The Supertech Case | Cape Town Convention in India | 2018 | An Update

CAPETOWN CONVENTION IN INDIA – 2018 – AN UPDATE

THE SUPERTECH CASE

The world has tuned its vision towards India and the applicability of the Cape Town Convention (“CTC”) within India’s’ regulatory and legal framework. We had previously published an aircraft repossession overview 2017, which still contains valid information about the applicability of the CTC in India. In that aforementioned memorandum, we had briefly mentioned that there was a CTC related case pending before the Hon’ble Delhi High Court titled “Supertech Aviation Private Limited Versus Director General of Civil Aviation & Ors.”.

The case has since been disposed off and gives a good idea of enforceability of CTC provisions in India. The following brief has been drafted on the basis of publicly available documentation available from the website of the Hon’ble High Court of Delhi. The case pertains to the de-registration and export of a private jet owned by the Petitioner (“Lessee”) who approached the Hon’ble High Court challenging the de-registration of an aircraft on the basis of an Irrevocable De-Registration and Export Request Authorization (“IDERA”).

It is caveated that; this summary is not aimed to criticize the series of events or how the matter was dealt with by the Hon’ble High Court but is being reproduced to portray actual effectiveness of the CTC in India – as it stands today.

FACTUAL BACKGROUND:

Aircraft: Cessna 525A Citation CJ2 +

Registration: VT-RKA

Payment: Lessee paid a certain amount as initial deposit to Cessna (“Owner”) along with 25% of the total cost of the aircraft. For the remaining cost of the aircraft, the Parties entered into a lease agreement for a period of 118 months.

Aircraft Lease Date: 30th December 2013

Registered in India on: 28th February 2014

It is found from the proceedings that the Lessee defaulted on its payments of rental and did not pay the Owner from June 2016 onwards. As such, in November 2016, the Owner, applied to the DGCA for de-registration of the aircraft on the basis of Rule 30 (7), i.e. the IDERA route.

The DGCA asked Owner for a certificate that all registered interests from domestic stakeholders have been discharged (it is assumed that the DGCA was trying to ascertain if all local dues had been cleared).

Further, the DGCA on 24.03.2017 de-registered VT-RKA from the Indian aircraft register and sent due notification to the Lessee, i.e. Supertech. NOTE: As per the pleadings, the total time taken to deregister the aircraft from the Indian aircraft register spanned from November 2016 to 24th March 2017.

A case was filed by the Lessee (the present case which is being summarized) on the ground that:

  1. The Lessee had paid 25% of the cost of the Aircraft;
  2. That the DGCA could not have de-registered with an IDERA as that particular rule (Rule 30 (7)) requires that the lease must have expired;
  3. The Lessee stated in its petition that,“It is submitted that the intent and purpose behind Rule 30 (7) of the aircraft rules is that when lease of an Aircraft is about to expire by efflux of time, the IDERA holder can seek de-registration / cancellation of the Aircraft. In the present case, the lease of the Aircraft is valid till 24.11.2023 and in view of this fact that the lease was not to expire in the near future, this particular invocation is totally misconceived and illegal.”
  4. The Lessee stated in its petition that the IDERA and De-Registration Power of Attorney (“DPoA”) were all pre-signed documents and as such, could not have been relied upon 2 years after their execution;
  5. The Lessee stated that the DGCA should have exercised its mind before cancelling the registration of the Aircraft, which, as per the Lessee, was the not case.

The prayer in the case was as follows:

(a) Calling for the records from the DGCA;

(b) Issue a writ to the DGCA directing them to not permit Owner from exporting the aircraft from India;

(c) Issue a writ setting aside and quashing the order of the DGCA dated 24.03.2017, i.e. de-registering the aircraft;

(d) Issue directions to Owner to keep the lease of the aircraft subsisting.

For ease of understanding the matter, we have tabulated the timeline which was followed in the writ petition filed before the Hon’ble High Court. The following is the timeline which occurred in the case:

24th March 2017: The DGCA de-registered the aircraft on the basis of an IDERA;

12th April 2017: WP (C) 3214 of 2017 was filed;

13th April 2017: The Hon’ble High Court ordered that no coercive action be taken against the aircraft till the next date of hearing which was fixed as 19th April 2017;

19th April 2017: The case was simply adjourned to the 21st of April 2017;

4th May 2017: The Lessee agreed that it would pay 50% of the alleged outstanding amount within 15 days and the balance 50% within 15 days thereafter. The matter was then adjourned to the 19th of May 2017;

19th May 2017: The Lessee submitted that 50% of the amount had been remitted to the Owner. This fact was objected to by the Owner stating, that the amount remitted was far less than the actual amount due. It was ordered that affidavits and counter affidavits to the aforementioned extent be filed before the next date of hearing which was fixed as 26th May 2017: It was also ordered that the interim order was to continue;

In the meanwhile, the Owner filed an application for vacation of the stay order dated 13th April 2017 before the Hon’ble High Court.

26th May 2017: On the application filed by the Owner for vacation of stay dated 13th April 2017, the Hon’ble Court issued notice to the Lessee and the case was adjourned to the 30th of May 2017;

30th May 2017: As there was no Court time left to take up the matter, the case was adjourned to the 5th of July 2017. It was also specifically ordered that the interim order (dated 13th April 2017) would continue;

5th July 2017: Arguments were heard in part. The case was adjourned to the 7th of July 2017 for remaining arguments;

7th July 2017: The matter was adjourned to the 11th of July 2017;

11th July 2017: On this day, arguments were heard wherein it was recorded that the Parties had reached an amicable settlement, the order dated 11th July 2017 is being reproduced below:

“1. The petitioner has filed the present petition, inter alia, challenging the order dated 24.03.2017 (hereafter ‘the impugned order’) passed by respondent no.1 [the DGCA] for cancellation of the registration of Cessna 525A, MSN: 525A-0520, VT-RKA aircraft (hereafter ‘the aircraft’) which was leased to and operated by the petitioner. It is the respondent no.2’s [the Owner] case that the petitioner had defaulted in payment of lease rentals and thus it had terminated the lease. Prior to the termination of lease, respondent no.2 had invoked the procedure for cancellation of registration, which was accepted by respondent no.1 resulting in the impugned order.

  1. During the course of the present proceedings, the petitioner and respondent no.2 have agreed to resolve their disputes whereby the petitioner has agreed to cause the aircraft to be purchased either by Supertech Aviation Private Limited (Delaware) or any of its affiliate(s). Respondent no.2 has also agreed to sell the aircraft for a total sum of USD 4,374,367.03 minus USD 26,700 (USD 43,47,667.03), if the said sum is paid to respondent no.2 on or before 12.08.2017. The petitioner has also undertaken to indemnify respondent no.2 against any claims of income tax (in this country) or withholding tax in relation to the lease rental or any payments contemplated for purchase of the said aircraft.
  2. The petitioner has also undertaken to indemnify respondent no.2 against third party claims which are stated to have been incurred for maintenance of the aircraft by the said respondent and are due and payable to third party(ies) till transfer of the aircraft.
  3. On receipt of the payment, respondent no.2 shall take steps to execute the necessary documents for transfer of title to the petitioner/Supertech Aviation Private Limited (Delaware) or any other affiliate of the petitioner. Respondent no.2 also undertakes that on receipt of the payments, it shall withdraw all complaints made against the petitioner to any of the authorities.
  4. In view of the agreement, the impugned order dated 24.03.2017 for de-registering the aircraft is suspended for a period of two months. If respondent no.2 confirms to respondent no.1 that the payment as indicated herein has been received on or before 12.08.2017, the impugned order would stand quashed. Respondent no.2 shall also ensure that all necessary steps are taken for de-registration of the aircraft with the Federal Aviation Authority.
  5. In the event, the payments as indicated above are not made on or before 12.08.2017, the impugned order shall stand revived and the present petition would be deemed to have been dismissed. In that case, the respondent no.2 will be at liberty to export the aircraft from this country and the petitioner would not either object to the same or obstruct the same in any manner.
  6. It is clarified that this order is passed with the consent of both the parties.
  7. The petition and the pending applications are disposed of.
  8. Dasti.”

CONCLUSION: It can be seen that the total time taken from filing of the writ petition before the Hon’ble High Court of Delhi till its conclusion, was roughly 89 days. As the Hon’ble Court granted time to the Lessee to make payment up till the 12th of August 2017 (121 days from the date of filing of the writ petition), during which, the interim order restraining any coercive action against the aircraft was ordered to remain in place. It would not be untoward to mention that should the Parties not have approached the Hon’ble Court mentioning their amicable settlement, proceedings could have carried on for a prolonged period of time (far beyond the time stipulated under the declarations made by India under the CTC). Further, it is believed that the Lessee never complied with its alleged settlement proposal and hence, the aircraft was exported from India.

The question that arises at this juncture is whether the Government of India needs to do more to have India’s declarations under the CTC properly implemented into local law? Proper implementation would definitely go a long way in making India a more credible, safer and more reliable jurisdiction – giving creditors the right amount of comfort while leasing or financing aircraft based in India and in turn, giving Indian operators a lower cost of credit.

Note: The day to day orders in the case can be found on the website of the Hon’ble Delhi High Court. One can search for W.P. (Civil) 3214 of 2017 under the case / filing status tab to bring up the date wise orders. Alternatively, click on the order dates above.

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