The Aviation Sector’s Long Wait for the Ratification of the Cape Town Convention
20.03.2025
Authored by: Shri Venkatesh (Managing Partner) and Vineet Kumar (Senior Associate)
With the presentation of “Protection and Enforcement of Interests in Aircraft Bill, 2025” commonly referred to as the “Cape Town Convention Bill” (“CTC Bill 2025”)[1] before Rajya Sabha on 10.02.2025, the deliberation on need for a legislative framework for resolution of disputes concerning recovery of aviation assets has been reignited. This is more so in the wake of recent events that transpired in the Indian courts, where big names such as Go First and Jet Airways were successfully subjected to insolvency proceedings.
The bill aims to ratify the “Convention on International Interest in Mobile Equipment, 2001”[2] (“CTC”). While India accessed the CTC Convention in 2008 by making declarations under Articles 31(a) and (b), Article 40, 53 and 54(2)[3], it is yet to be ratified by the Government of India. For international conventions to have a legal force in the country, the Indian Parliament must pass a legislative enactment. Since India is yet to undertake this formal step in enforcing the CTC as a law, there are several curious questions which must be addressed to understand the implications of CTC. While some of these questions are as basic as ‘what is the Cape Town Convention?’ and ‘what is the purpose of CTC Bill 2025?’, the others not so, like ‘why is India 16 years behind on its ratification after it’s instrument of accession?’
What is the Cape Town Convention?
CTC is an international treaty which aims at standardizing the transactions involving movable property such as aircraft, engines, helicopters etc. At the same time, the CTC provides legal protection for the creditors, lessors and financiers. In order to achieve this objective, it prescribes specific rules for asset recovery in cases of defaults by airlines and insolvencies. Essentially, the CTC introduces the concept of “international interest” in the “movable properties” and assets belonging to the aviation sector, which signatory countries are required to acknowledge and abide by.
The CTC also conceptualizes an ‘International Registry’, which is a publicly accessible database that serves as a notification to third parties regarding these interests. This in itself is a novel concept, which will aid the implementation of CTC on an international scale, enabling the ratifying states to access the records as and when the need arises.
The CTC is accompanied by detailed protocols which encompass the procedure to be followed for implementation/enforcement of the terms of such conventions. The ‘Protocol on Matters Specific to Aircraft Equipment’ (“the Protocol”) provides detailed procedure for implementation of provisions of CTC, beginning from the choice of law to be applied along with the jurisdiction, the mode and the manner of execution of an agreement between the parties.
For instance, Article 8 of the CTC broadly provides what remedies lie in the hands of a charge in case of a default being committed by a debtor. However, the procedure to be followed for the enforcement of said remedies, is detailed under Chapter II of the Protocol. While Article 30 of CTC provides for the ‘Effects of Insolvency’ against a debtor’; Article XI of the protocol prescribes ‘Alternative A’ and ‘Alternative B’, either of which the debtor and creditor in the contracting states can exhaust in cases where insolvency proceedings have commenced.
Implementation of the CTC
The Protocol under the CTC provides 3 remedies to the creditor in the event of default by a debtor: (a) take possession or control of any object charged to it; (b) sell or grant a lease of any such object; (c) collect or receive any income or profits arising from the management or use of any such object.
The states making a declaration under the CTC are required to comply with the procedures set forth under the Protocol. As mentioned above, Countries can choose between Alternative A and Alternative B to manage creditor rights in insolvency cases.
Alternative A requires the insolvency administrator or the debtor to give possession of the aircraft object to the creditor within the time period specified therein upon occurrence of insolvency related event. In contrast, Alternative B allows the debtor or insolvency agent to put the creditor to the notice intimating whether it is willing to cure all defects leading up to the declaration of insolvency, or accord an opportunity to the creditor to take possession of aircraft object in terms of applicable law.
Conventionally, once an insolvency related event occurs in respect of a debtor, the control goes in the hands of the creditors to find a viable resolution for the debts of the debtor. The insolvency agent acts in a fiduciary capacity to aid the creditors in finding such viable resolutions and revival of the debtor through the procedure envisaged under the legislative framework.
To illustrate this, reference can be drawn from the Insolvency and Bankruptcy Code, 2016 (“IBC”) which is in force in India. Under statutory scheme of IBC, once insolvency proceedings against a debtor are admitted, the committee of creditors is constituted to take the decisions for revival of the debtor through a viable resolution plan. Upon admission of the debtor into insolvency, the insolvency professional takes over the control of its management and executes the decisions being taken by the said committee of creditors. This process would include reorganisation of assets of the debtor, and infusion of funds through a third party. In the event such a viable resolution is not achieved, the debtor will be liquidated, and the assets will be sold in the market.
The alternatives prescribed under the Protocol are in contrast to the conventional statutory processes envisaged under the IBC. This is because while under conventional insolvency framework in India gives the power of decision making to the creditors, the same is shifted in the hands of the debtor and the insolvency agent under the protocol. The debtor, upon being admitted into insolvency under the IBC, is not given the alternatives which have now been introduced under the CTC and the Protocol. This may only be the tip of the iceberg when it comes to conflicts between CTC and conventional insolvency regimes.
This dissonance between the established and enforced IBC and the rights to be ratified under the protocol has even invited significant criticism from major stake holders in the aviation sector, declaring India “a risky jurisdiction”.[4] This criticism is also well warranted in some ways.
CTC Bill: A case of preferential treatment to the Aviation Sector?
It is important to note that while the CTC and the subsequent CTC Bill may seem like the interests of aviation sector are being preferred over and above other sectors in terms of rights of the creditors. However, such exceptional procedural safeguards for capital intensive trades are found commonly across several logistics infrastructure sectors. For example, in February of 2007, The Luxembourg (Rail) Protocol on International Interests in Mobile Equipment on Matters Specific to Railway Rolling Stock[5] (“Luxembourg Protocol”) was signed with the specific intent to create a new global system for the recognition and prioritisation of security interests held by the creditors in railway rolling stock. Similarly, in 2012, Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Space Assets[6] (“Space Protocol”) was signed, recognising the continuing development of the international commercial space industry.
India may not be a signatory to the Luxembourg Protocol or the space protocol, but it is a signatory to the International Convention on Maritime Liens and Mortgages[7] (ICMLM) of 1993. ICMLM is designed to standardize the creation, registration, and enforcement of maritime liens and mortgages, thereby reducing creditor risk in cross‑border vessel financing. In India, its principles have been implemented primarily through the Merchant Shipping Act, 1958 and the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 which provides for the recognition and priority of maritime liens on vessels and associated assets[8]. However, this specialized maritime framework sometimes overlaps with the general insolvency regime established under the IBC.
For example, Section 14(1)(d) of the IBC imposes a moratorium on asset recovery during insolvency proceedings, potentially delaying the prompt enforcement rights of maritime creditors that the Admiralty (Jurisdiction and Settlement of Maritime Claims) Act, 2017 is meant to secure. Indian courts have addressed these challenges by seeking a balance between the immediate priority afforded to maritime lienholders and the broader objectives of orderly insolvency resolution.[9]
The Case for avoidable losses due to an unratified CTC
Article 13[10] of the CTC provides for an instrument called the Irrevocable Deregistration and Export Request Authorisation (“IDERA”). Upon production of an IDERA, the Directorate General of Civil Aviation (“DGCA”) would be mandated to deregister a given aircraft upon an application being made by the party authorised in it. Despite a lease being covered by the IDERA, the DGCA has time and again, failed to de-register the aircrafts, sometimes even after the airline has seized operations due to insolvency. For instance, after the leasing arrangements under the CTC became effective in India, Kingfisher Airlines was the first airline to default in 2012. At the time, most of the leases signed by Kingfisher airlines were not covered by the IDERA, but the DGCA failed to de-register the aircrafts that were covered, nonetheless. The Creditors had to approach the Delhi High Court and secured de-registration of two flights owned previously by King Fisher Airlines.[11]
Similarly, SpiceJet defaulted on the leases for 6 of their aircrafts in 2014, and the DGCA, despite the presence of the IDERA, refused the deregister said aircrafts. Delhi High Court had to pass an order recognising India’s obligations under the Cape Town Conventions and granting deregistration of the aircrafts.[12] Subsequently, the Aircraft Rules, 1937 were amended in 2015 to insert Rule 30(7), wherein the applicability of the IDERA was solidified.[13] The Introduction of Rule 30(7) was specifically intended to align the Indian Aviation sector with the protocol and the CTC. Despite this amendment, similar turn of events repeats itself when a similar order observing DGCA’s refusal to deregister despite CTC’s provisions was made in the case of default by Air One Aviation Private Limited[14]
The Indian government further amended Aircraft Rules 1937 to align with the Cape Town Convention, enhancing aircraft deregistration and export procedures. Key changes include defining the International Registry, empowering the DGCA to record IDERAs, and updating deregistration rules to ensure outstanding dues are cleared before repossession or export. Despite the absence of a dedicated statute, these amendments prioritize India’s commitments under the Convention. These changes were seen a pivotal part in the adjudication of the recent Go First airlines default and insolvency case.[15]
The slow-moving CTC Bill
While the introduction of Rule 30(7) and Rule 32A in the Aircraft Rules, 1937 are extremely encouraging stopgap measures that communicate the intention to eventually ratify the CTC; it only embodies partial ratification. While this time the CTC Bill 2025 has been introduced in the Parliament, it is not the first time that such an attempt has been made. In 2018, a Proposal for the ratification of the CTC was introduced by the Ministry of Civil Aviation (MoCA) along with a draft Cape Town Convention Bill, 2018.[16] Then again, in 2022, the MoCA introduced the draft Protection and Enforcement of Interests in Aircraft Objects Bill, 2022[17]. It has taken till 2025 for the bill to be introduced in the Rajya Sabha.
That being said, the introduction of the bill into the Rajya Sabha brings much needed assurance regarding the ratification of the CTC. The DGCA has been designated as the registry authority and has been given powers to issue directions to implement the CTC, and the creditors have been given certain remedies in case of default, including the right to take back possession of the asset within a period of two calendar months. The bill, most notably, embraces the overriding effect over the IBC as necessary for the effective implementation of the CTC.
However, the Bill being the 3rd attempt at implementing the CTC since 2018 only adds uncertainty until the law is passed.
[1] Editor, “Cabinet okays Cape Town Convention Bill”, The Times of India, 17th January 2025m accessed on 06.02.2025 <https://timesofindia.indiatimes.com/business/india-business/cabinet-okays-cape-town-convention-bill/articleshow/117314443.cms>
[2] Convention on the International Interests in Mobile Equipment, International Civil Aviation Organisation and Institut international pour l’unification du droit privé, 16th November 2001 <https://www.icao.int/sustainability/Documents/CPTConvention_AnnexA.pdf>
[3] Declaration Lodged by the Republic of India under the Cape Town Convention at the Time of the Deposit of its Instrument of Accession, Institut international pour l’unification du droit privé webpage, accessed on 06.02.2025 < https://www.unidroit.org/instruments/security-interests/aircraft-protocol/states-parties/d-india/ >
[4] Snachari Ghosh, “India is a risky jurisdiction….” SMBC Aviation Captial on Go First, Jet Airways, King Fisher Failure”, 12th May 2023, accessed on 06.02.2023 <https://www.livemint.com/news/india/india-is-a-risky-jurisdiction-smbc-aviation-capital-on-go-first-jet-airways-kingfisher-failure-11683858858085.html>
[5] Luxembourg (Rail) Protocol on International Interests in Moblie Equipment on Matters Specific to Railway Rolling Stock, Organisation Intergouvernementale pour les Transports Internationaux Ferroviares and Institut International pour l’unification du Driot Prive, 23rd February 2007 <https://otif.org/fileadmin/user_upload/otif_verlinkte_files/04_recht/07_dipl_konf/DOCs_e/DCME_LUXEMBOURG_PROTOCOL_FINAL_04.06.07.pdf>
[6] Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Space Assets, Institut international pour l’unification du droit privé, 9th March 2012 <https://www.unidroit.org/instruments/security-interests/space-protocol/>
[7] International Convention on Mairtime Liens and Mortgages, United Nations / International Maritime Organisation Conference of Plenipotentiaries on a convention on mairtime liens and mortgages, Geneva, 6th May 1993
[8] Merchant Shipping Act, 1958
[9] Raj Shipping Agencies V. Barge Madhwa and Anr. 2020 SCC OnLine Bom 651
[10] Article 13, Convention on the International Interests in Mobile Equipment, International Civil Aviation Organisation and Institut international pour l’unification du droit privé, 16th November 2001
[11] DVB Aviation Finance Asia PTE Ltd. V. Directorate of Civil Aviation and Anr., Delhi High Court, W.P. (C) 7661/2012 < https://delhihighcourt.nic.in/ordertext?pNo=70783&year=2013>
[12] AWAS 39423 Ireland Ltd. & Ors. . Directorate General of Civil Aviation and Anr. 2015 SCC OnLine Del 8177
[13] Notification No. GSR 78(E) dated 09.02.2015
[14] Bank One Limited V. Directorate General Of India and Ors., Delhi High Court, W.P. (C) No. 3277 of 2018
[15] Accipiter Investments Aircraft 2 Limited V. Union Of India 2024 LiveLaw (Del) 501
[16] “Proposal for enactment of the Cape Town Convention Act, 2018 for implementation
of the Cape Town Convention/Cape Town Protocol in India.”, Ministry of Civil Aviation, Government of India. < https://prsindia.org/files/bills_acts/bills_parliament/2019/Press%20Release-%20Draft%20Cape%20Town%20Convention%20Bill,%202018.pdf>
[17] “Protection and Enforcement of Interests in Aircraft Objects Bill, 2022”, Ministry of Civil Aviation, G.S.R. 296(E).
< https://prsindia.org/files/parliamentry-announcement/Protection%20and%20Enforcement%20of%20Interests%20in%20Aircraft%20Objects%20Act,%202022.pdf>