New aircraft law gives legislative backing to Cape Town Convention in insolvency cases

The government of India notified the Protection of Interests in Aircraft Objects Act, 2025, which provides protection to aircraft lessors against moratorium rules under the Indian insolvency law. The act aligns India’s aviation laws with the Cape Town Convention (2001) and its Aircraft Protocol, to which India acceded in 2008, and aims to strengthen aircraft financing and leasing by providing legal clarity and uniformity for high-value assets like aircraft, helicopters, and engines.

The Act grants legal force to the Cape Town Convention and Protocol, ensuring enforceable rights for creditors and lessors in India. It overrides conflicting domestic laws, such as the Insolvency and Bankruptcy Code (IBC), 2016, and the Companies Act, 2013.   It allows creditors to repossess, deregister, or export aircraft within a two-month waiting period after a debtor’s insolvency or default.

The new Act designates the Directorate General of Civil Aviation (DGCA) as the registry for recording aircraft interests and dues, ensuring transparency through mandatory reporting by airlines and lessors.

The provisions of the act will have overriding effect notwithstanding anything in any other law for the time being in force. However, the provisions of the act or the Convention or the Protocol will not affect the rights of the Central Government or any entity thereof, or other provider of public services in India, or any inter-governmental organization in which India is a member, to arrest or detain an aircraft object under any law for the time being in force, for payment of any amount due to the Government of India or any such entity or provider of public services or organisation, directly relating to the service or services provided by it in respect of that aircraft objects.  

Significance of the law

Before the Implementation of the Protection of Interests in Aircraft Objects Act, 2025, when an airline like Jet Airways or Go First enters insolvency, moratorium under IBC kicks in, and lessors are prevented from repossessing aircraft during CIRP (Corporate Insolvency Resolution Process). This causes friction with global lessors and raises financing costs.

Though India has signed the Cape Town Convention, full legislative backing was still awaited, which is why aircraft repossession during insolvency was delayed. Global stakeholders were urging India to implement the Convention in full to improve aircraft leasing and financing environment.

Lessons from Go First Insolvency

— Courts initially upheld the moratorium, preventing lessors from reclaiming planes, but this has been heavily criticized.

— Go First’s 2023 insolvency raised alarms among aircraft lessors.

— DGCA (aviation regulator) was caught between IBC moratorium and repossession requests.

Also see: Govt keeps aircrafts, helicopters out of ambit of moratorium under IBC