Cape Town Convention and Protocol and Insolvency and Bankruptcy Code 2016

In a big relief for aircraft lessors, the Ministry of Corporate Affairs has notified that the protection offered to a corporate debtor from recovery of dues under the Insolvency and Bankruptcy Code 2016 will not cover aircraft, helicopters and engines.

Key points

As per notification, the provisions of sub-section (1) of section 14 of the Insolvency and Bankruptcy Code, 2016 shall not apply to transactions, arrangements or agreements, under the Cape Town Convention and Protocol, relating to aircraft, aircraft engines, airframes and helicopters.

The move may impact Go First’s insolvency resolution proceedings under which the National Company Law Tribunal had granted it a blanket moratorium in May 2023 to shield it from lessors and creditors and also restrained the DGCA from accepting any applications for de-registration of aircraft from any lessors.

Section 14 (1) of the IBC 2016 deals with moratorium that a court can order to protect a corporate debtor undergoing either insolvency or bankruptcy, including recovery of any property by an owner or lessor in the possession of the debtor.

Cape Town Convention (CTC)

  • The government notification is in line with the Cape Town Convention (CTC).
  • India is a signatory to the Convention on International Interests in Mobile Equipment and the related protocol, commonly known as the Cape Town Convention (CTC), as per which lessors can seek deregistration and export of aircraft without consent of the airline using their Irrevocable Deregistration and Export Request Authorizations (IDERAs).
  • However, it is yet to be fully incorporated into India’s legal framework, which so far has meant that in cases of conflict of the CTC provisions with Indian laws, the latter would generally prevail.
  • After Government’s notification, the automatic moratorium on assets under the IBC will not be applicable to aircraft, aircraft engines, airframes, and helicopters.

What was the issue?

  • Go First had 54 aircraft in its fleet, and lessors of nearly all aircraft had sought de-registration of their assets over pending dues.
  • Following the NCLT’S May order granting a blanket moratorium, lessors also approached the Delhi High Court to seek access to their aircraft.
  • They argued that the moratorium was in contravention of the Cape Town Convention and Protocol of 2001, to which India is also a signatory.
  • These deal with rights to high-value aviation assets and provide that in the event of a default, the lessor can terminate the agreement and take possession of the leased assets.

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