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29 November, 2018
The Ministry of Civil Aviation (MoCA) had issued the Cape Town Convention Bill, 2018 (Bill) on October 08, 2018 to implement (a) the Convention on International Interests in Mobile Equipment (Convention) and (b) Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft1 Equipment (Protocol) . It is expected that the Bill will be presented in the upcoming winter session of the Indian Parliament which will start in December.
Present applicability of Convention and Protocol to India
While the Government of India (GoI) had acceded to the Convention and Protocol in 2008, except for certain amendments to the Aircraft Rules, 1937 implementing relevant provisions of the Convention and Protocol relating to de-registration and export of aircrafts, it has not enacted any legislation till date for implementing the Convention and Protocol. It is relevant to note that the Indian law precludes direct application of conventions / treaties and they do not automatically become a rule of law in India unless the Indian Parliament makes a law under Article 253 of the Constitution of India for implementing such conventions / treaties.
Although the Indian courts have relied upon the provisions of Convention and Protocol in the past even in the absence of a separate legislation, however, if the provisions of the Convention and Protocol are in conflict with the local law then local law prevails and the courts cannot rely on Convention or Protocol in such circumstances.
Key benefits of the Bill
Considering the fast growth in the country's domestic aviation market, it is a step in the right direction as the Indian carriers as well as non-scheduled operators have ambitious expansion plans in the coming years.
The financing may become cheaper subsequently bringing down the lease rentals as implementation of the Bill would lead to greater confidence of international financiers in the Indian market. Further, the entities acquiring aircrafts would be able to avail 10% discount in the processing fee of loan as Organisation for Economic Cooperation and Development (OECD) has set a norm of discount for the countries having passed an implementing legislation2 for the Convention and Protocol.
Another key advantage of the Bill is that it provides for an overriding effect of the Convention and Protocol in case of any conflict with any existing laws of India. As there are several existing Indian laws which are in conflict with the provisions of Convention and Protocol, a separate legislation having an overriding effect was a pre-requisite to overcome such conflicts. However, as discussed below, the Bill (if passed as it is) also has certain pitfalls in relation to conflicts with the existing laws even if it has an overriding effect.
Challenges with the Bill
While there are several benefits of the Bill, there are also certain challenges. The provisions of several existing laws of India, such as Insolvency and Bankruptcy Code, 2016, Companies Act, 2013, Specific Relief Act, 1963 and Civil Procedure Code, 1908 conflict with the provisions of the Convention and 3 Protocol.
The presence of overriding effect of Convention and Protocol in the Bill would not help completely as few existing Indian legislations contain a similar provision of overriding effect in case of conflict with other Indian laws.
One of the legislations is the Insolvency and Bankruptcy Code, 2016 (Code) which has an overriding effect over other Indian laws and also its provisions conflict with the provisions of the Convention and Protocol. Section 238 of the Code provides that its provisions shall have effect notwithstanding anything inconsistent contained in any other law for the time being in force.
Further, the procedures laid down in case of commencement of insolvency are not consistent under the Code and the Protocol. This would be a concern for the financiers as re-possession of aircraft would still pose a challenge in case insolvency proceedings are initiated due to this conflict.
As per the Code, on insolvency commencement date , the adjudicating authority shall declare moratorium for prohibiting all of the following:
(a) institution of suits or continuation of pending suits or proceedings against the debtor including execution of any judgment, decree or order;
(b) transferring, encumbering, alienating or disposing of by the debtor any of its assets or any legal right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security interest created by the debtor in respect of its property; and
(d) recovery of any property by the owner or lessor where such property is occupied by or in possession of the debtor.
The period of moratorium is one hundred and eighty (180) days from the insolvency commencement date which may be further extended by the adjudicating authority for ninety (90) days.
In contrast, the Protocol (as acceded by India) provides5 that upon occurrence of an insolvency related event, the insolvency administrator or the debtor (as applicable) should give possession of the aircraft to the creditor no later than two (2) calendar months or on the date on which the creditor would be entitled to
possession of the aircraft, whichever is earlier.
Further, until the creditor is given an opportunity to take possession of the aircraft, it should be entitled to apply for any other form of interim relief available under applicable law.
The Code provides for moratorium on recovery of property by the owner or lessor and institution of suits whereas the Protocol provides for giving possession of aircraft to the creditor and right to creditor to apply for interim relief. The provisions are contradictory and considering overriding effect of both the Code and the Protocol, there would be a conflict regarding the applicability of the Code or the Protocol in the event of insolvency proceedings. Such conflicts may end up in litigation which would be a time consuming process.
Way forward
It is important that the concerns as discussed above are addressed before placing the Bill in the Parliament.
Further, it has to be seen whether the Bill would see light of the day in the upcoming session of Parliament.
Since general elections are due in India in early 2019, GoI may prioritise other important legislations in the upcoming session. If the Bill is not taken up in the upcoming session then the fate of the Bill may remain hanging till formation of the new government.
For further information, please contact:
Lovejeet Singh. Clasis Law
lovejeet.singh@clasislaw.com
1 The Convention and Protocol were signed at Cape Town on November 16, 2001.
2 http://www.civilaviation.gov.in/sites/default/files/Cape%20Town.pdf
3 Ibid
4 as per the code, the insolvency commencement date is the date of admission of an application for initiating corporate insolvency
resolution process by the adjudicating authority.
5 As per the Protocol, 'insolvency related event' means (i) commencement of the insolvency proceedings; or (ii) declared intention to
suspend or actual suspension of payments by the debtor where the creditor's right to institute insolvency proceedings against the
debtor or to exercise remedies under the Convention is prevented or suspended by law or State action.
