India Exempts Aircraft and Helicopters from Key IBC Provision

• 07 Oct 2023

The Ministry of Corporate Affairs has recently issued a notification to eliminate a crucial provision of the Insolvency and Bankruptcy Code (IBC) related to aircraft, aircraft engines, airframes, and helicopters.

Key Points

• Cape Town Treaty Background: The Cape Town Convention on International Interests in Mobile Equipment, also known as the Cape Town Treaty, was signed in 2001 and became effective in 2006.
• It was designed to reduce risks for aircraft lessors, financiers, and those involved in aircraft purchasing and leasing.
• India adopted the Cape Town Treaty in 2008.
• Exemption Notification: The Ministry of Corporate Affairs released a notification exempting transactions involving aircraft, aircraft engines, and helicopters from the provisions of section 14(1) of the Insolvency and Bankruptcy Code, 2016.
• Section 14(1) typically imposes restrictions during insolvency proceedings, but this exemption specifically applies to transactions covered by the Cape Town Convention and the Protocol.
• Context: Go First Bankruptcy: This notification comes in the midst of the ongoing insolvency proceedings involving Go First, an airline owned by the Wadia Group.
• Go First filed for voluntary insolvency in the National Company Law Tribunal (NCLT) on May 2, citing issues with US engine maker Pratt and Whitney as a primary cause.
• NCLT admitted Go First's voluntary plea for insolvency on May 10, initiating the insolvency resolution process and placing a moratorium on the airline's financial obligations.
• Lessors, who had already terminated their leases with Go First and sought to repossess aircraft, faced challenges due to bankruptcy protection overriding repossession requests under local laws.
• With Go First undergoing insolvency resolution, lessors have been entangled in a legal battle to recover their aircraft.