India acceded to the Convention on International Interests in Mobile Equipment[1] (“Convention”) and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment[2] (“Protocol”) in 2008. After various legislative efforts, the Government notified the Protection of Interests in Aircraft Objects Act, 2025[3] (“Aircraft Objects Act”) with effect from 1st May 2025. With this, the Aircraft Objects Act weaves in the Convention and the Protocol as part of India’s domestic law and provides that it shall have the force of law in India[4]. Overall, it provides a stronger framework for aircraft leasing and creditor protection within the Indian landscape.
While India has adopted ‘Alternative A’ under the Protocol in the event of insolvency, given the enactment of the Aircraft Objects Act, one aspect merits deeper consideration - whether for the applicability of the Aircraft Objects Act read with the Convention and the Protocol, an insolvency-related event should have necessarily occurred under the aegis of the (Indian) Insolvency and Bankruptcy Code, 2016 (“IBC”)? Or could there be a different and a more flexible approach to this?
On a bird’s eye view, a holistic reading of the Convention, Aircraft Objects Act, and the Protocol seems to indicate that for the applicability of insolvency related remedies (as adopted by India), insolvency need not necessarily commence under IBC. Perhaps, a creditor could initiate insolvency proceedings against a debtor under any applicable law besides IBC. This article explores whether this could be a plausible approach or whether the Convention and Protocol are weaved into the Aircraft Objects Act such that they imply commencement of insolvency only under IBC? Needless to add that this has been analysed in light of the debtor as understood under Section 6 of the Aircraft Objects Act.
Insolvency-related event within or outside India?
After the enactment of the Aircraft Objects Act, lessors, airline companies, and creditors have been seeking clarity on various matters including initiation of cross-border insolvency under the Aircraft Objects Act[5]. An ambiguous limb of this has been whether, for the purposes of Section 6 of the Aircraft Objects Act read with Article XI of the Protocol, the trigger for their applicability means commencement of insolvency proceedings against the debtor limited to proceedings commenced under IBC alone or even under any applicable insolvency law, besides IBC?
Now the Convention defines ‘commencement of the insolvency proceedings’ as the time at which the insolvency proceedings are deemed to commence under the applicable insolvency law and this has in turn been referred in what would be an ‘insolvency-related event’ as defined under the Protocol. This gains importance because the Aircraft Objects Act provides that in the event of the debtor’s insolvency, the declaration made by India adopting the remedy of ‘Alternative A’ under Article XI of the Protocol would apply (where India qualifies as the ‘primary insolvency jurisdiction’) upon occurrence of an insolvency-related event (which means commencement of insolvency proceedings under any applicable law[6]). In this backdrop, there seems to a possibility that in case of insolvency of a debtor for which India is the primary insolvency jurisdiction, the remedies under Article XI of the Protocol would be available to the creditor even if the insolvency proceedings have commenced under any other applicable law besides IBC.
On the face of it, Section 6 of the Aircraft Objects Act in a way does acknowledge and permit extraterritorial insolvency remedies by giving effect to the Convention and Protocol whereby the remedies in case of insolvency under Article XI of the Protocol shall apply to an insolvency-related event under any applicable law; which need not necessarily be one triggered by IBC. Therefore, this suggests that the creditors may have the option to assess and pursue actions for the purposes of commencing insolvency in any Contracting State.
While the above interpretation seems to suggest a flexible approach for initiation of insolvency under any applicable law (and not necessarily IBC), at the same time, this approach would require careful assessment of the following aspects:
- Declaration under Article XXX(3) of the Protocol: Contracting States should have made a formal declaration under Article XXX(3) of the Protocol and adopted one of the two alternatives under Article XI of the Protocol.
- Initiation of insolvency proceedings by a creditor in a Contracting State: As per Article XI (Remedies in case of insolvency) read together with Article I(2)(n) of the Protocol (primary insolvency jurisdiction), a creditor may initiate insolvency proceedings in a Contracting State and seek benefit of Article XI of the Protocol where the Contracting State, which is the debtor’s primary insolvency jurisdiction is situated, has made a declaration as above.
Applying the above approach through the lens of the Aircrafts Objects Act would essentially mean that it would be open to a creditor to initiate insolvency proceedings in another Contracting State against a debtor (whose primary insolvency jurisdiction would be India) and trigger the remedies under Article XI of the Protocol including Alternative A adopted by India. This could be a possibility pursuant to Article XXX(4) of the Protocol which provides that the courts of Contracting States shall apply Article XI of the Protocol in conformity with the declaration made by the Contracting State which is the primary insolvency jurisdiction of the debtor. Albeit this would be subject to compliance and satisfaction of the domestic applicable laws of the Contracting State chosen for the purposes of triggering an insolvency-related event vis-à-vis the debtor.
Even though the aforesaid approach may seem an oversimplification, it is not an outlandish one. For instance, the insolvency of Virgin Atlantic Airways Limited, an airline company incorporated in the United Kingdom, was initiated and conducted under the laws of the United States of America. In fact, such a scenario is also not unknown in the context of an Indian debtor whereby bankruptcy proceedings against Jet Airways, an airline company incorporated in India, was initiated by Dutch creditors in Netherlands.
A game changer or complete mayhem?
The harmonised approach of the Aircraft Objects Act with the Convention and the Protocol offers robust cross-border protection for aircraft financiers and lessors, fostering a more creditor-friendly environment. If the above approach is in fact a possibility and the desired intent, it could provide an escape to creditors from the delayed and prolonged admission of a debtor to insolvency under IBC and trigger insolvency of the debtor outside of IBC for an efficacious implementation of the Aircraft Objects Act.
Nonetheless, the intent of the Aircraft Objects Act does not appear to indicate that initiating proceedings under IBC against the debtor would be prohibited upon commencement of insolvency proceedings outside India. Afterall, the Notification dated 3rd October 2023[7] issued by the Ministry of Corporate Affairs is still in place which exempts transactions, arrangements, or agreements relating to aircraft, aircraft engines, airframes and helicopters under the Convention and the Protocol from the applicability of the moratorium[8] imposed under IBC. This assumes importance because for small sized debts and smaller creditors, preference may still weigh in with IBC given that the process of commencing insolvency outside India may be cumbersome and expensive.
That apart, the Aircraft Objects Act has been enacted to implement the Convention and the Protocol as part of India’s domestic laws and therefore, there is a likelihood that the intent may have been to restrict the meaning of ‘applicable insolvency law’ as one under IBC. Due to such ambiguity or rather absence of an express exclusion, it remains open to interpretation if the flexible approach as canvassed above is indeed permissible or was never meant to be the intent in the first place. This would have to be tested in the coming years but nevertheless merits deliberations from the debtors and creditors alike.
On the other hand, even if the flexible approach is permissible, the choice of commencing insolvency proceedings (whether under IBC or outside) must be carefully evaluated on a case-by-case basis, taking into consideration the legal due diligence, jurisdictional analysis, satisfying requirements of domestic insolvency laws and commercial context. A comprehensive analysis of the relevant factors would help determine the best path forward in case of a distressed Indian airline.
Till then it does beg the question - whether the flexible approach is a possibility to give effect to the overall intent of the Aircraft Objects Act or would it cause deeper troubles triggering more complex legal issues and absurdities in cross-border insolvencies?
[1] https://www.unidroit.org/instruments/security-interests/cape-town-convention/
[2] https://www.unidroit.org/instruments/security-interests/aircraft-protocol/
[3] https://www.indiacode.nic.in/bitstream/123456789/21133/1/A2025-17.pdf
[4] Subject to the provisions of the Aircraft Objects Act and in accordance with the declarations made by India.
[5] AWG-White-Paper-limited-version-interpretation-only.pdf
[6] See Article 1(d) of the Convention and Article I(2)(m) of the Protocol.
[7] https://ibbi.gov.in/uploads/legalframwork/8273e42bb4de11d39f37ab81f96f93ec.pdf
[8] See Section 14(1) of IBC.
Disclaimer:
This article is intended for informational purposes only and does not constitute a legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This article is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial / quasi-judicial authorities may not take a position contrary to the views mentioned herein.