Implementation of the Cape Town Convention in India

June 2015 | EXPERT BRIEFING | BANKING & FINANCE

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The Convention on International Interests in Mobile Equipment signed in Cape Town on 16 November 2001 (the Convention), which encourages and facilitates asset-based financing, was brought into force in India on 1 July 2008. However, no changes were made to the Aircraft Act, 1934, the Aircraft Rules, 1937 (Aircraft Rules) or the Civil Aviation Requirements as a result of India’s accession to the Convention until February 2015.

As no changes have been implemented in domestic Indian law for the past seven years, there was a great deal of uncertainty as to the enforceability of the provisions of the Convention in India, particularly as accession to an international convention by itself does not give the Convention the force of law. International treaties entered into by India do not automatically become the rule of law. However as long as the international treaty is not contrary or inconsistent with domestic law, courts in India would try to comply with the treaty or construe local legislation so as to be in conformity with the treaty.

Following several representations to government authorities, the provisions relating to cancellation of registration of an aircraft under the Aircraft Rules have recently been amended to recognise the concept of the Irrevocable Deregistration and Export Request Authorisation (IDERA) under the Convention and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment. The amended rules now allow the holder of an IDERA to apply for the cancellation of the registration of the aircraft without the consent of the airline operator on submitting certain specified documents.

The only caveat which has been introduced is that the exercise of this right would not affect the rights of any governmental entity, inter-governmental organisation or other private provider of public services in India to arrest or detain or attach or sell an aircraft under its laws for payment of amounts owed to the government or any of the abovementioned organisations. It should, however, be noted that these rights can be exercised only in respect of the said aircraft and not in respect of any other aircraft owned or operated by the airline operator.

Prior to the amendment to the Aircraft Rules, as a matter of practice, where the application for deregistration was made by the owner or leaser of the aircraft, India’s civil aviation regulator, the Directorate General of Civil Aviation (DGCA), would seek the consent of the Indian airline operator for the deregistration of the aircraft. If the Indian airline operator disputed the deregistration, then usually the DGCA would not act in furtherance of the application of the owner and would require the parties to provide it with an appropriate court order for further action in the matter. This would slow down the deregistration process considerably.

Following the amendment, in the case of an aircraft registered in India, to which the provisions of the Convention apply and in respect of which an IDERA has been provided by the Indian airline operator and filed with the DGCA, the IDERA holder can apply to the DGCA for deregistration and the DGCA is mandatorily required to, without obtaining the Indian airline operator’s consent, deregister the aircraft. This amendment should give a considerable amount of confidence to entities leasing aircraft to Indian airline operators.

However, since this is a recent amendment, how the regulator will implement this provision remains to be seen.

It may be noted that following the amendment, an Indian court (in a matter filed prior to the amendment), citing the recently amended sub-rule and India’s ratification of the Convention, has directed the DGCA to deregister certain aircraft leased to an Indian airline operator post India’s ratification of the Convention by overseas leasers.

While the abovementioned amendments are the first steps taken by the government to implement the Convention and Protocol in India, much is still needed to be done to fully incorporate and implement the Convention and Protocol into Indian domestic legislation so that leasers and other finance parties can get the full benefit of the Convention.

Dhruv Khanna is a partner at Wadia Ghandy & Co. He can be contacted on +91 22 2271 5685 or by email: dhruv.khanna@wadiaghandy.com.

Dhruv Khanna

Wadia Ghandy & Co.