CTC Issues – India

1. CTC Issues – India Middle East Seminar on CTC November 14, 2013 Grosvenor House Dubai Ajay Kumar RNClegal/ Rajinder Narain & Co. t: + 91 11 4122 5000 f: + 91 11 4122 5001 c: + 91 98913 97960 e: ajay.kumar@rnclegal.com

2. 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.

3. 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. BirendraPandey (1984 AIR 667)

4. 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.”

5. 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

6. 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.

7. 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.

8. CTC Implementation Efforts (Contd. II) • Suggested a two-pronged approach for effective CTC implementation: • amending the Aircraft Rules and CARs to better integrate CTC provisions in Indian law. • 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.

9. 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).

10. 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.

11. 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.

12. 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.

13. 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 non-payment 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”

14. Airport Charges (Contd. II) • On March 9, 2011, in AerLingusmatter, 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.

15. 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.).

16. 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.

17. 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.”

18. 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).

19. Thank you.