On October 3, 2023, the Ministry of Corporate Affairs, Government of India issued a notification (‘Notification’) stating that the provisions of Section 14(1) of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) relating to moratorium will not apply to transactions, arrangements or agreements under the Cape Town Convention (‘Convention’) and the Cape Town Protocol (‘Protocol’) relating to aircraft, aircraft engines, airframes, and helicopters.

The Notification has significant implications for repossession of aircraft and engines in India, since such assets are now exempt from moratorium under Section 14(1) of the IBC.

While the introductory paragraphs of the Notification acknowledge that India is a signatory to and has acceded to the Convention and the Protocol, there is no domestic legislation on its implementation in India. However, the Supreme Court has, in various instances, observed that courts should lean in favour of interpreting provisions of Indian law in harmony with international law or treaty obligations.

Under the Protocol, India has issued a general declaration under Article XI dated March 31, 2008 providing for the application of Alternative A in its entirety to all types of insolvency proceedings, and that the waiting period to cure defaults for the purposes of Article XI(3) of that Alternative is two calendar months. Considering this, a view may be taken that the waiting period under the Protocol could apply.

The Aviation Working Group (‘AWG’), the organisation that monitors contracting states’ compliance with the Convention, had placed India on its watchlist in May 2023. AWG further downgraded India’s compliance index rating of the Convention and Protocol to ‘low’ in September 2023. The downgrade could have resulted in increased aircraft leasing rates for Indian carriers. However, the Notification should certainly help mitigate the jurisdiction risk and comes as a positive step for aircraft leasing in India.

Considering the recent exemption under the Notification, aircraft, engine owners and lessors are now better placed to repossess assets from defaulting lessees.

In the ongoing issues with GoFirst, lessors will need to carefully examine the existing orders preventing them from repossession of assets. Some such lessors may need to approach courts before they seek the benefits of this Notification to repossess assets.

Please contact aviation.mumbai@azbpartners.com for any inquiries.