India: Insolvency In Indian Aviation: What Does India's New Cape Town Convention Bill Mean For Recovery And Re-Possession Of Leased Aircrafts?

Last Updated: 5 December 2018
Article by Ashwin Bishnoi, Charu Chitwan and Amrit Mahal

Most Read Contributor in India, August 2019

Leasing of aircrafts is a prevalent market practice in the aviation industry, and all existing airline operators in India have currently leased a significant number of aircrafts in their fleet. In fact, a sizeable debt in the books of these operators is in connection with such leasehold arrangements.

Insolvency proceedings in India, including the aviation sector, are governed by the Insolvency and Bankruptcy Code, 2016 (IBC). On 8 October 2018, the Indian government proposed the enactment of the Cape Town Convention Bill, 2018 (Bill), which when enacted will give primacy to the provisions of the Convention on International Interests in Mobile Equipment (Convention) and Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (Protocol), overriding any conflicting provision contained in any other law in force, especially the IBC and its moratorium provisions. Once this Bill is enacted into law, the Convention and the Protocol will become part of Indian law.

While the Bill potentially impacts the aviation insolvency sphere in multiple respects, this update analyses the effect of the Bill on the ability of lessors to re-possess aircrafts leased to Indian airline operators in insolvency under the IBC (corporate debtors) and other practical aspects in relation to this.

Is re-possession of the leased aircraft allowed during the moratorium period under IBC?

Once moratorium under IBC is declared by the bankruptcy court, recovery of any property by an owner or lessor (where such property is occupied by or in the possession of the corporate debtor) is prohibited under Section 14(1)(d) of the IBC for the duration of the moratorium period. However, bankruptcy courts have not yet had an opportunity to interpret this prohibition in the context of aircraft leases. This provision has in the past been applied to protect lessees from eviction in real estate tenancies, and given the wide ambit of Section 14(1)(d), the prohibition is likely to apply to aircraft leases as well. Accordingly, it is likely that the lessors will not be able to regain possession of their aircrafts when moratorium has been imposed.

Can the lessor terminate the lease agreement during the moratorium period under IBC?

Strictly, Section 14(1)(d) of the IBC only prohibits recovery and re-possession and makes no mention of termination of the underlying lease arrangement itself. While there is no judicial precedent as yet, however, given the intrinsic linkage between termination and right to re-possess, a court in India may well find that even termination is prohibited under Section 14(1)(d) unless egregious circumstances (such as non-maintenance of the aircraft at the risk of substantial risk or damage) otherwise exist.

It is helpful to note that Article 10 of the Convention expressly provides that in the event of default under a lease agreement, the lessor can terminate such agreement and take possession or control of the object to which the agreement relates. This is yet another reason why the enactment of the Bill will be a positive step for lessors.

How does the IBC treat lease rentals that the corporate debtor has defaulted on?

The treatment of lease rental dues depends on whether these relate to the period prior to the moratorium or after. Once insolvency has been initiated, all payments due to lessors for the pre-moratorium period can only be claimed from the corporate debtor as "operational debt", by submitting a claim in the insolvency process. Amounts due to such lessors for the moratorium period form part of "insolvency resolution process costs" (IRP Costs). IRP Costs, under Indian law, are treated as super senior debt and are to be paid prior to any other debts of the corporate debtor under Regulation 31(b) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations).

Certain judicial decisions suggest that there is no bar on lessors being paid rentals on a current basis during the moratorium period (Rave Scans Pvt Ltd, Company Petition No. (IB)-01(PB)/2017 (Principal Bench, New Delhi). Practically as well, resolution professionals continue to make such payments from the cash flows of the corporate debtor, if these are required to maintain the corporate debtor as a going concern.

Is the aircraft lease a supply of essential goods to the corporate debtor under IBC? If so, what implications does this have?

This question assumes importance because under Section 14(2) of the IBC, the supply of "essential goods or services" to the corporate debtor cannot be terminated, suspended or interrupted during the moratorium period.  Amounts due to such a supplier are also treated as part of IRP Costs.

"Essential goods and services" have been defined very specifically and narrowly under Regulation 31 of the CIRP Regulations and clearly do not include aircraft leases. However, there has been a case where the bankruptcy court expanded this definition, even though such an expansive reading is not supported by the IBC (Canara Bank v Deccan Chronicle Holdings Limited, Company Petition No. IB/41/7/HDB/2017 (National Company Law Tribunal, Hyderabad)). If this trend continues, the corporate debtor could argue that the lease of aircrafts is an essential good or service and thus cannot be terminated.

In certain cases, the bankruptcy appellate court has held, albeit surprisingly, that a supplier of "essential goods and services" can terminate that contract if its dues during the moratorium period have not been paid despite repeated requests (Uttrakhand Power Corporation Ltd v M/s ANG Industries Ltd, Company Appeal (AT) (Insolvency) No. 298 of 2017; Innoventive Industries Ltd v Maharashtra State Electricity Distribution Co Ltd, Company Appeal (AT) (Insolvency) No. 156 of 2017; Dakshin Gujarat VIJ Co Ltd v ABG Shipyard Ltd Company Appeal (AT) (Insolvency) No. 334 of 2017).

Cape Town Bill – What does it change?

The Bill, once enacted into law, will override the moratorium provisions of the IBC. Article XI of the Protocol (read together with the declarations lodged by India at the time of the deposit of its instrument of accession) allows the lessor to take possession of the aircraft if dues are not cleared within 2 months of initiation of insolvency proceedings against the lessee corporate debtor. Until then, the insolvency administrator must preserve the aircraft and maintain its value in accordance with the lease agreement. The lessor is also entitled to apply for any other interim relief available under Indian law. The insolvency administrator or lessee has the right to retain possession of the aircraft if within 2 months, all defaults under the agreement (other than the default constituted by opening of insolvency proceedings) have been cured and the insolvency administrator or lessee has agreed to perform all future obligations under the lease agreement.

Way forward – Is the Bill the dawn of a new regime?

The Bill is designed to expressly override the IBC on the aspect of moratorium. This is a helpful change, as it takes India back to its avowed position under the Convention and Protocol (which it acceded to in 2008). Prior to the enactment of the IBC, courts in India have applied the Convention and the Protocol (AWAS 39423 Ireland Ltd & Ors v Directorate General of Civil Aviation & Anr, WP(C) 871/2015 (High Court of Delhi); Corporate Aircraft Funding Company LLC v Union of India & Ors, WP(C)792/2012 (High Court of Delhi)) to allow repossession. However, the IBC appears to have unintentionally contradicted India's agreed position under the Convention and the Protocol, taking away some critical protections given to aircraft lessors. The enactment of the Bill is a crucial change in restoring the status quo. In the meanwhile, it remains to be seen whether bankruptcy courts will apply the Convention/Protocol or Section 14(1)(d) of IBC.

That said, there remain some "watch outs" as well. For example, it is yet to be seen how courts will proceed if a lessor gets a decree from a foreign court for recovery of the aircraft in India. This will have to be examined along with Article XII of the Protocol which obligates India to co-operate to the maximum extent with foreign courts and foreign insolvency administrators in carrying out provisions of the Convention or the Protocol.

Practically, there are significant questions that will be answered only once the Convention / Protocol gets implemented post the enactment of the Bill. For instance, what are the documentation requirements and stamp duty implications for making such re-possession applications upon initiation of insolvency proceedings? What are the costs that should be factored by lessors for making such re-possession requests? What exactly is the role of local lawyers in fulfilment of such re-possession requests? With airlines in India facing considerable financial stress and reporting losses, the enactment of the Bill at this juncture would be considered very timely by the aircraft leasing industry.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions