Middle East Seminar on CTC
November 14, 2013
Grosvenor House
Dubai
CTC Issues – India
Ajay Kumar
RNClegal/ Rajinder Narain & Co.
t: + 91 11 4122 5000
f: + 91 11 4122 5001
c: + 91 98913 97960
e: [email protected]
1
Introduction

India deposited articles of accession to the Cape Town Convention
(CTC) and the Aircraft Protocol in Rome on March 31, 2008. CTC
came into force after the statutory period of three months on July 1,
2008.

However, India has not passed an underpinning legislation which
implements the provisions of the CTC.
2
CTC in India – Applicability

The Constitution of India empowers the Indian Parliament (the
supreme legislative body) to make laws with respect to treaties.
Article 73 says:
“…the executive power of the Union shall extend to matters with
respect to which Parliament has power to make laws…”.

The Supreme Court has held*:
“The comity of Nations requires that Rules of international law may
be accommodated in the Municipal Law even without express
legislative sanction provided they do not run into conflict with Acts of
Parliament.”
*
Gramophone Company v. Birendra Pandey (1984 AIR 667)
3
CTC in India (Contd. II)

However, if any provision of a treaty (such as CTC) is in conflict with
the municipal laws of India, the latter prevails.

In the same judgment the Supreme Court held:
“Comity of nations or no, Municipal Law must prevail in case of
conflict.”
4
CTC – Conflicts / Grey Areas
 Self-help – Art. 8 – ???
 Speedy Relief – Art. 13 – ???
 Airports Authority and Tax Authority Liens
 Registration of Charges at IR and Companies House under Section 125
of the Companies Act
 Non-recordation of IDERAs
5
Kingfisher Experience

Kingfisher Airlines’ (Kingfisher) defaults brought into sharp focus
certain serious issues in India vis-à-vis Indian deregistration
regulations, CTC and certain other practical matters.

Fortunately, there is now a growing resolve in India to address these
regulatory issues and fast-track and smoothen the process of
enforcement.
6
CTC Implementation Efforts

AWG, in collaboration with Federation of Indian Airlines (FIA) and
Indian Law Firms have made several written representations to the
Directorate General of Civil Aviation (DGCA) and Ministry of Civil
Aviation (MoCA).

AWG, FIA and RNClegal made oral presentations to the DGCA and
MoCA on August 23, 2013. Several senior government officials were
present at this meeting.
7
CTC Implementation Efforts (Contd. II)

Suggested a two-pronged approach for effective CTC implementation:
i.
amending the Aircraft Rules and CARs to better integrate CTC provisions
in Indian law.
ii. promulgating short-form legislation ensuring CTC provisions prevail in
case of conflict with other laws.

Drafts of the Amendments and the Short-form Legislation have been
sent to the Government Authorities who have initiated the process of
amending the Aircraft Rules and CARs.

Next few slides identify weaknesses in the current regulatory regime
in India.
8
Weaknesses
 Lack of legislation;
 Lack of clarity in Rules;
 DGCA’s practice of issuing notice for deregistration.
(This leads to delays; claims start pouring in from Airports Authority
of India (AAI), Tax authorities and others).
9
Weaknesses (Contd. II)
CAFCO Case: Delhi High Court on March 15, 2013 issued a Writ
directing DGCA to deregister the Aircraft after DGCA had refused. In
doing so, the Court:
 Upheld the irrevocability of the DPoA;
 Noted IDERA provisions;
 Held that the DGCA was duty bound to cooperate and assist the
Lessor;
 Held that law does not give power to Indian Customs to direct
DGCA to delay or refuse deregistration.
10
Weaknesses (Contd. III)
DVB Case: Delhi High Court on April 8, 2013 relying on the CAFCO
case issued a Writ directing DGCA to deregister DVB’s Aircraft. The
Court held that:
 The DGCA’s refusal to deregister on the ground that consent of the
Operator was required was specious given the irrevocable DPoA;
 Inter-se rights cannot come in the way of the Owner seeking
deregistration of the Aircraft.
11
Weaknesses (Contd. IV)
 On appeal (Division Bench), the CAFCO Order was upturned on May
10, 2013 and the DGCA was given liberty to decide the issue of
deregistration after taking all relevant facts into consideration.
 The Court criticized the manner in which DGCA simply refused to
exercise its power without giving any cogent reason.
 It held that the DGCA had a duty to act which could not be “shirked
or shelved”. The non-action of DGCA is arbitrary and illegal. The
DGCA was directed to exercise its statutory powers.
 A Second Appeal (Supreme Court) was rejected on September 2,
2013 and thus, the First Appellate Court’s Order became final.
12
Airport Landing, Parking & Navigation
Charges
Airports do not allow Aircraft to be repossessed where its dues are not
cleared. Para 10, Airport Authority of India (Management of Airports)
Regulations 2003:
“Unless otherwise provided under the Act or by a general or special order in
writing by the Central Government, the use of the movement area of Airport, by
an aircraft shall be subject to payment of such landing, parking or housing fees
or charges as are levied by the Authority from time to time. In the event of nonpayment of the requisite fee or charges, the competent Authority shall have a
right to detain or stop departure of the aircraft till the fees or charges are paid to
Authority, which may include the current and accumulated dues”
13
Airport Charges (Contd. II)
 On March 9, 2011, in Aer Lingus matter, the Bombay High Court held
that the owner of an Aircraft was not liable to pay the Lessee’s dues in
the absence of a contract with the Airport.
 On appeal, the aforesaid Order was stayed. The Appeal is yet to be
decided.
14
Airport Charges (Contd. III)

ILFC Case: The Ministry of Civil Aviation took a policy decision with respect to
Aircraft leased to Kingfisher on March 26, 2013. They, inter alia, directed that:
“The concerned airport operators shall release all the de-registered aircraft to
the respective owners/lessors immediately so that these aircraft can fly out of the
country. They are at liberty to collect parking charges from the owners/lessors
from the date of de-registration.”

The Delhi High Court reprimanded the Authorities for not releasing the aircraft
and imposed costs on AAI. It held: “Different Government Authorities, to our
mind, cannot speak in different languages and if this results in wastage of
judicial time, it is necessary to put such a party to terms for wasting judicial
time.”

The Delhi Airport Operator has appealed against this Order in the Supreme
Court. The Court declined to grant an interim stay since ILFC agreed to furnish a
bank guarantee of USD 383,640 (approx.).
15
Outstanding Tax Liability
 The power to detain aircraft and other assets is derived from Section
142(c)(ii), Customs Act, 1962 and Section 87(c), Finance Act, 1994
(‘Finance Act’) which allow attachment of “any movable or immovable
property belonging to or under the control” of a defaulter.
 In a matter relating to attachment of Engines belonging to Natixis by the
Service Tax Authority, the High Court rejected the lien exercised by the
Tax Authority. The Engines have now been redelivered.
 Meanwhile, in another similar matter, ILFC has challenged the
attachment Order passed under 87(c), Finance Act by Service Tax
authorities. The Court relied on the Natixis decision and held that
property owned by a third party cannot be attached for the dues payable
by Kingfisher.
n.b. RNClegal represented Natixis.
16
Next Steps
 After AWG’s written and oral presentations, the Government seems to
be moving along the right path. Amendments to the Aircraft Rules are
expected shortly, perhaps before the year is out.
 The Secretary, MoCA, is on record:
“To ensure the government's commitment to abide by the Cape Town
Convention, we have decided to incorporate changes in the Aircraft Act
and Rules (1934) to satisfy the lessors.”
17
Positives
 Government has permitted FDI in the airlines of India by foreign
carriers.
 Deals: Jet – Etihad / AirAsia – TATA / Singapore Airlines – TATA
 India has potential to become a powerhouse in this sector - fuelled by its
large population and economy. Domestic air traffic carried by scheduled
carriers in India is expected to cross 159 m passengers by 2020-2021*.
*
Report of Working Group on Civil Aviation Sector released by Government of India
(June 2012).
18
Thank you.
19
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