NCLT seeks MCA views on aircraft lessor moratorium exemption in IBC

The Civil Aviation ministry's interpretation of the MCA notification, might be a deterrent for the airlines which end up in insolvency but give a leg up to lessors business

This report has been updated
The National Company Law Tribunal (NCLT) has asked the Ministry of Corporate Affairs (MCA) for its views on whether the exemption from the moratorium granted to all transactions related to aircraft and their engines under the Insolvency and Bankruptcy Code (IBC) is retrospective in nature, according to official sources.

The NCLT has sought MCA’s perspective regarding a plea filed by a lessor in the Go First insolvency case to reclaim its assets, citing the MCA notification of October 3, 2023.

While the notification does not explicitly state its retrospective nature, the Directorate General of Civil Aviation (DGCA) said in Delhi High Court that MCA’s notification is retrospective, in response to a plea filed by a Go First lessor.

The civil aviation ministry’s interpretation of the MCA notification might deter airlines facing insolvency but could benefit lessors’ businesses.

According to sources, MCA is discussing the matter with DGCA.

MCA’s notification aligns with the Cape Town Convention Bill, which the civil aviation ministry first introduced in 2018. The Bill assures lessors that their assets, such as aircraft, will not be stranded if a company becomes insolvent, as was the case with Go First.

In June 2023, the exemption from the moratorium under IBC was also extended to petroleum assets leased out by companies undergoing insolvency proceedings. The aim was to ensure that national assets in the petroleum sector do not remain idle.

According to official sources, MCA has also received a similar request from the communications ministry to exempt spectrum from the moratorium under IBC.

Section 14 of the IBC declares a moratorium on proceedings, transfer, or disposal of any of the company’s assets from the date of commencement of its insolvency.

MCA’s notification of October 3, 2023, states: “The central government hereby notifies that the provisions of sub-Section (1) of Section 14 of the IBC, 2016 (31 of 2016), shall not apply to transactions, arrangements, or agreements, under the convention and the protocol, relating to aircraft, aircraft engines, airframes, and helicopters.”

In Go First’s case, lessors had applied to the DGCA for the deregistration of 45 aircraft before its admission of insolvency. These applications were put on hold following the admission of the insolvency plea and the commencement of the moratorium.

In September, the Aviation Working Group, a global aviation leasing body comprising major plane makers and lessors, downgraded India after lessors could not repossess their planes from Go First more than four months after the carrier filed for insolvency.