While the immediate spotlight is understandably on safety protocols, incidents such as this prompt a broader reflection on the entire commercial aviation ecosystem. One such critical but often overlooked dimension is how aircraft are financed and maintained by airlines. In India, approximately 80% of the aircraft are leased from foreign lessors, a figure significantly higher than the global average. For example, IndiGo—India’s largest airline—leases over 75% of its fleet.

This heavy reliance on leasing means that the financial and legal frameworks governing aviation assets are of systemic importance. When aircraft are leased, ensuring the swift enforcement of lessor rights in cases of default or insolvency becomes essential—not just for the stability of individual airlines, but also for maintaining the confidence of international lessors and financiers.

To address these concerns, India has in April of this year given effect to the Convention on International Interests in Mobile Equipment (“Cape Town Convention” or “Convention”) and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (“Aircraft Protocol” or “Protocol”), signed in Cape Town on November 16, 2001. These instruments establish a uniform legal framework for the financing and leasing of aviation assets. India has implemented them through the Protection of Interests in Aircraft Objects Act, 2025 (Cape Town Act).

This article outlines the background leading to the Act, its core features, and its potential impact on India’s aviation landscape.

Background

India acceded to the Cape Town Convention and the Aircraft Protocol in 2008. However, previous legislative efforts to implement the Cape Town Convention and Aircraft Protocol, including draft laws in 2018 and 2022, did not materialise, and India was placed on the Cape Town Convention compliance index watchlist by the Aviation Working Group (AWG), a non-profit legal entity made up of leading aviation manufacturers, leasing companies, and financial institutions that helps shape policies, laws, and regulations to support aviation financing and leasing.

India was placed on a watchlist due to concerns over its compliance with the Cape Town Convention, which grants aircraft lessors the right to deregister and repossess an aircraft in the event of a lessee default. At the time, India had not yet implemented or enforced the Cape Town Convention, and the judicial framework at the time did not adequately support the Convention’s protections.

This issue came to the forefront in the case of SMBC Aviation Capital Ltd. v. Interim Resolution Professional of Go Airlines (India) Ltd., (2023 SCC OnLine NCLAT 230), decided on May 22, 2023. In this case, the National Company Law Appellate Tribunal (NCLAT) upheld the earlier decision of the National Company Law Tribunal (NCLT), which applied a moratorium on the airline Go First under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC).

Section 14(1)(d) of the IBC prohibits lessors from repossessing leased assets that are in the possession of a corporate debtor during the moratorium period. As a result, lessors were left in limbo, unable to deregister and repossess their aircraft from Go First, despite the lessee’s default.

This situation caused significant distress among international lessors and raised serious concerns about the enforceability of their rights in India, particularly in light of the country’s commitments under the Cape Town Convention.

However, subsequent to the order of the NCLAT, the Ministry of Corporate Affairs issued a notification on October 3, 2023, bearing reference number S.O. 4321(E), stating that section 14(1) of IBC, would not apply to transactions, arrangements or agreements under the Cape Town Convention and the Aircraft Protocol relating to aircraft, aircraft engines, airframes or helicopters.

Additionally, the Hon’ble High Court of Delhi, in the matter of Accipiter Investments Aircraft 2 Limited v. Union of India & Anr., (2024 SCC OnLine Del 3125), dated April 26, 2024, ordered planes leased to Go First airlines to be de-registered within five working days of passing the order, providing some relief to the lessors.

Following this move, on November 25, 2024, AWG removed India from the CTC compliance index watchlist and upgraded India’s compliance rating to ‘medium’.

Cape Town Act, 2025: Key Features

Here are some of the key features of the new framework:

1. Commencement: The Act came into force on May 1, 2025.
2. Structure of the Cape Town Act, 2025:

• • First Schedule- Incorporates the Cape Town Convention.
  • Second Schedule- Incorporates the Declarations Lodged by the Republic of India under the Cape Town Convention and the Aircraft Protocol at the time of the Deposit of its Instrument of Accession.
  • Third Schedule- Incorporates the Aircraft Protocol.

3. What Qualifies as an International Interest: According to Article II of the First Schedule, the interest must be in airframes, aircraft engines or helicopters, among others, and must be:

• • granted by the charger under a security agreement,
  • vested in a conditional seller under a title reservation agreement, or
  • vested in a person who is the lessor under a leasing agreement.

The agreement must also meet the formal requirements of Article VII of the Convention, including being in writing and involving an object the charger, conditional seller or lessor has the power to dispose of.

4. Sphere of Application: According to Article III of the First Schedule, the framework applies if, at the time of the conclusion of the agreement, the debtor is situated in India – meaning it is incorporated in India or has its place of business, registered office or centre of administration in India.
5. Registration: Registration of an international interest with the international registry requires written consent of both parties. This is as per Article XX of the First Schedule. According to Article XXIX of the First Schedule, once registered, the interest has priority over any other interest subsequently registered or unregistered interest, and as per Article XXI, the registration remains effective until discharged or expired.
6. Notification of Default: According to Section 5, a creditor will not be entitled to exercise any remedy under the Convention or Protocol unless such creditor declares the occurrence of default by notifying the Directorate General of Civil Aviation (DGCA).
7. Remedies:

• • Direct Enforcement: According to Article VIII of the First Schedule read with Article IX of the Third Schedule, upon default, the charge holder may exercise these remedies (to the extent agreed by the charger) or apply for a court order authorising the remedies:
    • take possession or control of the aircraft object;
    • sell or lease the object;
    • collect income or profits from the management or use of the object;
    • procure the de-registration of the aircraft; and
    • procure the export and physical transfer of the aircraft object from the territory in which it is situated.
  • Vesting of Object: According to Article IX of the First Schedule, upon the occurrence of a default as prescribed in Article XI of the First Schedule, the charge holders and all interested persons may agree or the court may, on application by the charge holder, order that the ownership or any other interest of the charger, of the aircraft object covered by security interest will vest in the charge holder in full or partial satisfaction of the secured obligation.
  • Remedies under Title Reservation or Lease Agreements: According to Article X of the First Schedule, a conditional seller or lessor may:
    • terminate the agreement and take possession or control of the object, or
    • apply to the court for authorisation to do so.
  • Interim Relief from Court: According to Article XIII of the First Schedule read with Article X (3) of the Third Schedule, pending final determination of its claim, a creditor/charge holder may obtain from a court speedy relief in the form of:
    • preservation of the asset and its value;
    • possession, control or custody of the asset;
    • immobilisation of the asset;
    • lease or management of the asset and the income therefrom; and
    • if at any time the debtor and the creditor specifically agree, sale and application of proceeds therefrom.
  • Deregistration and Export: According to section 7, the remedy of de-registration and export of aircraft can be exercised by an IDERA holder by applying to the DGCA.
  • Remedies on Insolvency: As per the Second Schedule, India has opted for Alternative A under Article XI of the Aircraft Protocol.
    • Upon the occurrence of an insolvency-related event, the resolution professional or debtor must give possession of the aircraft to the creditor/charge holder within two calendar months (the waiting period as declared by India) or earlier if the creditor would otherwise have been entitled to possession.
    • However, the asset may be retained by the insolvency administrator or the debtor if all defaults (other than a default constituted by the opening of insolvency proceedings) are cured and the debtor agrees to perform all future obligations under the agreement.

Upon the adoption of Alternative A of the Aircraft Protocol in the Cape Town Act, India has enabled lessors to de-register their aircraft under the Aircraft Rules, 1937, and consequently to repossess their aircraft from the lessee in the case of any insolvency-related default, within the period as mentioned within Article XI (2).

Implications

The enactment of the Cape Town Act represents a significant step toward aligning India’s aviation leasing and financing framework with international standards. By enhancing legal certainty and enforceability of rights for aircraft lessors and financiers, the Act is expected to improve investor confidence and reduce leasing costs.

However, despite this progress, certain persistent issues have historically undermined India’s competitiveness in aircraft leasing.

One of the key problems India faced in the past was the lack of effective legal enforcement, which contributed to aircraft leasing costs being 8% to 10% higher than in other jurisdictions. The new law aims to rectify this situation by offering greater clarity, predictability and protection to creditors.

The Organisation for Economic Cooperation and Development (OECD) has established a norm that airlines from countries that are parties to the Cape Town Convention and Aircraft Protocol are eligible for a 10% discount on loan processing fees for aircraft acquisitions, provided the country has enacted implementing legislation. While India is not yet eligible for the said discount, as it is awaiting review by the OECD, this legislation moves it closer to that goal.

Concluding Thoughts

The Cape Town Act is more than just a legal reform. It is a signal to global aviation stakeholders that India is committed to building a predictable and creditor-friendly environment. In a market where leasing drives fleet expansion, reducing risk for lessors and aligning domestic law with international standards is essential. If effectively implemented, the Act has the potential to lower costs, attract new carriers, and support the long-term growth of India’s aviation sector.