Securing the skies: India’s legal flight towards Cape Town Convention

Introduction

In April 2025, the Indian Parliament enacted the Aircraft Objects Act, 2025 (the Protection of Interest in Aircraft Objects Bill), ratifying the Cape Town Convention (“CTC”) in Indian law. This development brings into force an international framework designed to protect aircraft lessors. Under the Convention, creditors register interests in a global registry and can use an Irrevocable De-Registration and Export Authorization (“IDERA”) to compel deregistration of an aircraft if the lessee defaults.  By aligning with these rules, India now offers stronger, clearer remedies for lessors. This blog outlines the insolvency challenges that aircraft lessors faced under the old regime (highlighted by Jet Airways and GoAir cases) and explains how the new Act — together with India’s adoption of the Alternative A option under Article XI — resolves those issues.

Insolvency Challenges for Aircraft Lessors

The aviation sector has been recognised as one of the strategic sectors in India, aiding significantly in economic expansion.  However, a significant portion of aircraft operated by the Indian Airline sector is composed of leased aircraft, including those from foreign players. The airlines are heavily dependent on these lessors for their operations, and this global interconnection makes the sector capital-intensive, consequently highly volatile to any financial instability. The recent insolvencies of Jet Airways and GoAir highlighted the issues lessors faced in repossessing aircraft. Although the lessors of both airlines filed applications before the Director General of Civil Aviation (“DGCA”) for deregistration of aircraft and engines, the DGCA refused to comply with that request, citing the protection of debtor assets through the moratorium shield. India signed the CTC in 2008, but it was not ratified as when these insolvency cases were ongoing and the lessors particularly faced following issues -

• Although Section 36(4)(g) of the Insolvency and Bankruptcy Code (“IBC”) specifically mentions that the assets of the third party can’t be included in the liquidation process, in situations where the lessee is acquiring equity in the asset through payments and has acquired substantial equity, yet incomplete, and the legal ownership still lies with the lessor, the assets, although belonging to the lessee (a third party) have been included in the liquidation estate, as happened in the recent insolvency cases, ultimately causing loss to third party.

  
  

• Secondly, the lessee could not take possession of the assets due to the imposed moratorium, leading to major losses.

  
  

• Lastly, the Aviation sector demands huge capital and keeping the aircrafts grounded for a longer period due to moratorium causes huge losses, as it reduces the value of the assets and ultimately affects the interest of stakeholders.

The Cape Town Convention and Interim Measures

The CTC on Mobile Equipment & its Aircraft Protocol offer a thorough global framework for issues connected to aircraft and incidental thereto. The CTC provides a detailed framework for creation, recognition, registration and enforcement of lease, title reservation rights and security interests including helicopters. Following other international conventions, it strives to provide a uniform framework for all the stakeholders including creditors, financiers and lessors across the globe. The CTC allows these lenders to register their interests in the assets they are lending in an international registry, as it would allow them to enforce remedies in the contracting state in case of default by the corporate debtor, which includes retaining priority over claims made by other parties and eventually allow smooth process of repossession, sale and other interim reliefs.

Recognizing the gap, the Ministry of Corporate Affairs (“MCA”) issued a notification in October 2023, providing an exception u/s 14 of the IBC, allowing the lessors to initiate the requisite proceedings in order to repossess their assets. This notification certainly offered some relief to the lessors allowing them to deregister their assets in a situation of default by the lessee by submitting the requisite documents before the DGCA which binds it to deregister the aircraft once presented with required documents and IDERA as required under Rule 30 (7) of the Aircraft rules.

The Delhi High Court later upheld that notification in the GoAir case & ordered the DGCA to deregister the aircraft and confer the possession to the lessor. The Court noted that the notification enacted by the MCA is a curative measure which has been taken considering India’s position following its commitment of the CTC.

Aircraft Objects Act, 2025: A Defining Legislative Step

The CTC and its Aircraft Protocol provide a global framework to safeguard creditor interests in mobile aircraft equipment. India’s ratification of the Convention through the Aircraft Act gives it full legal effect in the domestic framework, aiming to resolve persistent issues faced by lessors during airline insolvencies.

A key feature of the Convention is Article XI, which offers contracting states a choice between two insolvency regimes — Alternative A and Alternative B. It is upon the contracting party to select between these two alternatives and declare the same within the CTC. If the contracting state does not select either of the two, then the domestic law of the land will apply.

India has officially opted for Alternative A, and this decision marks a critical shift in its approach to insolvency resolution in the aviation sector.

Why India Chose Alternative A over B

Alternative A – It offers a self-executing remedy. It requires that, within a defined waiting period — set by India as 60 days — the insolvency professional or corporate debtor must either:

• Return possession of the aircraft to the lessor, or

• Cure all defaults and agree to perform all contractual obligations in the future.

  
  

If neither occurs within the 60-day period, the lessor gains the automatic right of repossession, without requiring any court order or adjudicatory process.

Alternative B - Judicial discretion-based framework

Alternative B on the other hand, states that the person in charge of the debtor during insolvency proceedings must notify the lessors whether the debtor will follow all the terms & conditions in the future, including curing the current issues or allow the lessor to take back the possession of the assets but subject to the court’s order or approval, as per domestic law.

India’s decision to adopt Alternative A under Article XI of the Aircraft Protocol reflects a deliberate policy to enhance legal certainty, creditor protection, and efficiency in insolvency proceedings within the aviation sector. Under this framework, if the debtor defaults, they are required to return possession of the aircraft object at the end of a fixed waiting period (60 days in India), without the need for any court intervention. Article XI(7), of the CTC allows the person in-charge of maintaining the debtor to retain the possession of the aircraft object only, if, they have cured all the defaults towards lessors within the waiting period – set by India as 60 days - and have agreed to abide by the terms and conditions under the agreement in the future. It does not allow another waiting period to the debtor in case of second default, granting immediate possession to the lessor, without having them wait for another 60 days- as chosen by India. Further, Article XI(5) protects lessors by granting two remedies. Firstly, it mandates the person in charge of debtor to preserve and maintain the value of the aircraft object as per the agreement and lastly, allowing the creditor to seek any interim relief available under the applicable law.    

In this way, the law has established a clear position in case of airline insolvency, imposing specific liabilities upon the debtor and various rights on the lessors. The fixed waiting period and immediate possession after its completion, without any interference from the judicial forum grants better predictability to lessors and easy possession of aircraft objects, as compared to the time, when they have to wait beyond two-three years to just get the possession, ultimately resulting in the deterioration of the aircraft. The Prohibition of a second waiting period & the grant of immediate possession in case of second default ensure improved decision making from debtor, protecting lessors from successive defaults of debtor.

Considering the capital intensive nature of this sector, it also makes it compulsory for the person in-charge of debtor to take necessary steps required to preserve the assets from deteriorating over this waiting period. If the authorized person fails to uphold the agreement in this regard, Clause (b) of Article XI (5) allows the lessors to file a suit for breach of contract, in addition to the right to possession.

Furthermore, to ensure prompt enforcement, Article XI(8) mandates that the authorized registry authority - in India, the DGCA - must cooperate fully with creditors and provide access to all remedies within five working days of receiving a notification from the lessors. This administrative obligation reinforces the Convention’s goal of ensuring timely and effective enforcement of creditors’ rights.

In contrast, Alternative B mandates that the debtor notify the lessor whether they will cure the default. If not, the lessor must seek court permission to repossess the asset - a process that would replicate the exact legal uncertainty and delays India is trying to eliminate. This leads to prolonged litigation, conflicting claims, and delayed recoveries - the very issues that eroded lessor confidence and contributed to India's downgraded aviation leasing ratings.

Moreover, by following Alternative A, India aligns itself with other developed countries like United States of America, which follows a similar approach u/s 1110 of the U.S Bankruptcy Code. This would enhance the confidence of global lessors and is expected to reduce financing costs of the industry, as asset recovery becomes predictable and enforceable. Legal predictability reduces the risk premium for aircraft financing, allowing Indian companies to gather capital on more reasonable terms. As highlighted by industry experts, this change would certainly contribute towards India becoming a preferred destination for aviation leasing and financing.

Further, to institutionalize this remedy, India also amended the Aircraft Rules, 1937, to implement the provisions of Alternative A through administrative mechanisms. It mandates DGCA’s compliance when presented with an IDERA, streamlining deregistration after the completion of the waiting period without any judicial clearance in all types of airline insolvency proceedings – a move that institutionalizes efficiency in airline insolvency proceedings.

Conclusion

India has travelled a long way in the Insolvency regime to finally ratify the CTC. The Act is proof of India’s commitment to aligning its laws with global standards, establishing a business-friendly atmosphere for investors, without any compromise in the legal sphere. Additionally, India has also replaced its old Aircraft Act with the Bharatiya Vayuyan Adhiniyam, 2024 which has been drafted in line with the current requirements of the global aviation industry. The enactment of the Aircraft Objects Act, along with the exemptions outlined in the IBC and an updated aviation law, signifies a substantial advancement in safeguarding the interests of aircraft financiers and lessors.

India waited so long but did not ratify the convention even with the enactment of the IBC in 2016. Timely action could have changed the fate of the lessors of GoAir and Jet Airways, improving India’s rating in the sector. However, by selecting Alternative A and implementing remedies like IDERA, India has addressed the issues faced in previous legislations, ensuring the protection of lessors in future insolvency processes.