Draft Protection and Enforcement of Interests in Aircraft Objects Bill, 2022

• 20 Apr 2022

For Prelims: Cape Town Convention and Protocol, International Civil Aviation Organisation (ICAO), League of Nations, International Institute for the Unification of Private Law (UNIDROIT)

For Mains: Draft Protection and Enforcement of Interests in Aircraft Objects Bill, 2022

Why in News?

Recently, the Ministry of Civil Aviation released the draft Protection and Enforcement of Interests in Aircraft Objects Bill, 2022.

• The proposed law will help international aircraft leasing companies to repossess and transfer planes out of India in case of a financial dispute with an Indian airline at a time many regional airlines have been refused planes for rent.
• The proposed legislation comes more than 14 years after India acceded to Cape Town Convention.

What are the Key Points of Draft Legislation?

• About: The Bill implements the provisions of the Convention on International Interests in Mobile Equipment and Protocol on Matters Specific to Aircraft Equipment which was adopted at a conference in Cape Town in 2001.
  • India acceded to the two instruments in 2008.
  • These provide default remedies for the creditor and create a legal regime for disputes.
• Need: The draft legislation is necessary because several Indian laws such as the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016 are in conflict with the Cape Town Convention and Protocol.
  • International leasing companies faced challenges in repossessing and exporting aircraft when Jet Airways shut down in 2019 and failed to pay its aircraft rentals.
  • Also, the Indian entities have suffered as international financial institutions demand implementation legislation.
• Objective: The proposed law provides remedies such as repossession of an aircraft object, or its sale or lease or collection of income from its use as well as de-registration and export of planes.
  • It also suggests remedies pending final adjudication of a claim as well as safeguards a creditor's claim during insolvency proceedings against its Indian buyer.

What is the Cape Town Convention and Protocol?

• Background: The Convention on International Interests in Mobile Equipment was concluded in Cape Town on 16^th November 2001, as was the Protocol on Matters Specific to Aircraft Equipment.
  • The Convention and the Protocol, were adopted under the joint auspices of the International Civil Aviation Organisation (ICAO) and the International Institute for the Unification of Private Law (UNIDROIT).
  • ICAO is a United Nations (UN) specialized agency, established in 1944, which laid the foundation for the standards and procedures for peaceful global air navigation. India is a member.
• Objective: To resolve the problem of obtaining certain and opposable rights to high-value aviation assets, namely airframes, aircraft engines and helicopters which, by their nature, have no fixed location.
  • This problem arises primarily from the fact that legal systems have different approaches to lease agreements, which creates uncertainty for lending institutions regarding the efficacy of their rights.
  • This hampers the provision of financing for such aviation assets and increases the borrowing cost.
• Advantages of the Convention and the Protocol:
  • Predictability & enforceability. The Convention and Protocol improve predictability with respect to the opposability of the securities and the interest held by sellers of aviation assets.
  • Cost savings: The Convention and Protocol are intended to reduce risks for creditors, and consequently, the borrowing costs to debtors, through the resulting improved legal certainty.
    • This promotes the granting of credit for the acquisition of more modern and thus more fuel-efficient aircraft.
    • The airlines of States that adopt the Convention and the Protocol may receive a ten percent (10%) discount on export credit premiums.

What is UNIDROIT?

• The International Institute for the Unification of Private Law (UNIDROIT) is an independent intergovernmental Organisation with its seat in the Villa Aldobrandini in Rome.
• Its purpose is to study needs and methods for modernising, harmonising and coordinating private and in particular commercial law as between States and groups of States and to formulate uniform law instruments, principles and rules to achieve those objectives.
• It was established in 1926 as part of the League of Nations.
• It was reestablished in 1940 following the League's dissolution through a multilateral agreement, the UNIDROIT Statute.
• It has 63 member countries, with India as a partner.

Source: TH