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CAPE TOWN CONVENTION – NEED FOR ENACTMENT

Author: Priyanka Kailas Baradkar, III year of LL.B. from Sinhgad Law College


INTRODUCTION

The civil aviation industry in India has emerged as one of the fastest growing industries in the country during the last three years. It can be broadly classified into scheduled air transport service which includes domestic and international airlines. The Indian Aviation Industry faced a major set-back during the Covid-19 pandemic but it has fully recovered now as indicated by the air traffic movement of 236.71 million in the FY23 as compared to 131.61 million in the FY22.India is expected to become the third largest air passenger market by 2030, according to International Air Transport Association.India is expected to overtake China and US in the next ten years.


RECENT DEVELOPMENTS IN AVIATION SECTOR

With some major developments in the aviation sector it seems like India is all set to achieve its target. With growth in GDP to 8.7% in FY22 as compared to 6.6% in FY21; there has been more travel by professionals and individuals. Increased inflow of FDI as permitted up to 100% in civil aviation in India has also led to developed infrastructure of the aviation industry. Government has supported this growth in its own ways. The schemes like UDAN where flights offer subsidized fares to air travel affordable to common man also contributes to the growth. Thus the infrastructure build -up, inflow of FDI, healthy competition and government support with regards to policy framework has helped it emerge as one of the fastest growing sectors in India.


WHY LEGISLATIVE FRAMEWORK REQUIRED

Though Indian Aviation sector is growing at a fast space there are few major airlines which were grounded recently due to various reasons like excessive debt or financial distress or competitive market etc. Jet Airways, Kingfisher, Paramount Airways are few of them which did not succeed to restart even after undergoing the insolvency procedure. The issues of engines and aircraft supply chains needs to be addressed. The Go First like IndiGo was affected due to same reason i.e. failure of engines supplied by Pratt and Whitney. Go first initiated arbitrations and then also went for filing voluntary insolvency. As the NCLT has already admitted the application and the moratorium has hit the lessors demanding the deregistration and possession of their 45 aircrafts under the Cape Town Convention cannot take back them back. So all the arbitrations, court proceedings will come to a halt due to moratorium.


So even if it is a great relief for Go First and it is willing to undergo revival let us consider the scenario from lessor’s point of view. India is signatory to the Cape Town Convention according to which Go First was supposed to return the 45 aircrafts back to the lessors. Go First got protection under the Bankruptcy Code. NCLT passed an order prohibiting recovery of any property by an owner or lessor, where such property is occupied by or in the possession of the corporate debtor". The global aviation watchdogs might increase their costs for leasing. The non- compliance of Cape Town Convention and the other factors like IBC,2016 not giving clear cut guidelines on Arbitrationsmight also have a negative impact on suppliers.


CAPE TOWN CONVENTION– Why enactment required

At a Diplomatic Conference held in Cape Town in November, 2001 under the auspices of the International Civil Aviation Organization (ICAO) and the International Institute for the Unification of Private Law (UNIDROIT), two international law instruments were adopted, namely, the Convention on International Interests in Mobile Equipment (the Cape Town Convention) and the Protocol to the Convention on Matters Specific to Aircraft Equipment (the Cape Town Protocol). The Convention is general in nature and is meant to be applied to three sectors, viz. Aviation, Railways and Space Equipment to which India is a signatory. The principal objective of the Convention/Protocol is to achieve efficient financing of high value mobile equipment, like airframes, helicopters and engines, in order to make the operations as cost effective and affordable as possible.India became a party to the Cape Town Convention on 01.07.2008. It has been observed that for full implementation of the Convention a separate Legislation needs to be enacted. There are certain provisions in the Convention which are in conflict with other laws in India such as Insolvency and Bankruptcy Code,2016, The Specific Relief Act,1963 etc. Separate legislation is also required as international financial institutes would not give weightage to accession to the Cape Town Convention unless there is a legislation in place. Also a discount of 10% is offered on the processing fee for loans on acquiring of aircrafts. The proposed bill for the Cape Town Convention act,2018 says it will have an overriding effect over other. Hence the provisions in contradiction or conflict with other domestic laws in India would not be applicable. Also Article XI of the Convention talks about the remedies of insolvency. Article XI Alternative A which provides for the possession of the aircraft by creditor at end of waiting period would help the creditors/ lessors by reducing their risk and losses.


Thus, the Indian Bankruptcy Codenot giving a clear guidance of the ongoing and initiating arbitrations during moratorium, Arbitration and Conciliation Act does not cover provisions which shall apply during insolvency and these lacunas in the legislations might have a negative impact on the foreign investors who are considering India as a booming market to invest.


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