The Ministry of Civil Aviation proposes to introduce the Protection and Enforcement of Interests in Aircraft Objects Bill, 2022 for public consultations

‘The Protection and Enforcement of Interests in Aircraft Objects Bill, 2022’ (the “CTC Bill”) has been published by Ministry of Civil Aviation on 16^th April 2022 for public consultation. The last date for public comments is 16^th May 2022.

The primary feature of the Bill is to enforce the Convention on International Interests in Mobile Equipment or the Cape Town Convention and the Protocol on Matters Specific to Aircraft Equipment (together “CTC”) and respective declarations deposited by India thereunder. Although, India acceded to CTC on 31^st March, 2008, however, there were no underlying domestic laws to enforce the provisions of CTC. Therefore, in the event, there is a conflict between the CTC and any domestic laws, the latter would prevail.

The CTC Bill will now be given the force of law in India once duly passed by the Parliament of India. The CTC Bill also contains a provision that will accord primacy to the provisions of the instant legislation in case of conflict with any other law in force in India. It also empowers the Central Government to make rules, if necessary, for implementing the Convention and the Protocol in India. Irrespective of whether the parties to an agreements has chosen India as the place of jurisdiction or not, the remedies under the CTC Bill will be applicable to all transactions that has a connection to India unless the same has been specifically excluded under the agreement. The parties are free to choose the choice of law for governing their contractual obligations.

We have summarized key provisions of the Bill below:

1. Applicability: The CTC Bill is extended to any debtor or seller which are based in India or whose aircraft object is in India at the time of the conclusion of the agreement/ contract of sale creating or providing for an international interest or any aircraft object having international interest that is registered in India. The CTC Bill further extends its applicability internal transactions in so far as they are not inconsistent with the provisions of existing domestic laws applicable to such transactions. The CTC Bill will not be applicable to any non-contracting state to CTC.
2. Recognition of international interest: The CTC Bill specifically recognizes the international interest over aircraft objects as provided under Articles 2 to 7 under the CTC. The international interest would need to be registered pursuant the CTC and shall remain effective until discharged or until expiry of the period specified in the registration.
3. Priority of Registered Interest: The CTC Bill also provides for priority of registered interest (as defined under the CTC Bill) over any other interest subsequently registered and over an unregistered interest. The priority of the registered interest applies: a) even if the interest was acquired or registered with actual knowledge of the other interest and b) even as regards value given by the holder of the interest with such knowledge. Further, Section 77 of the Companies Act, 2013 (which deal with registration for charges) is not applicable to an international interest constituted under the CTC.
4. Rights having priority without registration: The CTC Bill has also outlined rights that have priority over the aircraft object without any registration. These rights will have priority over an interest in an aircraft object equivalent to that of the holder of a registered international interest, and (b) have priority over a registered international interest (whether in or outside insolvency proceedings). These rights will be applicable to categories of non-consensual right and interest listed in Part A of the Third Schedule of the CTC Bill.
5. Self-help remedies: The CTC Bill provides for various remedies in case of any default/declared default under the agreement, the chargee may exercise the following remedies either on self help basis (subject to the relevant notice requirements) or by obtaining a court order to implement such remedies:

(a)  to take possession or control of the aircraft object charged to it;

(b)  to sell or grant a lease of such aircraft object; or

(c)   to collect or receive any income or profits arising from the management or use of such aircraft object.

6. De-registration and export of aircraft: In case of any event of default, the creditor may, to the extent that the debtor has at any time so agreed to (a) procure the de-registration of the aircraft; and (b) procure the export and physical transfer of the aircraft object from the territory in which it is situated. The DGCA will need to deregister the aircraft within 5 (five) working days from the date of filing of such deregistration request.
7. Interim Relief: A creditor adducing evidence of default by the debtor may, to the extent that the debtor has any time so agreed, apply to the court (respective High Court) for such interim relief which are listed in the CTC Bill. Specific timelines have been provided for grant of such interim relief.
8. Effects and remedies of Insolvency: The CTC Bill carves out the effects of (Indian) Insolvency and Bankruptcy Code, 2016 in terms of any international interest created on the aircraft object. However, rules of procedure relating to the enforcement of rights to property which is under the control or supervision of the insolvency administrator must be followed.

In case of insolvency proceeding against the debtor, the debtor or the insolvency administrator, whosoever has actual or constructive custody of the aircraft object, shall, no later than (a) 2 (two) calendar month from the date of commencement of insolvency proceeding or (b) the date on which the creditor would have been entitled to take possession of the aircraft object, give possession of the aircraft object to the creditor. However, in certain cases like cure of default or undertaking to that effect that contractual obligations will be fulfilled, the insolvency administrator may retain the possession of the aircraft object where. If the insolvency administrator fails to perform its obligation under the timelines mentioned above, the creditor may immediately exercise his right to take possession of the aircraft object as well as exercise other remedies provided under the CTC Bill.

9. Assignment and subrogation: The CTC Bill also provides for assignment of associated rights to the assignee the related international interest and all the interests and priorities of the assignor, subject to certain conditions mentioned therein.