Recalibrating Insolvency Norms: The Interface Between Aircraft Objects Act 2025 and Insolvency and Bankruptcy Code 2016

[Rishi and Ayushi are students at National law University Jodhpur.]

In the aftermath of the COVID-19 pandemic, several major Indian airlines faced insolvency due to prolonged travel restrictions. As the aviation sector began recovering, it became necessary to reassess India’s insolvency framework for airline failures. Under the Insolvency and Bankruptcy Code 2016 (IBC 2016), once an application for initiation of the corporate insolvency resolution process (CIRP) is admitted, a moratorium is imposed on proceedings against the corporate debtor. Under Section 14(1)(d), this moratorium prevents the enforcement of secured interests against the debtor’s assets. Accordingly, creditors are barred from individual recovery actions, including repossession of leased aircraft and engines. India’s previous insolvency regime was estimated to cost domestic carriers an additional USD 1.2-1.3 billion in lease rentals, ultimately increasing fares for passengers. 

The Protection of Interests in Aircraft Objects Act 2025 (Aircraft Objects Act) marks a significant shift necessitated by financial distress faced by airlines such as Kingfisher Airlines, GoFirst and SpiceJet. Under the Aircraft Objects Act, the moratorium under insolvency proceedings does not apply to the recovery of aircraft equipment protected under the Convention on International Interests in Mobile Equipment (Cape Town Convention) and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (Cape Town Protocol). Pursuant to its declaration to the Cape Town Protocol, India has adopted Article XI, Alternative A, which applies to all types of insolvency proceedings. Alternative A allows lessors to take the possession of the aircraft upon an  insolvency-related event after the expiration of a designated waiting period, which in case of India is two calendar months.

The combined effect of the overriding provision of the Aircraft Objects Act and the statutory recognition of lessors’ rights to repossess aircraft has raised concerns among practitioners about its impact on the insolvency resolution process of distressed airlines. This article argues, however, that the traditional CIRP under the IBC 2016, remains unaffected by the enactment of the Aircraft Objects Act. This is demonstrated through three key arguments. First, the Aircraft Object Act does not imply automatic liquidation or reduced prospects of revival. Second, it does not create new rights for lessors but enhances the speed and predictability of enforcement. Third, by designating the High Court for enforcement, it does not create a jurisdictional conflict with NCLT or NCLAT. 

Impact of the Overriding Clause: Commercial and Legal Ramifications

Section 9(1) of the Aircraft Objects Act mandates that the provisions of this law shall have an overriding effect over any other law for the time being in force. Consequently, there shall be an automatic seizure of aircrafts (Alternative A), even for insolvent and distressed airlines. The debtor is required either to remedy all existing defaults and commit to fulfilling future obligations, or to surrender possession of the aircraft, whichever occurs by the end of the “waiting period” specified in the declaration made by the contracting state that serves as the debtor’s primary insolvency jurisdiction. 

An exception arises where debtors and lessors mutually agree subject to court approval, to continued aircraft use against compensation, even after expiry of the waiting period. Such arrangements fall outside Alternative A since Alternative A only mandates the return of the aircraft upon completion of the specified waiting period and does not address issues such as the calculation or priority of claims arising during that time. This was also affirmed by Judge Kalpan in a recent case concerning the applicability of Alternative A to claims made by global lessors. In such a scenario, the debtors would make regular payments for the ongoing use of the aircraft. Repossession of aircraft is therefore not absolute, and airline revival remains possible. 

The Pre-2025 Landscape: Were Lessors Truly Powerless?

Discourse about the Aircraft Objects Act often suggests that its primary aim is to strengthen the position of foreign aircraft financiers and lessors by conferring new rights. However, aircraft lessors dealing with licensed Indian commercial airlines were never without protection. Even before the act, Indian law enabled lessors to recover aircraft. For example,  Rule 30(6)(iv) of the Indian Aircraft Rules 1937 (1937 Rules), empowered the Director General of Civil Aviation (DGCA) to cancel or revoke the registration when a lease expired or was terminated. In Awas 39423 Ireland Ltd and Ors v. Directorate General of Civil Aviation, the Delhi High Court, interpreted the term “may,” in Rule 30(6) as “shall”, thereby imposing a mandatory duty on the DGCA to deregister the aircraft once the lessor ends the lease. This interpretation aligns with India’s declaration  under Article 54(2) of the Cape Town Convention, permitting lessors to exercise remedies without court approval.

Additionally, Article XIII of the Cape Town Protocol permits  lessors to obtain an Irrevocable De-Registration and Export Request Authorisation (IDERA), granting rights of de-registration and export. This is operationalised under Rule 30(7) of the 1937 Rules, requiring DGCA to process requests within five working days without airline consent, supported by a 2018 SOP mandating publication of IDERA applications.

Against this backdrop, the Aircraft Objects Act does not create new substantive rights. It merely aligns India’s domestic laws with the global best practices. Given aviation’s asset based financing model, predictable enforcement frameworks are central to investor confidence. Accordingly, the Aircraft Objects Act can significantly boost India’s aviation leasing market, delivering commercial benefits to domestic airlines such as capital conservation and reduced operational risk. With low-cost carriers accounting for 71% of total domestic seat capacity, far above the global average of 34%, India stands to gain from this predictable leasing frameworks. Furthermore, by designating DGCA as the Domestic Registrar, the Aircraft Objects Act streamlines procedures for international creditors, an advantage previously unavailable. Herein, emphasis is placed on DGCA’s role in de-registering and exporting aircraft, upon receipt of the IDERA filings. 

Jurisdictional Dissonance: High Courts v/s NCLT

Although Section 8 of the Aircraft Objects Act, vests exclusive jurisdiction in High Courts for its enforcement, the IBC 2016, restricts civil courts from entertaining matters assigned to the NCLT.  This is evident from  Section 60(5) (c), which grants the NCLT residual jurisdiction over questions of law or fact “arising out of,” or “in relation,” to a corporate debtor’s insolvency. Additionally, Section 63, ousts the jurisdiction of civil courts or other authorities for matters under the NCLT’s domain and Section 238 gives the provisions of the IBC 2016, overriding effect.  

Concerns have been raised regarding a potential jurisdictional conflict between the NCLT and High Court if lessors seek aircraft repossession before the High Court once CIRP has begun. However, such conflict is unlikely, as there is a clear functional distinction between the roles of the two forums. The Aircraft Objects Act is a special legislation intended to fulfil India’s Cape Town Convention commitments, assigning High Courts authority over repossession and IDERA enforcement. In contrast, the NCLT retains jurisdiction over broader insolvency issues such as, revival, debt restructuring and liquidation of the debtor company. Further, repossession requests may be unrelated to insolvency, for example, where the lease was terminated for pre-insolvency breaches, as was the case with Go Airlines India Ltd v. SMBC Aviation Capital Ltd.

Moreover, lessors may challenge DGCA actions before High Courts. This is because the NCLT is not a Civil Court but an adjudicating authority constituted under a special statute. Unlike the NCLT, High Courts possess the writ jurisdiction necessary to review administrative decision by the DGCA, ensuring clear division of judicial review. Traditionally, the writ jurisdiction of the High Courts has been invoked to review such governmental decisions. For example, writs of mandamus or certiorari have been issued to command the DGCA to take necessary action or quash the orders of the DGCA respectively.

Conclusion

It was feared that the interface between the Aircraft Objects Act 2025 and the IBC 2016, would create a tussle between the rights and interests of global lessors and the prospects of revival for distressed airlines. This tussle was further amplified by first, the overriding effect of the Aircraft Objects Act 2025 over the IBC 2016 and second, the exclusive jurisdiction granted to High Courts to deal with issues arising with the Aircrafts Object Act. The authors have attempted to alley these concerns by suggesting that the overriding effect does not dismiss the domestic insolvency principles on all fronts. In any case, the so-called new legislation is not giving any "new" rights but only expediting the process of the realisation of those rights for the lessors (to boost investor confidence in India’s domestic aviation industry). Additionally, there is no jurisdictional conflict between the High Courts and the NCLT, as each possesses a distinct and exclusive domain. High Courts have authority over aircraft repossession and IDERA enforcement, while the NCLT’s jurisdiction is limited to insolvency-related matters. Therefore, the Aircrafts Objects Act safeguards the rights of global lessors without eroding the resilience of airline companies to revive under the IBC 2016.