On October 3rd, 2023, the Ministry of Corporate Affairs (MCA) amended Section 14(1) of the Insolvency and Bankruptcy Code, 2016 thereby exempting the transactions, arrangements, or agreements related to aircraft, aircraft engines, airframes, and helicopters in the aviation industry from the operation of the moratorium imposed upon the admission of an insolvency plea.
Under the Insolvency and Bankruptcy Code in India, a "moratorium" refers to a legally mandated period during which creditors are prohibited from taking any legal action to recover their debts from a debtor undergoing a corporate insolvency resolution process.
The new amendment will enable the lessors of aircraft to repossess their leased aircraft in the event, the Airline goes bankrupt and insolvency proceedings are under process. The recent amendment is aligned with the commitments of the Government of India towards 'The Convention on International Interests in Mobile Equipment' also known as the Cape Town Convention (CTC).
Earlier in September, the global aviation leasing body Aviation Working Group (AWG) had downgraded India's ratings while considering a lack of compliance with the Cape Town Convention. India is a signatory to the Cape Town Convention (CTC) but has yet to ratify the same.
This created a lack of trust in the lessors' minds regarding the commercial viability of leasing out aircraft to airlines operating in India.
It is still unclear whether the ongoing Go First insolvency will be impacted by this amendment since the amendment is silent if it is retrospective or prospective in nature. However, it is logical to assume that Go First's lessors will certainly seek for interpretation from the Court or the Civil Aviation Regulator regarding the applicability of this amendment in their proceedings.
In May, Go First had applied for voluntary insolvency resolution proceedings before the National Company Law Tribunal. after the airline's funds were exhausted. The Lessors of Go First had been requesting the Directorate General of Civil Aviation (DGCA) to initiate the deregistration process but the matter has been again deferred by the Hon'ble Delhi High Court.
The recent amendment also highlights the need to incorporate provisions of CTC via law passed by Parliament, in order to rest other contentious issues like the applicability of Irrevocable Deregistration and Export Request Authorizations (IDERAs) during the pendency of Insolvency Resolution Proceedings.
Various lessors of Go First had also argued that the aircrafts leased to Go First should be returned to them since their agreements expired much before the filing of the insolvency resolution process but they have not been able to repossess the aircrafts due to the condition of mandatory moratorium.
Irrespective the retrospective applicability, the recent amendment has been termed as 'progressive' and 'essential' by Aviation industry Experts. It also indicates a positive weather for Indian aviation industry especially since Indian aviation sector has over 85 percent of aircrafts on lease, which is one of the highest rates globally.
The lessors' confidence is bound to have an uptick which would further strengthen the stability in the Indian aviation business and enable the already existing players to expand their operations.
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