The Insolvency and Bankruptcy Code, 2016 (the “Code”) aimed to bring about a radical and cultural shift in India’s bankruptcy and insolvency environment. Following the enactment of the Code, a new process came to light – the Corporate Insolvency Resolution Process (“CIRP”). It functions to resolve issues in relation to the defaulting companies within a reasonable period of time thereby maintaining the company as a whole.

While an insolvent company undergoes CIRP, Section 14 of the Code provides for a moratorium which may be issued initially for a period of 180 days extendable for another period of 90 days (or any further time the Tribunal may deem fit). During this period, there is a prohibition on, inter-alia, the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

Owing to the popularity of leasing aircraft and engines in the Indian aviation landscape, aircraft and engine lessors were subject to this moratorium and were unable to repossess their assets (which were in possession of an operator undergoing the insolvency process) during the CIRP period. There was clearly a conflict between the Code and the Cape Town Convention (the “Convention”) and the Protocol which provided for smooth de-registration and export of aircraft from India.

The dawn of 3rd October 2023, however, altered the way the world viewed this Section 14. The Ministry of Corporate Affairs (a department of the Government of India) issued a notification stating that India is a signatory and has acceded to the Convention and the Protocol, and therefore, the moratorium under Section 14 of the Code shall not apply to transactions, arrangements or agreements, under the Convention and the Protocol, relating to aircraft, aircraft engines, airframes and helicopters.

This is a major step in the right direction to align the local laws with the Convention and restore the confidence of aircraft and engine lessors in Indian aviation.