AVIATION BUZZ

AIRCRAFT LEASING AND GIFT CITY

Navigating the Legal Framework and Recent Developments in Aircraft Leasing and Repossession in India

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Introduction

India's aviation sector has witnessed remarkable growth, with passenger numbers doubling from 79 million in 2010 to 158 million in 2017, and projected to reach 520 million by 2037. The legal and regulatory landscape for aircraft leasing and repossession in India has undergone significant transformations, guided by international conventions and domestic policy adjustments. These modifications are designed to streamline procedures and augment the efficacy of legal processes related to aircraft asset management. This article provides an examination of the relevant legal provisions, pivotal judicial interpretations, and recent amendments that shape the current framework governing aircraft leasing and repossession in India thus establishing India as the next hub for aviation.

Core Legal Provisions and Judicial Interpretations:

The Insolvency and Bankruptcy Code, of 2016, introduced complexities in the repossession process of GoFirst’s aircraft where lessors legal hurdles through Section 14, which imposes a moratorium on recovery actions once a Corporate Insolvency Resolution Process (CIRP) is initiated. However, clarifications issued by the Ministry of Corporate Affairs (MCA) vide notification dated 03 October 2023, specifying that the moratorium does not impede actions under the Cape Town Convention related to aircraft assets. This delineation ensures that the rights of lessors are preserved during the insolvency proceedings of the lessee. However, a legal dilemma arose on the retrospective effect of these clarifications issued by the MCA. A significant judicial assessment of these provisions occurred in the April 2024 ruling of the Delhi High Court in Bluesky 31 Leasing Company Limited v. DGCA & Ors. The Court in this judgment affirmed the supremacy of the lessor’s rights under the IDERA, compelling the DGCA to deregister the aircraft promptly, regardless of any concurrent insolvency proceedings against the lessee. This decision reinforces the enforceability of international aviation protocols, providing clarity and predictability for lessors.?

Regulatory Enhancements and Their Implications:

Under the Aircraft Rules, 1937, specific provisions like Rule 30(7) have been established to facilitate the deregistration and export of aircrafts, aligned with the stipulations of the Cape Town Protocol. This rule ensures swift action by the Directorate General of Civil Aviation (DGCA) on applications from holders of an Irrevocable Deregistration and Export Request Authorisation (IDERA), underscoring a commitment to procedural efficiency.

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The DGCA's amendments to the Civil Aviation Requirements (CAR), effective from April 2024, streamline the repossession and importation processes for aircraft, particularly benefiting lessors registered with the International Financial Services Centre (IFSC) in GIFT City. These amendments permit lessors to register as 'Operators' solely for aircraft maintenance post-repossession, ensuring asset value preservation. The procedural refinements also expedite the export process by mandating the DGCA to deregister the aircraft within five working days following an application from the IDERA holder. The DGCA coordinates with airport operators to settle outstanding dues and facilitate the aircraft’s departure, significantly reducing the bureaucratic burden previously associated with these processes.

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Implications for the Aircraft Leasing Industry

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The recent legal and regulatory reforms in India have profound implications for the aircraft leasing industry, significantly enhancing the operational environment and positioning the country as a competitive player in the global aviation finance market. These changes, by aligning with international standards through adherence to the Cape Town Protocol, provide a dual benefit of legal certainty and procedural efficiency. The judicial affirmation, as seen in the Bluesky 31 Leasing Company Limited v. DGCA case, further solidifies this aspect, demonstrating India's commitment to upholding international legal standards in its jurisdiction. This robust legal environment reassures lessors that their rights will be protected and disputes resolved predictably, which is vital for long-term investment decisions.

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The amendments to the CARs have streamlined the procedures for the deregistration and export of aircraft. The mandated five (5) working-day timeline for deregistration following an IDERA application significantly reduces bureaucratic delays that were previously a major concern for lessors. This expediency not only improves operational timelines but also reduces the costs associated with prolonged administrative processes. Furthermore, the ability of lessors to register as 'Operators' solely for the purpose of maintenance ensures that the aircraft retains its value during the repossession process, providing an economic safeguard that was not previously codified in the regulatory framework.

?Additionally, the amended CAR’s specific provisions for IFSC-registered lessors, such as expedited processes and regulatory facilitations, offer additional incentives that promote GIFT City as a strategic hub for aviation finance. These incentives include faster processing times, reduced bureaucratic involvement, and possibly fiscal benefits, aligning with the global best practices in financial hubs. By creating a specialized ecosystem for aviation finance, GIFT City stands to attract a concentration of industry expertise and investment, which could spur further economic activity and development in related sectors.

Conclusion:

In conclusion, the regulatory and legal reforms in India’s aircraft leasing sector are poised to transform the industry landscape by providing enhanced legal certainty and procedural efficiency. The judicial rulings and regulatory amendments reflect India’s dedication to creating a favourable environment for aircraft leasing and financing.

These changes not only benefit lessors with streamlined operations and reduced risks but also position India as a pivotal centre for aviation finance on the international stage, particularly through the development of GIFT City. As these reforms continue to be implemented, they promise to attract more foreign participation and investment, contributing to the growth and global integration of India’s aviation industry.

#aviation #Airbus #boeing #Vistara #Airindia #leasing #GIFTCITY #airlines

This article was independently written by Vistasp Irani Senior Associate at MV Kini Law Firm and Vaishnavi Choudhary, 3rd LLB student of RGSOIPL, IIT-Kharagpur for Educational purposes, for Avialaz Consultants an aviation consultancy and research organisation, co-founded by Sanjay Lazar, an author and Harvard Law Professional with 37 years of experience in aviation, law, public speaking, and leadership coaching.

He is available at @lazar1 on Linked-In & @sjlazars on X (formerly Twitter)

His book ‘On Angels’ Wings — Beyond the Bombing of Air India 182' is a number 1 #Bestseller available on Amazon.in