depend, among other things, on the length of time the proceedings take.
5.6 Upon termination of the operating lease, how is repossession of the aircraft effected? Can airports assert a lien over all of the lessee's aircraft until unpaid charges have been discharged?
On termination of an operating lease, repossession is usually effected amicably. However, if the lessee does not cooperate, a court order may be required. If an IDERA has been executed, the Cape Town Convention procedures may be invoked to facilitate the deregistration and export of the aircraft from India. AIC No. 12 of 2018 deals with the "Standard Operating Procedure for Implementation of Rule 32A Relating to Export of Aircraft Covered under Cape Town Convention".
In addition to setting out the procedure to be followed following receipt of an application for deregistration and export of an aircraft from an 'IDERA holder', the AIC specifies the format in which an IDERA holder should apply to the DGCA for deregistration on the basis of an IDERA. The procedure for deregistration and export of an aircraft under AIC 12/2018 is as follows:
- The IDERA holder must file an application in the format specified by the DGCA.
- The DGCA will immediately post notice that the application has been filed by the IDERA holder on its website, stating:
-
- the date of receipt of the request;
- the type of request;
- the registration details; and
- the name of the operator.
- The DGCA will also email the same information to all 'designated officers' of all airport operators.
- The DGCA will de-register the aircraft in accordance with Rule 30(7) (ie, within five working days of receipt of the application from the IDERA holder). It will also email the date of such de-registration to all 'designated officers' of all airport operators.
- The airport operators will calculate the outstanding dues relating to the aircraft in question (not to the fleet) in the three months immediately preceding the date of receipt of the application from the IDERA holder – the date of 'declared default'. Dues that arose prior to this three-month period are not included in the calculations.
- The airport operators will raise bills within five working days of receipt of the first email from the DGCA and email them to the IDERA holder, with a copy sent to the DGCA, indicating the relevant bank details to facilitate electronic payment.
- Any other Central Government entity or inter-governmental organisation of which India is a member, or other private provider of public services in India, that has any outstanding dues pertaining to the aircraft in question (not to the fleet) may also raise its bills and send them to the DGCA within five working days of the date of receipt of the application from the IDERA holder – the date of 'declared default'. The DGCA will inform the IDERA holder by email of such liability only if it receives the bills within five working days of the date of 'declared default'. The DGCA will not be responsible for any dues not notified to it within this five-working-day period.
- The IDERA holder, on receipt of any bills by email, may make the payment.
- Once payment is made by the IDERA holder, the payment recipient will issue a certificate to the IDERA holder within two working days of receipt, stating that the bills it has raised have been cleared. This certificate will also be forwarded to the IDERA holder by email, with a copy sent to the DGCA.
- The IDERA holder will submit to the DGCA a copy of the certificate of payment of bills along with its request for permission to export the aircraft from India.
- On receipt of such request, the DGCA will issue the necessary permissions promptly, as provided in Rule 32A.
- On receiving permission from the DGCA, the IDERA holder will send an email to the concerned airport operator forwarding a copy of the DGCA's permission and indicating the exact date of the flight out of India, while also requesting a bill with respect to any dues accrued in relation to the aircraft after the date of 'declared default' up to the day of departure.
- The airport operator will raise a bill for such dues within one working day and send the same to the IDERA holder by email with a copy sent to the DGCA, along with all necessary bank details.
- Once the IDERA holder makes the payment, the aircraft may depart from India in accordance with the DGCA's permission and no airport operator may prevent the aircraft from leaving India.
The Airport Authority of India and private airports that derive their rights from the authority may exercise a lien on the aircraft for any unpaid dues, such as landing and parking charges. Under AIC No. 12 of 2018, a fleet lien is not recognised. Amicable deregistration and export, rather than under the AIC, will require all airport and other dues to be cleared before deregistration and export is permitted. Irrespective of what procedure is followed for deregistration, the exporting party must clear all goods and services tax (GST) payable towards aircraft lease rentals paid by the lessee to the lessor. The GST rate is 5% of each aircraft lease rental, which the lessee must pay to the government through a reverse charge mechanism.
5.7 What disputes typically arise over operating leases in your jurisdiction and how are these typically resolved?
Disputes typically revolve around non-payment of rent and other payments. In most cases, lessors and lessees agree to resolve the dispute amicably. However, where the dispute escalates beyond amicable settlement, it will be referred to the method of dispute resolution set out in the lease agreement under the agreed governing law.
5.8 What other considerations should be borne in mind when concluding an aircraft lease in your jurisdiction?
India is an exchange-controlled country; therefore, any remittance of foreign exchange requires the approval of the Reserve Bank of India.
Execution of a lease agreement physically in India will typically attract stamp duty. Even lease agreements executed overseas must be 'stamped' – that is, the duty on them must be paid within three months of their entry into India. In certain Indian states, even copies of originals (physical and electronic) may attract stamp duty.
A lessor under an aircraft lease seeking enforcement of such a lease need not pay any taxes or fees in connection thereto. It may, however, have to pay any unpaid taxes which were the responsibility of the lessee to export the aircraft from the country; hence, the lessor must ensure that the lessee is current with the payment of specific taxes – such as GST on lease rental through the reverse charge mechanism and fees on the aircraft – and in general as an entity.
6 Security
6.1 What types of security interests in aircraft are available in your jurisdiction? Which are most commonly used and which would you recommend (if different)?
The typical form of security granted in aviation finance transactions in India is a mortgage over the aircraft itself. In certain circumstances, personal and corporate guarantees may also be issued.
6.2 What are the formal, documentary and procedural requirements for perfecting a security interest in an aircraft?
There are no particular formal requirements for the creation of a security interest in India, and it need not be registered. However, it is recommended that the document creating the security interest be filed and recorded with the DGCA. The DGCA will endorse on the certificate of registration the name of the mortgagee and/or details of the hypothecation. The English language is sufficient for these purposes and will be accepted by the DGCA.
It is also advisable to notarise the document creating the security interest. Where it is executed abroad, it should also be authenticated by an Indian consular or other diplomatic officer. However, recent experience would suggest that most government departments – including the DGCA – accept notarised copies of documents, thereby making the requirement for consularisation redundant.
As aircraft are movable assets, there is no mandatory requirement to register any mortgages, liens, encumbrances and so on in India. However, an aircraft mortgage can be registered with the Sub-registrar of Assurances under the Registration Act, 1908 within four months of its execution. Registration with the Sub-Registrar of Assurances will constitute persuasive value against a claim by a bona fide purchaser without notice. Registration with the Registrar of Companies under the Companies Act, 2013 is also possible; however, it is not compulsory if the mortgagor of the aircraft is not an Indian entity with its registered place of business in India.
6.3 Can security be taken over engines and/or any other aircraft parts in your jurisdiction? If so, how?
Security interests over engines and other parts of an aircraft can be created in a manner similar to the creation of a security interest in an aircraft. However, the DGCA does not record ownership interests in aircraft engines.
6.4 What charges, fees or taxes arise from the perfection of a security interest in an aircraft?
There are no charges for filing and recording security interest documents with the DGCA.
The fee for registration of a document creating a charge over movable assets (which is not mandatory) will differ from state to state, as it is determined by each state.
6.5 What are the respective obligations and liabilities of the owner and the secured party under the security interest?
Essentially, the obligations and liabilities are those negotiated by the parties and reflected in the security agreement. The owner is obliged to repay the amount for which the security interest has been created; and consequently, the secured party is liable to surrender its security interest once the owner has satisfied its part of the promise. There is also a general obligation on the secured party to maintain the property so transferred for the creation of the security in case there is a physical transfer of the property.
6.6 In the event of default, what options are available to enforce the security interest? Is self-help available in your jurisdiction or does enforcement action have to go through the courts?
The remedies for enforcement of a security interest will largely depend on issues such as:
- the nature of the security interest;
- the entities involved;
- the nature of the asset; and
- possession of the asset.
However, the security interest holder will have to approach the court or the alternative dispute resolution body to enforce the security interest.
Self-help remedies are available to secured creditors under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. However, under Section 31(c), the Act's provisions are specifically excluded in relation to the creation of any security in an 'aircraft' as defined under the Aircraft Act, 1934. Under the Cape Town Convention, India has elected for self-help remedies, but it has not incorporated them into municipal law. Thus, they are not available to secured parties.
6.7 Will local courts recognise a foreign court judgement in favour of a lessor/financier?
The Indian courts recognise the judgments of foreign courts. The treatment of such judgments will differ depending on the nature of the judgment and the jurisdiction in which it was issued.
Reciprocating territories: Only in certain cases can a foreign decree be executed in India directly as if it had been issued by an Indian court. Section 44A of the Code of Civil Procedure, 1908 provides, among other things, that where a foreign judgment has been rendered by a superior court in any country or territory outside India which the Indian government has declared to be a reciprocating territory, it may be enforced in India through execution proceedings as if it had been rendered by the relevant Indian court. The United Kingdom and Northern Ireland have been declared as reciprocating territories for the purpose of Section 44A. There is no such arrangement with the United States.
The Indian courts may refuse execution if the decree falls within any of the following exceptions specified in Section 13 of the Code of Civil Procedure, which provides, among other things, that a foreign judgment will be conclusive of any matter directly adjudicated upon, except where:
- it was not issued by a court of competent jurisdiction;
- it was not given on the merits of the case;
- it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognise Indian law in cases where such law is applicable;
- the proceedings in which the judgment was issued were opposed to natural justice;
- it was obtained by fraud; or
- it sustains a claim founded on a breach of any law in force in India.
However, Section 44A refers only to decrees or judgments under which a sum of money is payable. Essentially, therefore, only money decrees fall within the purview of Section 44A; no other decrees are enforceable in India.
Enforcement of judgments from non-reciprocating territories: In the absence of a reciprocal arrangement or treaty, a suit must be filed for enforcement of any such judgment or any such order obtained.
In the enforcement suit, the Indian court cannot examine the merits of the original claim or question its correctness or propriety. Through precedent, the courts have held that the word 'judgment' in the expression 'foreign judgment' has been assigned the same meaning as is given to it in English law, and refers to a decree or order of a foreign court. A foreign judgment must be final and conclusive in the court in which it was issued to be considered a valid cause of action.
In order to establish that a final and conclusive judgment has been issued, it must be shown that, in the court in which it was issued, it has conclusively, finally and definitively established the existence of the right of which it is sought to be made conclusive evidence in India, so as to constitute res judicata (ie, a matter conclusively decided between parties).
6.8 What other considerations should be borne in mind when perfecting a security interest in an aircraft in your jurisdiction?
The interests of a security interest holder should be recorded in the aircraft register upon registration of the aircraft. Where the aircraft is already registered, the owner/lessor must notify the DGCA of the creation of the security.
Interests in aircraft engines and parts will not be recorded in the aircraft register, and thus security interest holders should undertake to have these registered as international interests at the International Registry.
6.9 Has your jurisdiction ratified the Cape Town Convention? If yes, are there any notable exceptions to the ratification? If yes, in your opinion, could any conflicts arise between the Cape Town Convention and local law in an enforcement scenario? If yes, have any enforcement issues arisen in relation with regard to conflicts between the Cape Town Convention and local law?
The Cape Town Convention and Protocol are in force in India. India acceded to the Cape Town Convention on 31 March 2008 and it entered into force on 1 July 2008. However, India is yet to incorporate the convention and protocol into municipal law; and as a result, several conflicts remain between local municipal law and the Cape Town Convention. In such a scenario, local law will prevail over international obligations. To remedy this issue, the government has introduced the Cape Town Convention Bill, 2018 and has invited comments and suggestions from the general public. Further action in this regard is awaited.
Conflict between Cape Town Convention and local laws: India has made a general declaration under Article XXX (3) in respect of Article XI for the application of Alternative A in its entirety to all types of insolvency proceedings; and to the effect that the waiting period for the purposes of Article XI(3) of that alternative will be two calendar months.
Under local laws, Section 14 of the Insolvency and Bankruptcy Code, 2016 ("Code") imposes a moratorium for a period of 180 days, which may be extended up to 330 days, once an application for the initiation of a corporate insolvency resolution process has been admitted by the tribunal. On 3 October 2023, the Ministry of Corporate Affairs issued a notification stating that India is a signatory and has acceded to the Cape Town Convention and the Protocol, and therefore the moratorium under Section 14(1) of the Code shall not apply to transactions, arrangements or agreements, under the Convention and the Protocol, relating to aircraft, aircraft engines, airframes and helicopters. This implies that lessors are not prohibited from reclaiming any property that has been leased to an entity under insolvency.
7 Aircraft sale and purchase
7.1 How are aircraft sale and purchases typically effected in your jurisdiction? Are there any differences in the sale of airframe versus engines?
An aircraft sale and purchase is commonly carried out through the execution of an aircraft sale and purchase agreement between the purchaser and the seller.
Aircraft are usually removed from India before the sale and purchase is concluded. In the case of engines, however, it may be impossible to remove the asset from India and the transaction may thus occur while the asset is located within the Indian jurisdiction. The sale and purchase of an aircraft results in an operator mandatorily having to apply to the DGCA; but the sale and purchase of an engine does not require the DGCA's involvement.
7.2 What players are typically involved in an aircraft sale and purchase?
The parties typically involved are the seller, the purchaser, the financier and the operator.
7.3 Is the manufacturer/seller bound by a duty to disclose? What representations and warranties will it typically make?
Aircraft sale and purchase agreements are not typically regulated by Indian law – English law or New York/US law is most commonly the governing law. Such agreements usually contain standardised representations and warranties.
7.4 What due diligence is typically conducted in an aircraft sale and purchase?
Due diligence in an aircraft sale and purchase involves an investigation of the title, technical and legal documentation relating to both the aircraft and the seller. The buyer should investigate:
- the validity of the title;
- the identity and registration of the seller; and
- whether there are any encumbrances, such as a lien on the aircraft.
This includes, among other things, searches at the International Registry.
An aircraft in India must be checked for any accrued government and other dues. In the case of a pre-owned aircraft, the maintenance records are also an essential part of due diligence.
7.5 What are the formal, documentary and procedural requirements for conclusion of an aircraft sale and purchase?
Please see question 3.1
7.6 What are the respective obligations and liabilities of buyer and seller during the transaction, and what are the consequences of any breach?
The primary obligation of the buyer is to make arrangements to pay the purchase price of the aircraft; while the primary obligation of the seller is to make the aircraft available in the condition as agreed by the parties on the date of delivery of the aircraft. The consequences of breach of the terms of the agreement are generally enshrined in the agreement itself and may include:
- cancellation of the agreement;
- payment of penalties; and
- such other consequences as may be agreed between the parties.
The seller will also state that it is the sole and absolute legal and beneficial owner of the aircraft and, upon delivery, will transfer the aircraft to the buyer with full title. Mortgages, charges, pledges, liens and other encumbrances created by the seller, as well as the aircraft's damage history and the payment terms, are usually handled commercially; and the parties will be obliged to meet the agreed commercial requirements.
7.7 What charges, fees or taxes arise from the conclusion of an aircraft sale and purchase? Are there sales tax exemptions – for example, if the aircraft is being sold to an operator that will continue to use the aircraft to generate revenue?
Goods and services tax ("GST") is applicable only if the place of the supply of goods is located in India; this is why sale and purchase transactions are generally affected when the aircraft is located outside India. Customs duty and taxes will apply when the aircraft is imported into India; the rates may differ depending on the use of the aircraft by the importer. For example, the import of an aircraft is exempt from GST and customs duty if the importer:
- is a scheduled operator;
- has procured the aircraft on an operating lease;
- undertakes to pay GST on the lease rentals; and
- fulfils other conditions.
7.8 What other considerations should be borne in mind when conducting a sale and purchase of an aircraft in your jurisdiction?
The main considerations are discussed in questions 7.4 and 7.7.
7.9 Are the payments of deposits refundable under term sheets if a sale does not proceed and do the parties have a duty of good faith in the conduct of sale and purchase negotiations?
The nature of the payment of deposits is usually defined in the agreement. The amount which would be refundable (full or partial) will usually depend on which party is in breach of the terms of the agreement. The consequences of breach by either party or force majeure are generally set out in the agreement itself.
The parties have a duty of good faith in the conduct of sale and purchase negotiations.
8 Insurance
8.1 What insurance requirements apply to aircraft in your jurisdiction?
The operator must have insurance coverage for liability towards hull, crew, passengers and third parties. Insurance is also mandatory for baggage and so on, as required under the Carriage by Air Act, 1972.
8.2 If local insurance is required, can local insurers assign reinsurance contracts in your jurisdiction?
Indian registered aircraft may be insured by an Indian insurer, which in turn will seek reinsurance on the international insurance market; however, a 4% reinsurance retention with the General Insurance Company of India is mandatorily required.
8.3 What other forms of insurance feature in the aircraft finance market in your jurisdiction?
We are not aware of any other forms of aviation insurance in India, apart from those already available.
9 Trends and predictions
9.1 How would you describe the current aircraft financing landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
Current trends: In India, most aircraft operated by Indian airlines are leased through SLB transactions as airlines seek to maintain liquidity by avoiding heavy capital expenditures. Also, the GIFT City in Gujarat has been promoted as a hub for aircraft leasing and financing, emulating Ireland's leasing ecosystem. The IFSC Aircraft Leasing and Financing framework has been operational since 2021, allowing foreign lessors to establish leasing companies in India. This development is aimed at reducing dependency on foreign leasing firms and fostering a local leasing industry.
On the legislative front, the next 12 months may see further developments, particularly since the government has been working on reforms to enhance ease of doing business in the aviation sector, by attempting to incorporate the Cape Town Convention in local laws. A formal Act of Parliament is still awaited in this regard.
10 Tips and traps
10.1 What are your top tips for the smooth conclusion of an aircraft financing transaction and what potential sticking points would you highlight?
It is critical that a financier conduct both financial and legal due diligence on an operator before committing itself to the financing transaction. Once this has been done, the financier should ensure perfection of the financing transaction documents by filing the requisite documents with the DGCA. Local legal support is also imperative to ensure that the transaction closes in a timely fashion, with all protections to the financier accorded as available under Indian law.
Co-Authored by Mr. Dhawal Jain and Mr. Ritesh Aggarwal
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.