Implementation of the Cape Town Convention

By Shashank Jain, Trilegal
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India acceded to the Cape Town Convention on International Interests in Mobile Equipment and the Protocol to the Convention (CTC) on 1 July 2008, but it was not until the failure of Kingfisher Airlines that industry participants began to evaluate the implementation of CTC in India.

Shashank Jain
Shashank Jain

While the aircraft leased to Kingfisher were leased prior to India’s accession to CTC and thus did not have the benefit of CTC, industry participants came to realize that even if the leasing arrangements had been entered into after accession, some benefits available under CTC would probably not be available to them. This is mainly because India has not passed any new legislation or amended existing legislation in line with the provisions of CTC.

Under extant laws, India may enter into and implement a treaty after entering into an accession document, either with or without subsequent legislation. In the case of CTC, India has not enacted any legislation, thus while CTC is enforceable, in the event it conflicts with any other Indian legislation (including delegated legislation) the provisions of the legislation would prevail.

Amendments proposed

Pursuant to requests by industry participants, the Ministry of Civil Aviation has now proposed to amend the Aircraft Rules, 1937, to give legislative sanctity to the Irrevocable De-registration and Export Request Authorization (IDERA) under CTC, and allow the holder of an IDERA to procure de-registration, export and physical transfer of the aircraft without consent of the lessee (i.e. the airline operator). That said, exercise of these rights would be subject to the rights of any governmental authority, inter-governmental authority or private sector authority to which any dues are pending, and accordingly the rights of such authorities will supersede those of the IDERA holder.

There are a few deviations between the proposed amendments and the declarations made by India under CTC. As a welcome deviation, the proposed amendment does not provide for extending such rights to “another aircraft object”, which could be interpreted to mean that primacy of the governmental authority, inter-governmental authority or private sector authority would not be on a fleet-wide basis.

Certain other deviations are detrimental to lessors and financiers. Under the proposed amendments, governmental authorities, inter-governmental authorities or private sector authorities to which any dues are pending are proposed to be given the powers to “attach” and “sell” the relevant aircraft to recover their dues. The proposed amendment could be interpreted to mean that an aircraft which is an asset of the lessor or financiers can be attached and sold to recover dues owed by an operator (i.e. a lessee) which are not directly attributable to the lessor or financiers.

Additionally the proposed amendment gives the above-mentioned powers to “private sector authorities” as opposed to the declarations, where similar powers were conferred on a “private provider of public services”. The term “private sector authorities” has a wider connotation than “private provider of public services” as arguably all private sector authorities may not be providers of public services in a strict sense.

Under the extant Aircraft Rules, an aircraft may be de-registered by the Directorate General of Civil Aviation (DGCA) if a relevant aircraft lease is “not in force”. The proposed amendments modify this condition to permit de-registration of aircraft if the aircraft lease has “expired; or has been terminated in accordance with the law applicable”.

This modification could lead to delays in de-registration of aircraft, as the DGCA does not have the mandate or expertise to adjudicate whether a leasing arrangement between the lessee (i.e. operator) and lessor of an aircraft has been terminated in accordance with “applicable law”. It is therefore possible that the DGCA may require the lessors or financiers to procure an order from an Indian court prior to exercising its powers to de-register an aircraft. Further, inclusion of the word “expired” could result in the DGCA automatically de-registering an aircraft on a date set out in the relevant lease agreement, which may not always be in the best interest of the lessor, financiers or the lessee.

Conclusion

While the proposed amendments to the Aircraft Rules to implement CTC are a welcome step, more is needed to be done to fully incorporate and implement CTC in India. Apart from the proposed amendments, other Indian laws including those relating to taxation are required to be amended to ensure that India complies with its international obligations under CTC. India also needs to take steps to ensure compliance with obligations undertaken by it to ensure that lessors and financiers are able to obtain from a court speedy interim relief (including preservation, immobilization and possession) in relation to the aircraft, and ensure adherence to the timelines agreed to by India for the conclusion of legal proceedings, including insolvency proceedings.

Shashank Jain is a senior associate at Trilegal. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad.

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