Protection and Enforcement of Interests in Aircraft Objects Bill, 2022

In News

• Recently, the Ministry of Civil Aviation has proposed a Draft law to enable aircraft lessors to repossess aircraft during dispute.

About 

• Stakeholders’ comments are sought on the draft Protection and Enforcement of Interests in Aircraft Objects Bill, 2022. 
• The new law will help international aircraft leasing companies to repossess and transfer planes out of India incase of a financial dispute with an Indian airline.
• The Bill implements the provisions of the Convention on International Interests in Mobile Equipment and Protocol on Matters Specific to Aircraft Equipment which was adopted at a conference in Cape Town in 2001. 
  • India acceded to the two instruments in 2008. 
  • These provide default remedies for the creditor and create a legal regime for disputes.
• Remedial measures provided by the draft law: 
  • Repossession of an aircraft object, or its sale or lease or collection of income from its use as well as de-registration and export of planes. 
  • Pending final adjudication of a claim as well as safeguards a debtor’s claim during insolvency proceedings against its Indian buyer.

Cape Town Convention

• The Convention on International Interests in Mobile Equipment and the Protocol on Matters specific to Aircraft Equipment (the ‘Protocol’) (together the ‘CTC’/ ‘Convention’) came into effect on November 16, 2001 at a Diplomatic Conference in Cape Town, South Africa. 
• Members: Initially adopted by about 20 states the number has since grown to 83 and includes both developing and developed economies. 
• Aim: Making available a competitive credit facility by providing readily enforceable rights, in mobile equipment such as the aircraft object, in the hands of the creditors. 
• CTC has consistently been able to strengthen creditor confidence in providing secure and competitive financing and has also been successful in –
  • Providing creditors with viable default remedies;
  • Creating the concept of ‘international interest’ which is recognized by the Contracting States;
  • Creation and recognition of International Registry (‘IR’) – which works as a public register and notice to third parties;
  • Creating and safeguarding priority of interests, etc.
• India: 
  • India acceded to the Convention and the Protocol on March 31, 2008 which after a waiting period of three (3) months became effective on July 1, 2008. 
  • Whilst international conventions and treaties have the force of law in India, in the absence of a legislative enactment underpinning the said convention or treaty, in case of conflict, the municipal laws prevail. 

Challenges

• Many smaller airlines find it challenging to get leased aircraft as lessors see a lot of exposure because the cost of recovery of assets is exorbitant and time consuming.
• Problems of International leasing companies in repossessing and exporting aircraft when Jet Airways shut down in 2019 and failed to pay its aircraft rentals.
• Indian entities have also suffered as international financial institutions demand an implementing legislation.

Way Ahead

• Legislation in this direction is necessary because several Indian laws such as the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 are in conflict with the Cape Town Convention and Protocol. 

Source: TH