Section 6 of The Protection of Interests in Aircraft Objects Act 2025 Remedies on insolvency

Section 6 of The Protection of Interests in Aircraft Objects Act 2025 Remedies on insolvency

Visual Summary

Executive Summary

Section 6 establishes a clear process for handling the bankruptcy (insolvency) of an Indian airline or aircraft operator. It states that the specific, often faster, remedies laid out in an international agreement (Article XI of the Protocol) will be applied in India. However, this rule only kicks in if three conditions are met: the bankrupt party is based in India, the lender’s financial interest in the aircraft is properly registered internationally, and both parties have not previously agreed in writing to bypass this section.

In-Depth Analysis of the Section

Introduction

Aircraft are incredibly expensive assets, often financed or leased by international companies. Section 6 of this Act is a cornerstone provision designed to give these international financiers confidence when dealing with Indian operators. It addresses a critical question: What happens if the Indian airline goes bankrupt? This section provides a clear, predictable answer by adopting international standards for insolvency remedies.

Breakdown of the Provision

The core of Section 6 is that it gives legal force in India to ‘Article XI of the Protocol’. The Protocol is an international treaty on aircraft financing, and Article XI provides powerful remedies for creditors (like banks or leasing companies) to repossess their aircraft quickly if the debtor (the airline) becomes insolvent. The section states this will apply ‘mutatis mutandis’, a legal term that simply means ‘with the necessary changes’. In essence, we take the international rule and apply it as if it were Indian law.

However, this powerful provision is not automatic. It only applies if three specific conditions, listed as ‘provisos’, are satisfied:

1. The Debtor is Indian: The company or person that owes the money (the debtor) must be officially based in India. This could mean they are incorporated or registered here, or it’s their main place of business.
2. The Interest is Registered: The creditor’s financial claim or ownership right (their ‘international interest’) in the aircraft must have been officially recorded in the International Registry as required by the Convention and Protocol. This is like registering a mortgage on a house; it makes the claim public and official.
3. No Written Exclusion: The airline and the financing company must not have a clause in their contract that specifically says, ‘Section 6 of this Act will not apply to us’. This gives parties the flexibility to opt out if they choose.

Practical Example

Imagine a German bank leases a new Boeing 787 to ‘Indigo Airlines’, an Indian company. The bank correctly registers its international interest in the aircraft. A few years later, Indigo Airlines faces severe financial trouble and enters insolvency proceedings in India. Because all three conditions of Section 6 are met (Indigo is an Indian debtor, the interest is registered, and they didn’t have an opt-out clause), the German bank can use the swift repossession procedures outlined in Article XI of the Protocol. This allows them to get their multi-million dollar asset back promptly, rather than being tied up for years in a complex Indian bankruptcy case.

Conclusion

Section 6 is vital for making India an attractive market for aircraft financing. By adopting a clear, internationally recognized standard for insolvency, it reduces risk for lenders and leasing companies. This lower risk can lead to more favorable financing terms for Indian airlines, ultimately benefiting the entire aviation sector by ensuring a steady supply of modern aircraft.

Related Provisions

Understanding Section 6 requires familiarity with other parts of the Act that provide context and define key terms. The following sections are particularly relevant:

• Section 2: Definitions – This section is crucial as it defines terms like ‘Protocol’, ‘Convention’, ‘creditor’, and ‘debtor’, which are essential for interpreting the conditions and application of Section 6.
• Section 3: Application of Convention and Protocol in India – This section provides the overall legal foundation for applying the international treaties in India, which Section 6 then applies specifically to insolvency situations.
• Section 9: Provisions of Act to have overriding effect – This section is important because it clarifies that the rules in this Act (including the insolvency remedies in Section 6) will prevail over other Indian laws if there is a conflict, reinforcing the power of the Protocol’s remedies.

Learning Aids

Mnemonics

• RIC-O: A simple way to remember the three conditions for Section 6 to apply. The remedies are available if the interest is **R**egistered, the debtor is **I**ndian, and there is **C**onsent (meaning no written **O**pt-out).

Process Flowchart

Frequently Asked Questions

Test Your Knowledge