Authored By: Manan Jhamb (B.B.A.LL.B (Hons)), Chandigarh University, Research Writer at Law Audience,
Edited By: Mr. Varun Kumar, Advocate, Himachal, Punjab & Haryana and Founder at Law Audience
INTRODUCTION:
Recently, India’s civil aviation industry has been definitely on the ascent as it has become one of the youngest aviation markets in the world. Yet there has long been a gap in the law – no effective domestic law to enforce creditor rights to assets of the aircraft on the international market. Needless to say, the Protection of Interests in Aircraft Objects Bill, 2025 is a key Bill to close this lacuna. This Bill was introduced in the Rajya Sabha on February 10, 2025 and passed by Lok Sabha on April 3, 2025 and represents a major step in the Indian aviation law so that it can catch up with global developments, especially in the field of financing and leasing of aircraft.
THE ORIGINS OF THIS LEGISLATION GO BACK TO TWO BASIC INTERNATIONAL TREATIES:
The Cape Town Convention and India’s overdue pledges!
- Adopted on 16th November 2001 (called the Cape Town Convention), the Convention on International Interests in Mobile Equipment.
- The Protocol to the Convention on Matters Specific to Aircraft Equipment which was adopted concurrently with the Convention in Cape Town.
The aim of the agreements was to establish a single universal system for enforcing creditors’ rights over assets of high value and movable assets, such as aircraft, aircraft engines, helicopters, etc., as well as for international recognition of this system. The Cape Town Convention was designed to do so, and meeting its objectives would supply legal security to lenders and lessors, regardless of the jurisdiction where debtor or asset is located, as well as harmonise and rationalize financing and leasing of such assets across borders.
India has ratified Convention and its Protocol as early as 2008. But, in the absence of the necessary Indian laws, the pact was quite ineffective in India. Domestic legal system was not available for any legal backing for those courts or creditors. This was a foot on the pedal’s intervention on costs, where Indian airlines were required to pay 8-10 per cent more than international airlines—this is because of Indian financiers’ pricing on offering a leg of sight to the Indian legal recourse. In the Bill 2025, this historical aberration is addressed: India’s international commitments are fully implemented in the domestic legal sphere.
MAIN PARTS OF THE BILL:
- 1. Leading force of domestic law- International agreements:
There is a primary purpose for the Bill – to establish the Cape Town Convention and its Aircraft Protocol on Indian soil in a legal manner and provide it with a legal currency. This clearly provides clarity and power, when it comes to the application of these rights, obligations and remedies in these international frameworks in the Indian judiciary and regulators.
- The creditors’ remedies in case of default:
The Cape Town Convention provides certain creditors (lessors, conditional sellers or aviation asset lenders under a security agreement in relation to the aviation assets) with preferred rights in the case of a debtor’s default. It applies to India these remedies provided in the Bill. Significant takeaway, a creditor can reclaim the plane asset (within 2 calendar months or as agreed to by both, whichever is less, of the creditor’s default). This provision is very helpful in practice. The need was felt in the existing legal framework on the GoFirst mess in 2023, when the lessors unworkably failed to break the SARs to take delivery of aircraft languishing in the Indian airports for months. The new Bill specifically takes into account these sorts of situations and provides a specific time-bound mechanism for asset recovery.
But before listing out the default, the creditor should let Directorate General of Civil Aviation (DGCA) know, thus ensuring the process of transparency and regulatory oversight while affording to the creditor a measure of protection for his interest.
- DGCA’s role as Registry Authority:
The Bill states that the DGCA shall become a national register authority for the Convention. That includes the responsibility of the DGCA to register and de-register the aircraft as per the framework, as well as maintain International Registry – a global electronic repository of international interests on aircraft objects. The benefit of this is that these activities can take place in a single DGCA in India, thus creating one single ‘real interface’ with the Cape Town framework.
- Government agencies’ right to be detained:
It explicitly states that the rights of certain entities are not affected in regard to detaining the aircraft assets due to unpaid due for their services. These entities include:
- The Central Government
- Organization which provides public services in India –
- All Inter Governmental organizations to which the Government of India is a party.
That ensures that creditor rights are respected while the state’s right to seek reimbursement, having legitimate issues that were not paid for such as unpaid transportation charges, airport fees, or other public taxes, too, are not lost.
- Rule-Making Powers:
The Bill also provides the authority to the Central Government for making rules to implement the provisions of the Convention and the Protocol. This gives a certain flexibility to the executive branch to adapt the implementation, over time, due to the evolving needs of the aviation sector without additional acts of legislation.
- The ‘difficult to remove’ clause will be deleted, the statement says:
But there is also a ‘removal of difficulties’ clause to empower the Central Government to issue instructions for a period of three years from the date of the coming into force of the Act during which any difficulties may arise in implementing the Act may be removed.
STATEMENT OF THE ECONOMIC AND STRATEGIC REASONS WHY THIS BILL IS IMPORTANT:
- Purchasing Forces Will Aircraft Leasing at Lower Cost:
In today’s commercial aviation landscape, aircraft leasing is its lifeline. Leasing of aircraft forms a major part of almost all Indian Airline companies’ fleet and is essential for growth of Indian fleets. Prior to this law, the laws in India were somewhat unclear about how creditors’ rights would be dealt with, and so, international lessors did not feel comfortable and insisted on a premium for taking the risk. This means that after the Bill is approved, the rentals for domestic airlines can see significant fall and in turn, airfares can be even cheaper for passengers.
- To boost Investor and Creditor confidence:
This law is testament to the fact that India is a legally predictable, treaty compliant jurisdiction and a strong message to the global aviation finance community. This is expected to bolster more foreign investment, lower interest rates of borrowing overall for Airlines and facilitate entry of new Airlines in India. Legislative certainty will be a key enabler to the aviation market in India, which is projected to expand from $13.88 billion in 2024 to $26.8 billion in 2030.
- Supporting India’s Fleet Expansion Goals:
Low-cost financing and leasing will be very critical as India plans to add several thousand domestic airline aircraft in the next 20 years. The Bill will enable India to stand up when it comes to compliance with the Cape Town Convention and prepares the ground for the massive amount of funding that will be required for fleets to make such growth possible.
Avoiding future repossession problems. Staying clear of future problems with items being repossessed. The GoFirst bankruptcy is a cautionary tale about the pitfalls of legal uncertainty in 2023. Lessors were unable to repossess aircraft for months and they suffered huge financial losses, as well as a loss of faith in the Indian market. Thus, another Ebola-like situation in India should be avoided in the future, due to the unambiguous time frame and investment procedures specified in the Bill, making India more reliable as a place to invest in aircraft.
INDIA’S AVIATION BOOM: LEGISLATIVE BACKING AND FUTURE CHALLENGES:
This Bill came as part of a process. It follows the backdrop of the era of course wherein the Government under which Indian civil aviation is undergoing a major shift is in charge. Domestic passengers have almost doubled, from 60.7 million in 2014 to 161.3 million and the growth rate is at 12% per year. The number of airports has grown from 74 in 2014 to 159 in 2024. The willingness of the government to make even common folk capable of flying up in the air with the “Hawai Chappal se Hawai Jahaz ka Safar” has even been backed by legislation and infrastructure.
Apart from Aircraft Object Bill, there are some other pressing concerns which are going to be addressed by the Ministry of Civil Aviation in the future: The heavy cost of Aircraft Turbine Fuel (ATF), constituting almost 45% of an airline’s operating cost and the training of tens of thousands of pilots in the next decade. Other plans of India towards greening the aviation sector include the development of Sustainable Aviation Fuel (SAF) and reducing the dependence on fossil fuel on over 100 airports.
DEBATES IN PARLIAMENT: BALANCING AVIATION GROWTH AND PUBLIC INTEREST:
The State Government conducted Parliamentary discussion / debates with stakeholders. When the Bill was passed there was wide cross-party acceptance in Parliament. MPs commented on the possible rise in investors’ confidence and the standing of Indian aviation industry in the international arena. The voice of opposition reminded the House of the need as well to protect the interests of passengers, airline workers and other interest groups — and that expansion of aviation should not be put at the service of the interests of the financial arena only.
CONCLUSION:
Indian aviation is at a new chapter which is exciting and promising for the future. The Protection of Interests in Aircraft Objects Act, 2025 is a major step towards the advancement of aviation in India. India this time has done just that by making the 17-year old international commitments a reality of domestic laws. Indian aviation dreams are provided firm foundation in the Act, while Indian airlines are getting the cuts they require and global creditors feeling reassured.
This Bill will serve to facilitate India’s rise to become one of the world’s biggest three aviation markets – and it already is one of the world’s top 3 in domestic aviation. One of the finest reminders is that technological or less sexy in nature, legal change can be one of the most effective levers to induce economic change. In India’s aviation future, this Act is a load-bearing structure which means the difference between success and failure.
