This Practice Guide provides practical insights into the laws and regulations governing the aviation sector in India.
1.1 Please list and briefly describe the principal legislation and regulatory bodies which apply to and/or regulate aviation in India.
The Ministry of Civil Aviation (“MoCA”) is the nodal Ministry responsible for the formulation of policy and regulation of civil aviation in India. The MoCA oversees the planning and implementation of schemes for the growth and expansion of civil air transport, airport facilities, air traffic services and carriage of passengers and goods by air. The following are the principal regulatory authorities functioning under the authority of the MoCA:
- The Directorate General of Civil Aviation (“DGCA”) enforces civil aviation regulations and regulates air transport services, air safety and airworthiness standards.
- The Airports Authority of India (“AAI”) creates, upgrades, maintains and manages civil aviation infrastructure both on the ground and in the airspace of India.
- The Airport Economic Regulatory Authority (“AERA”) determines the tariff for aeronautical services and Passenger Service Fees to monitor performance standards relating to quality, continuity and reliability of service.
- The Bureau of Civil Aviation Security (“BCAS”) ensures that the aviation security standards follow national and international obligations/treaties on air safety, to which India is a signatory.
Based on the field of activity concerned within the aviation sector, the applicability of regulatory laws may also differ. Some of the principal regulations are as follows:
- The Aircraft Act, 1934 (“Aircraft Act”) and the Aircraft Rules, 1937 (“Aircraft Rules”): (i) regulate the manufacture, possession, use, operation, sale, and the import and export of aircraft; and (ii) stipulate the parameters for determining air worthiness, maintenance of aircraft, general conditions for flying and safety, registration of aircraft and the conduct of investigations.
- The Airports Authority of India Act, 1994 (“AAI Act”): (i) establishes the AAI; and (ii) makes the AAI responsible for the development, finance, operation and maintenance of all government airports in India.
- The Civil Aviation Requirements (“CARs”): the CARs are issued by the DGCA under Rule 133A of the Aircraft Rules and provide the standards expected to be met before a licence, certificate, approval or permission is granted/ accorded.
- The Carriage by Air Act, 1972: governs the rights and liabilities of air carriers and is applicable to both domestic and international carriage by air, irrespective of the nationality of the aircraft performing the carriage.
- Airports Economic Regulatory Authority of India Act, 2008 (“AERA Act”) provides for: (i) the establishment of AERA; (ii) regulates tariff and other charges for services rendered at airports; and (iii) establishes an appellate tribunal for the adjudication of disputes.
- Aircraft (Security) Rules 2011: deal with the air safety and security regulations for aerodromes and aircraft.
1.2 What are the steps which air carriers need to take in order to obtain an operating licence?
Rule 134 of the Aircraft Rules provides that no person shall operate any scheduled air transport service from, to, in, or across India except with the permission of the central government, granted in accordance with the provisions of Schedule XI of the Aircraft Rules.
The aforesaid permit is equivalent to the Air Operator’s Certificate that is required to be issued by a Member State of the International Civil Aviation Organization (“ICAO”). Besides other requirements, the issuance of a permit shall depend on the applicant demonstrating adequate organisation, method of control and supervision of flight operations, a training programme and maintenance arrangements consistent with the nature and extent of the operations specified. The CAP 3100 Air Operators Certification Manual provides guidance to an applicant seeking an Air Operator’s Permit on the systematic procedures to be followed during the certification process. The entire certification process has been classified and divided into different phases as listed below:
- Pre-application phase – Wherein the applicant is required to submit a letter of intent to the DGCA outlining the proposal and apply to the MCA for issuance of a No-Objection Certificate upon examining the proposal from financial, economic and legal perspectives, which may also include a pre-application meeting. The MCA, upon satisfaction of these aspects, may issue the No-Objection Certificate.
- Formal application – The applicant is required to submit a complete application in the prescribed form to the DGCA, along with prescribed fees and relevant supporting documents; upon completing the assessment of the applicant’s proposal, the DGCA may invite the applicant for a formal meeting to discuss further details relating to the certification process.
- Document evaluation – During this phase, the DGCA shall conduct a series of discussions to assess the applicant’s capability to conduct aircraft transport operations by verifying the documents submitted by the applicant. The documents shall reflect precisely the mode and way the applicant intends to conduct the proposed operations and, upon approval, they shall form a part of the understanding between the DGCA and the operator regarding future functioning of the operator.
- Demonstration and inspection – The applicant is then required to demonstrate to the DGCA its capability of conducting the proposed operations in accordance with the procedures detailed in the documents/manuals reviewed during the previous phase. All the details provided by the applicant shall be scrutinised in detail, including inspection of facilities and sufficiency of resources. In the event the DGCA is satisfied with the authenticity of the documents and the inspection process, approved flight(s) will be conducted to destinations of intended operations, as determined by the DGCA. In the event the DGCA requires the applicant to make operational changes, the same shall be carried out by the applicant prior to moving on to the next phase.
- Certification – Upon completion of the procedure stated in the previous phases and the fulfilment of criteria stipulated by the DGCA in this regard to the DGCA’s satisfaction, an Air Operator’s Permit shall be issued by the DGCA along with the associated operations specifications.
Once certified, the operator is responsible for continued compliance with the initial conditions of certification and applicable legislative requirements and the DGCA’s requirements promulgated from time to time.
1.3 What are the principal pieces of legislation in India which govern air safety, and who administers air safety?
India follows the ICAO guidelines on Safety and Standards and Recommended Practices (“SARPs”). The DGCA regulates the safety requirements to be observed by aircraft, including foreign aircraft operating in India. The Aircraft Rules in Part II (General Conditions of Flying), Part III (General Safety Conditions) and Part VI (Airworthiness) give the conditions of safety that an aircraft is required to be compliant with in order to be operated in Indian airspace.
The DGCA issues a Certificate of Airworthiness prior to the flying of aircraft, confirming that they conform to the design standards, are safe for operation, and meet minimum requirements with respect to engineering, inspection and maintenance. Each aircraft either manufactured in India or imported into India for which a Certificate of Airworthiness is issued must conform to the design standards and be in a condition for safe operation. To be eligible for issuance of a Certificate of Airworthiness, an aircraft must be Type Certified, its type certificate validated or its type accepted by the DGCA.
Section 5 of the CARs released by the DGCA provides mechanisms for reporting air accidents and reporting. Further, it requires every aircraft operator to formulate a flight safety manual and get it approved by the DGCA. The flight safety manual shall clearly lay down the operator’s safety policies, Flight Safety Awareness and Accident/Incident Prevention Programme.
The DGCA has released a five-year National Aviation Safety Plan (2018–2022), which promotes and supports the prioritisation and continuous improvement of aviation safety in India. Being one of the first countries in the world to have a State Safety Programme (“SSP”) consistent with ICAO requirements, India’s National Aviation Safety Plan incorporates the Safety Enhancement Initiatives (“SEI”) contained in the Regional Safety Plan of RASG-APAC, and is in line with ICAO’s Global Aviation Safety Plan.
1.4 Is air safety regulated separately for commercial, cargo and private carriers?
The safety of commercial, cargo and private carriers are not regulated by differential safety conditions. However, the application processes for obtaining an Air Operator’s Permit for commercial, cargo and private carriers are different.
1.5 Are air charters regulated separately for commercial, cargo and private carriers?
No air transport service, other than a scheduled air transport service, can be operated by any undertaking except with the special permission of the central government or under a non-scheduled operator’s permit granted by the central government.
Air charter operations are regulated for passenger services which only apply to twin-engine aeroplanes with seating capacity of not more than nine seats, single-engine aeroplanes and single-piston engine aeroplanes. Cargo operations can only be undertaken by non-scheduled air transport operators which operate multi-engine fixed-wing aircraft (freighter version) and single or multi-engine helicopters.
The DGCA also regulates the operation of tourist charter flights to and from India as part of an Inclusive Tour Package under the Aeronautical Information Circular dated February 6, 2020.
1.6 As regards international air carriers operating in India, are there any particular limitations to be aware of, in particular when compared with ‘domestic’ or local operators? By way of example only, restrictions and taxes which apply to international but not domestic carriers.
The DGCA and AAI regulate foreign aircraft operating in India and Indian airports. As per the bilateral air services agreements entered into between India and other foreign countries, every such foreign country is required to designate airline(s) for operating the agreed services on the specified routes and to withdraw or alter such designations. However, international flights are not permitted to pick up passengers/load at any place in India and disembark/discharge at any other place in India, i.e. “cabotage” is not permitted.
AIC 09/2020 dated June 12, 2020 on “Requirements for grant of Operating Authorisation to Foreign Airlines under the Bilateral Air Services Agreements” imposes conditions on ownership, effective control and the safety qualifications of foreign airlines.
The Airports Authority of India (Ground Handling Services) Regulations, 2018 and the AVSEC Order No. 03/2009 dated August 21, 2009, as updated from time to time, also contain certain restrictions on foreign airlines undertaking self-handling in respect of passenger- and baggage-handling activities.
1.7 Are airports state or privately owned?
Airports in India can be owned, developed and operated by State entities, such as the AAI under the AAI Act, as well as private parties after they have obtained a licence to operate airports from the DGCA and by entering into operation, management and development agreements (“OMDAs”) with the AAI. All airports, whether managed by AAI or private parties, must be operated according to the provisions of the AAI Act as well as the Aircraft Act.
In line with the government’s open-skies policy, the AAI has collaborated with private entities for operation, management and development under the public-private partnership model (“PPP model”). The airports of Mumbai, Delhi, Bangalore, Hyderabad, Cochin, and Navi Mumbai are currently operated under the PPP model by way of entering into OMDAs with the AAI. Further, the Government of India has granted “in principle” approval for setting up about 18 greenfield airports in the country, to be developed by private parties, State government or other government agencies.
1.8 Do the airports impose requirements on carriers flying to and from the airports in India?
The Aircraft Rules and the AAI Act restrict and qualify access to airports in India. Further, AIC 09/2020 dated June 12, 2020 on the “Requirements for grant of Operating Authorisation to Foreign Airlines under Bilateral Air Services Agreements” imposes certain requirements.
1.9 What legislative and/or regulatory regime applies to air accidents? For example, are there any particular rules, regulations, systems and procedures in place which need to be adhered to?
Developed by ICAO, the SARPs contained in the 19 Technical Annexes to the Convention on International Civil Aviation are applied universally and produce a high degree of technical uniformity which has enabled international civil aviation to develop in a safe, orderly and efficient manner. According to the provisions laid down in ICAO Annex 13 to the International Civil Aviation Convention – Aircraft Accident and Incident Investigation, States are required to investigate or delegate the investigation of accidents which have occurred in their territory.
The Aircraft (Investigation of Accidents and Incidents) Rules, 2017, provide for the establishment of the Aircraft Accident Investigation Bureau of India, which is responsible for the investigation of accidents or incidents arising out of, or during, navigation in or over India of any aircraft, and prescribes a list of powers and functions of the investigating body, procedure of investigation, reporting of incidents and powers of the inquiry officer. The schedule also lists out guidance on damage to the aircraft and various instances of serious accidents.
Section 5 of the CARs issued by the DGCA also provide for implementing Flight Safety Awareness, and an Accident/ Incident Prevention Programme for all operators engaged in scheduled or non-scheduled air transport services.
Further, AIC S. No. 16/2021 issued by the DGCA on September 23, 2021 provides for a voluntary reporting system of anyone who witnesses or is involved in or has knowledge of a situation which may possess a potential hazard/threat to flight safety and provides for maintenance of confidentiality of the reporter.
1.10 Have there been any recent cases of note or other notable developments in India involving air operators and/or airports?
- Jet Airways (India) Limited entered into corporate insolvency process on June 20, 2019. The National Company Law Tribunal, Mumbai by its order dated June 22, 2021 (“Order”) has accepted the Resolution Plan of JalanKalrock Capital as approved by the Committee of Creditors in the Jet Airways (India) Limited bankruptcy proceeding under the (Indian) Insolvency and Bankruptcy Code, 2016, which shut down its operation in April 2019 due to heavy debt. Jet is the first airline to see a successful resolution under the Insolvency and Bankruptcy Code and plans to resume operations from January 2022. Per the Order, the bankruptcy proceeding has now ceased to exist; however, the airline is facing issues with regards to its slot allocation as the slot allocation for the airline cannot be restored on a historic basis. The airline would now need to seek slots as and when it has the aircraft and the attendant wherewithal and logistical support in place as per the approved Resolution Plan.
- On October 8, 2021, Tata Group’s bid emerged successful in the divestment process of the national carrier Air India, its wholly-owned subsidiary Air India Express and 50% stake in Air India STATS. The Tata group’s holding company, Tata Sons, through its wholly-owned subsidiary Talace Pvt Ltd submitted a winning bid of INR 18,000 crore as the Enterprise Value of Air India with debt to be retained at INR 15,300 crore and cash component of INR 2,700 crore. The Government of India has finally privatised the debt ridden airline in its third attempt in the last 20 years.
- In relation to a petition filed by an aircraft lessor of SpiceJet Limited on account of non-payment of lease rentals, the Delhi High Court issued an interim order on September 22, 2021 prohibiting SpiceJet from transferring its assets worth the decretal amount to a different entity. The matter is currently sub judice before the Delhi High Court.
- Stock market investor Rakesh Jhunjhunwala is planning an airline under the Akasa brand through aviation venture SNV Aviation. This airline has received a No-Objection Certificate from the MoCA. The airline, which is planning to operate as a low-cost carrier or an Ultra Low Cost Carrier (“ULCC”), expects to launch services by the summer of next year. In the ULCC airline business model, the company focuses on keeping operating costs even lower than typical budget airlines like IndiGo and SpiceJet.
- In March 2021, the Indira Gandhi International (“IGI”) Airport in Delhi announced a key expansion project to increase its passenger-handling capacity. The expansion project includes a new terminal, advanced facilities, an additional runway and improved capacity to handle more passengers.
- In March 2021, the government announced a plan to set up two water aerodromes in Assam and four water aerodromes in Andaman & Nicobar Islands in 2021 to boost tourism and connectivity.
- On January 19, 2021, the AAI signed a concession agreement with Adani Group for three airports – Jaipur, Guwahati and Thiruvananthapuram. The concession period is 50 years from the date of commercial operations.
- The DGCA has issued a circular dated August 26, 2021 pursuant to which the Government of India has allowed operations of MAX 737-8 and 737-9 aircraft in India. The decision to ground the MAX B737-8 and B737-9 was taken by the DGCA in light of the fatal crash of Ethiopian Airline B737 MAX 8 Aircraft ET-AVJ, which occurred after take-off on March 10, 2019 near Addis Ababa, Ethiopia.
1.11 Are there any specifically environment-related obligations or risks for aircraft owners, airlines, financiers, or airports in India, and to what extent is India a participant in (a) the EU Emissions Trading System (EU ETS) or a national equivalent, and (b) ICAO’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)?
India is not a participant in the EU Emissions Trading System. However, there are a number of regulations and obligations imposed on airlines and airports for environmental protection in India:
i.) DGCA has issued CARs (Section 10 – Aviation Environmental Protection, Series “B”, Part I, Issue I, August 5, 2015) (“Climate Change CAR”) which provide for “Climate Change Initiatives and Local Air Quality Monitoring in Civil Aviation”. The Climate Change CAR is applicable to the following:
a.) Indian airports that have more than 50,000 aircraft movements per calendar year; and
b.) all Indian scheduled and non-scheduled passenger and cargo airline operators except: a) flights of all small aircraft with MTOW < 5,700 kg; b) flights engaged in search & rescue, patrolling or fire-fighting activities; c) flights engaged in humanitarian grounds and emergency medical service; d) flights engaged in carrying VVIP, Head of States and other eminent personalities; and e) all foreign registered airlines operating to/from India.
Per the Climate Change CAR, airport operators and airline operators are required to develop an annual emission management report. It provides for various other compliances for airport operators and airline operators including, but not limited to, emission management by airport operators, fuel management by airline operators and Local Air Quality Monitoring by airport operators.
ii) The DGCA also issued a circular on September 16, 2009 for the creation of an Aviation Environment Cell in airlines, aerodrome operators and air navigation service provider organisations in order to address aviation environmental issues.
India has not volunteered to participate in ICAO’s Carbon Offsetting and Reduction Scheme for International Aviation (“CORSIA”). However, the DGCA has issued CARs (Section 10 – Aviation Environment Protection, Series “C”, Part I) which govern the rules and regulations towards monitoring, reporting and verifying annual CO2 emissions of aeroplane operators and offsetting requirements from international flights. This requirement is based on ICAO’s SARPs, as contained in Annex-16, Environmental Protection, Volume-IV: CORSIA.
The Government of India issued a “White Paper on National Green Aviation Policy” in 2019 in order to create a simplified regime for sustainable and inclusive growth of the Indian civil aviation sector and align it with ICAO’s vision and mission. As of today, the MoCA has not published any National Green Aviation Policy.
2.1 Does registration of ownership in the aircraft register constitute proof of ownership?
An aircraft in India is registered in terms of Rule 30 of the Aircraft Rules. The register of the DGCA is merely a “notation” register; courts in India would accept the certificate of registration, issued by the DGCA, as prima facie evidence of lessor, lender or owner interest in the aircraft. It would be difficult to defend a case in the courts against third parties if the owner has no title or a defective title as per the records of the DGCA.
2.2 Is there a register of aircraft mortgages and charges? Broadly speaking, what are the rules around the operation of this register?
There is no separate register of aircraft mortgages in India. However, the CARs require the owner of an aircraft to file a notarised and apostilled copy of the mortgage documents evidencing the creation of the charge with the DGCA, which will endorse the name of the mortgagee on the certificate of registration.
As per law, if the mortgagor is an Indian company or a company with a registered place of business in India, the mortgagor must, within a prescribed period, register any charge (which includes a mortgage) created with the relevant Registrar of Companies (“ROC”) in the prescribed form. The Indian company laws require such filing to be made within 30 days of the creation of the charge, in the prescribed form, along with the complete particulars of the charge, including the instrument creating such charge.
2.3 Are there any particular regulatory requirements which a lessor or a financier needs to be aware of as regards aircraft operation?
India has ratified Article 83 bis of the Chicago Convention and therefore, prior to an Indian operator leasing an aircraft to/from a foreign operator, it is mandatory to obtain permission from the DGCA. There is no specific requirement for a lease to be in any specified form/format or in any particular language. However, the terms of the lease need to be in compliance with the CAR prescribed by the DGCA (CAR Section 3, Air Transport, Series “C”, Part 1, dated December 30, 1993, as revised on January 13, 2021, in respect of Airworthiness and Operational Control of Foreign Aircraft Leased by Indian Operators) and such other CARs as may be issued by the DGCA from time to time. Further, the lessor/financier should also ensure compliance with the Aircraft Leasing Manual (CAP 3200), relevant taxation laws, contract laws, foreign exchange laws and stamp duty laws.
2.4 As a matter of local law, is there any concept of title annexation, whereby ownership or security interests in a single engine are at risk of automatic transfer or other prejudice when installed ‘on-wing’ on an aircraft owned by another party? If so, what are the conditions to such title annexation and can owners and financiers of engines take pre-emptive steps to mitigate the risks?
No, there is no concept of automatic “title annexation” of engines in India. An aircraft in India is registered wholly with its engines, spare parts and other components attached to the aircraft. As mentioned earlier, the Aircraft Registry of India is only a notation register and does not confer title upon registration, and in the event of dispute, title will have to evidenced through relevant transfer of title documentation.
In our experience, provisions in relation to title, security and obligations or restrictions in relation to spare parts are set out in the lease agreement, which also records evidence of the owner’s title and beneficial interest in relation to the parts (present and future) and also on the spare parts (present and future), whether such spare parts are repaired or replaced. Title of replacement parts would not automatically transfer to the aircraft owner where the replacement part is annexed, and specific title transfer documentation would have to be entered in order to transfer title.
2.5 What (if any) are the tax implications in India for aircraft trading as regards a) value added tax (VAT) and/or goods and services tax (GST), and b) documentary taxes such as stamp duty; and (to the extent applicable) do exemptions exist as regards non-domestic purchasers and sellers of aircraft and/or particular aircraft types or operations?
a.) GST is applicable on taxable supply of goods or services in India. For a transaction of supply of goods or services to be taxable under GST, its place of supply should be located in India.
b.) Under GST, the place of supply of goods, inter alia, would be as follows:
i.) If the supply of goods involves movement of goods, then the place of supply would be the location of goods at the time at which the movement of goods terminates for delivery to the recipient.
ii. ) In case where the supply does not involve movement of goods, then the place of supply would be the location of such goods at the time of delivery to the recipient.
Based on the above, if the place of supply of the aircraft is determined to be outside India, then in our view, GST would not apply to such a transfer of aircraft.
Further, import of aircraft into India is subject to customs duty and integrated goods and services tax (“IGST”). The applicability of customs duty and IGST on the import of aircraft is subject to any exemption provided under the relevant law.
It may be noted that subject to certain conditions, the GST law provides for IGST exemption on the import of leased aircraft into India. One of the prescribed conditions is that the importer undertakes to pay IGST on lease rentals.
Under Indian laws, stamp duty differs from State to State; some States have enacted their own stamp duty laws, whilst other States have adopted the Indian Stamp Act, 1899 (with State amendments in respect of the rates of the prescribed stamp duty). The liability to pay stamp duty in a particular State arises: (i) if the instrument is executed in that State; (ii) if it is executed outside that State, such instrument is brought into the State and relates to a matter or thing done or to be done in that State; or (iii) if it relates to property located in that State. Any instrument that is not duly stamped is not admissible in evidence for any purpose, nor shall it be acted upon unless it bears the stamp prescribed by law.
In some States such as Maharashtra, where the city of Mumbai is located, copies of instruments relating to a property situated therein or in relation to a thing done or to be done must also be stamped with the same duty as the original.
2.6 Is India a signatory to the main international Conventions (Montreal, Geneva and Cape Town)?
India is a party to the Warsaw Convention (1929), the Hague Protocol (1955) and the Montreal Convention (1999); the provisions provided therein, subject to the provisions of the Carriage by Air Act 1972 (Carriage Act), have the force of law in India in relation to any carriage by air irrespective of the nationality of the aircraft performing the carriage.
India ratified the Cape Town Convention on March 31, 2008. India has not ratified the Geneva Convention.
2.7 How are the Conventions applied in India?
India acceded to the Cape Town Convention on International Interests in Mobile Equipment and the Protocol to the Cape Town Convention on International Interests in Mobile Equipment (Protocol) on March 31, 2008. However, only specific provisions of the Cape Town Convention and the Protocol became effective from July 1, 2008. From February 2015, the Aircraft Rules were amended to give the central government of India the power to cancel the registration of an Indian-registered aircraft, to which the provisions of the Cape Town Convention or the Protocol apply by way of an application from the IDERA holder, prior to the expiry of the lease.
2.8 Does India make use of any taxation benefits which enhance aircraft trading and leasing (either in-bound or out-bound leasing), for example access to an extensive network of Double Tax Treaties or similar, or favourable tax treatment on the disposal of aircraft?
The Income Tax Act, 1961 (“ITA”) provides that a person who is eligible to avail benefits under a Double Taxation Avoidance Agreement (“DTAA”) signed by India has the option to be governed by the provisions of the ITA or the DTAA, whichever are more beneficial to him. Lease rentals payable to a non-resident for use of aircraft for the purpose of a business carried on in India by the payer (whether resident or non-resident) are taxable in India as royalties under the domestic tax law, and are subject to withholding tax at the rate of 10% (plus applicable surcharge and cess) on a gross basis. Availability of DTAA benefits will be subject to the general anti-avoidance rule (“GAAR”) contained in the ITA. GAAR applies to “impermissible avoidance arrangements”, which means an arrangement whose main purpose is to obtain a “tax benefit” (i.e. a reduction or avoidance of tax that would be payable under the ITA), and, amongst other things, such arrangement “lacks” or is “deemed to lack” commercial substance in whole or in part. This could, if alleged by the tax authorities as applicable and successfully invoked by them, result in denial of a tax benefit, including denial of DTAA benefits. There is an exemption from applicability of GAAR; however, the same applies only to income arising from a transfer of investments made prior to April 1, 2017.
Please also refer to our observations at question 5.1 in relation to International Financial Services Centres (“IFSCs”).
2.9 To what extent is there a risk from the perspective of an owner or financier that a lessee of aircraft or other aviation assets in India may acquire an economic interest in the aircraft merely by payment of rent and thereby potentially frustrate any rights to possession or legal ownership or security?
Please refer to our response at question 2.4.
An operating lease does not give rise to any equitable or other similar interest in an aircraft. However, in case of a finance lease, while the law does not specify the interest of lessee in the aircraft, the Supreme Court in the matter of Association of Leasing and Finance Companies v. Union of India explained that a finance lease “is a form of long term financing. In a finance lease, it is the lessee who selects the equipment to be supplied by the dealer or the manufacturer, but the lessor [finance company] provides the funds, acquires the title to the equipment and allows the lessee to use it for its expected life. During the period of the lease the risk and rewards of ownership are transferred to the lessee who bears the risk of loss, destruction, and depreciation or malfunctioning. The bailment which underlies the finance leasing is only a device to provide the finance company with a security interest [its reversionary right]. If the lease is terminated prematurely, the lessor is entitled to recoup its capital investment [less the realizable value of the equipment at the time] and its expected finance charges [less an allowance to reflect the return of the capital].” In light of this judgment of the Supreme Court, if the lessee has made a considerable amount of rental payments towards the aircraft under a finance lease, it may be able to argue that it has obtained an equitable interest in the aircraft, and that the interest of the lessor is only a security interest. However, this argument in respect of aircraft lease transactions is yet to be tested in courts, therefore adequate contractual safeguards should be provided in the lease to protect the proprietary interest of the lessor.
3.1 What rights of detention are available in relation to aircraft and unpaid debts?
DGCA, the central regulatory body for civil aviation in India, is expressly empowered under clause (b) of subsection (1) of Section 8 of the Aircraft Act to detain any aircraft if it is of the opinion that such detention is necessary to secure compliance with any provisions of the Act or rules framed thereunder, or to implement an order made by any court. If, however, the operator is insolvent or undergoing insolvency proceedings at the company law tribunals under the Insolvency and Bankruptcy Code, the Authority would need the leave of the tribunal before exercising its right to detain the aircraft.
3.2 Is there a regime of self-help available to a lessor or a financier of an aircraft if it needs to reacquire possession of the aircraft or enforce any of its rights under the lease/finance agreement?
Typically, the lease agreement should set out the powers and responsibilities as well as the recourse in case of disputes, etc. There is no specific statutory provision for self-help in India.
Reaching an amicable settlement for repayment or rescheduling of payment deadlines with the lessee/borrower is, perhaps, the only self-help available to a lessor or a financier. Alternatively, contractual rights can be enforced by approaching the courts or initiating deregistration and repossession proceedings with the DGCA.
Clause (iv) of sub-rule (6) and sub-rule (7) of Rule 30 of the Aircraft Rules govern the process of deregistration of an aircraft prior to the expiry of the lease agreement on receipt of an application from the IDERA holder by the DGCA. The DGCA must accept a valid and recorded IDERA and deregister the aircraft within a time frame of five days when accompanied with a certificate stating that all registered interests ranking in priority have been discharged, or that the holders of such interest have consented to such deregistration and export.
3.3 Which courts are appropriate for aviation disputes? Does this depend on the value of the dispute? For example, is there a distinction in India regarding the courts in which civil and criminal cases are brought?
The subject matter of the dispute determines the forum for adjudication; for instance: disputes with respect to the Competition Act, 2002 (“CA02”) are dealt with by the Competition Commission of India (“CCI”); individual consumer complaints are dealt with by consumer courts; accidents in the aircraft are to be looked into by the Aircraft Accident Investigation Bureau as per the Aircraft (Investigation of Accidents and Incidents) Rules, 2017; and compensation-related matters under Section 9B of the Aircraft Act are dealt with as per the existing agreement or by an arbitrator appointed by the central government. Further, the value and nature of the dispute (civil or criminal) also determines which court shall have jurisdiction in the matter.
The Supreme Court of India is the final court of appeal concerning all forms of disputes. The High Courts under their Writ Jurisdiction are a preferred forum for adjudication of aviation disputes. Lessors have taken to the High Courts for lodging winding-up petitions against defaulting lessees, or praying for issuance of writs directing the DGCA to act upon their deregistration request in time. Petitions of lessees requesting delay in the de-registration process so that they could reach settlements with financiers/lessors are not unheard of at the High Courts.
Aviation disputes concerning consumers vis-à-vis airlines and airports authorities are preferred in the three-tier consumer disputes redressal forums established under the Consumer Protection Act, 2019, with appeals lying before the Supreme Court.
Furthermore, the Airport Economic Regulatory Authority Appellate Tribunal was established under Section 17 of the Airport Economic Regulatory Authority of India Act, 2008 to adjudicate any dispute between service providers and consumers. The appeals against the orders of the Tribunal lie before the Supreme Court under Section 31(1) of the Act.
Criminal proceedings shall be initiated by the Regional Director/Head of Directorate as per the procedure laid down in the Code of Criminal Procedure, 1973. In view of the fact that offences under the Aircraft Act and Aircraft Rules (except violation of Rule 91 of the Aircraft Rules) are non-cognisable and bailable, the criminal complaint can be filed in the court of a Magistrate of competent jurisdiction depending on the Police Station where the offence was committed. In case of violation of Rule 91 of the Aircraft Rules (cognisable offence), a First Information Report (“FIR”) may be registered with the Police, who will prosecute the offenders directly.
3.4 What service requirements apply for the service of court proceedings, and do these differ for domestic airlines/parties and non-domestic airlines/parties?
Section 27 and Order V of the Code of Civil Procedure, 1908 govern the applicable service requirements for service of court proceedings. Summons are issued by civil courts and served to the defendant in person or to his/her legal representative, by way of paper publication, or are posted to his/her last known place of residence or work, for the defendant to appear and answer the claim within 30 days of the institution of the suit.
For non-domestic airlines/parties, the procedure is additionally governed by the Hague Convention, 1965, to which India is a signatory, and therefore the civil court hearing the suit has to forward a summons request to the central authority of the State concerned, along with the document to be served.
3.5 What types of remedy are available from the courts or arbitral tribunals in India, both on i) an interim basis, and ii) a final basis?
Interim injunctions, ex parte decrees, final injunctions and final orders/awards covering aspects such as damages, compensation, repossession or sale of aircraft are available.
3.6 Are there any rights of appeal to the courts from the decision of a court or arbitral tribunal and, if so, in what circumstances do these rights arise?
Yes, rights of appeal exist and may arise as a matter of right or upon exercise of discretion by the courts. For example, a judgment of a court may be challenged before a superior court if it is certified by the inferior court as involving a substantial question of law of general importance; or an arbitral award may be challenged on the ground that it suffers from legal mala fides, where enforcement would be contrary to public policy or that the arbitral tribunal did not have jurisdiction over the matter.
3.7 What rights exist generally in law in relation to unforeseen events which might enable a party to an agreement to suspend or even terminate contractual obligations (in particular payment) to its contract counterparties due to force majeure or frustration or any similar doctrine or concept?
The doctrine of frustration is incorporated under Section 56 of the Indian Contract Act, 1852. A contract is treated as frustrated if the substratum of a contract is lost due to impossibility of performance. If the entire performance of the contract becomes substantially impossible or useless without fault on either side, then such contract is prima facie dissolved by the doctrine of frustration. The principles of frustration apply only if the contract does not have an express or implied “force majeure” clause.
The Supreme Court in the case of Energy Watchdog v. CERC held that Section 56 of the Indian Contract Act, 1852 must be considered to be exhaustive of the law relating to frustration of contracts in India and the courts cannot travel outside the terms of the section in the matter. Force majeure clauses are to be interpreted narrowly – unless a particular event clearly falls within the ambit and scope of a force majeure clause in the contract, courts may not accept the invocation of “force majeure”. The Bombay High Court in the case of Standard Retail Pvt. Ltd. v. M/s G.S. Global Corp & Ors held that the COVID-19 pandemic cannot be used as an excuse from performance of contract since the force majeure clause did not include any pandemic event.
Commercial unviability to perform a contract cannot be the basis to trigger the force majeure clause.
4.1 How does India approach and regulate joint ventures between airline competitors?
The CA02 is the principal statute that governs the anti-trust regime in India. The CA02 does not specifically deal with or govern the airline sector. However, more generally, a joint venture between two competing airlines may require assessment under the following two provisions under the CA02:
- The CA02 prohibits any anti-competitive agreement between competing enterprises, including cartels (“Horizontal Agreements”). Such anti-competitive agreements include price-fixing, bid-rigging, limiting production, supply, etc. A limited exception to Horizontal Agreements is the agreements entered into between competing enterprises, which are in the nature of a joint venture (“JV Exemption”). However, the JV Exemption applies only when such an arrangement demonstrably increases efficiency in production, supply, distribution, storage, or acquisition of control of goods or services.
- The CA02 prescribes for a mandatory notification requirement for mergers and acquisitions (including, in certain circumstances, JVs) (“Combination”) if the asset value and turnover of the parties involved a breach of the jurisdictional thresholds prescribed under the CA02 and no other statutory exemption is applicable. The CA02 provides for a suspensory regime. As such, in case of a notifiable Combination, parties are required not to complete or close the transaction until receipt of the CCI approval or the lapse of 210 days (subject to statutory exclusions) from the date of filing of the notification, whichever is earlier.
4.2 How do the competition authorities in India determine the ‘relevant market’ for the purposes of mergers and acquisitions?
While assessing a pre-merger notification, the CCI is required to determine the relevant market with reference to the relevant product market (“RPM”) and relevant geographic market (“RGM”). For the purposes of determining (a) the RPM, the CCI is required to consider various factors including physical characteristics, price, consumer preference, industrial classifications, etc. to map potential overlaps between products/services, and (b) the RGM, the CCI is required to make its determination based on factors such as regulatory trade barriers, transport costs, language, local specifications, etc.
4.3 Does India have a notification system whereby parties to an agreement can obtain regulatory clearance/anti-trust immunity from regulatory agencies?
As stated above, the CA02 provides for a mandatory suspensory regime whereby all notifiable Combinations that meet the jurisdictional thresholds and do not benefit from any statutory exemption are required to be notified to and approved by the CCI. The CCI (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 prescribe the thresholds/exemptions.
However, there is no other anti-trust immunity or any other approval mechanism under the CA02 for any agreement entered into between competing enterprises: (a) that are not in the nature of a Combination; or (b) that do not entail a notifiable transaction to the CCI.
4.4 How does India approach mergers, acquisition mergers and full-function joint ventures?
The CA02 creates no distinction between the assessment of any notifiable Combination, i.e. a merger, acquisition or full-function joint venture. Irrespective of the type of transaction, the assessment of the CCI is based on whether the proposed Combination would potentially cause an appreciable adverse effect on combination in India.
As stated above, in case of a non-notifiable combination or an arrangement between competitors as a full-function JV, the parties would need to self-assess if the JV results in any of the efficiencies set out in question 4.1 above, in order to ensure compliance with the provisions of Section 3 of the CA02, which seek to prohibit Horizontal Agreements.
Besides the CA02, the Companies Act, 2013 and Securities Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 2011 (the “Takeover Code”) also govern mergers and acquisitions of unlisted and listed companies, respectively. The NCLT is the adjudicating authority in case of unlisted companies, whereas SEBI is the nodal agency when it comes to mergers and acquisitions of listed companies as well as companies proposing to be listed on the stock exchange. The Takeover Code specifies situations where any acquisition may trigger open offer requirements.
Further, the exchange control-related aspects of mergers and acquisitions are regulated by the Reserve Bank of India (“RBI”) under the extant FEMA regulations, which prescribe strict reporting and pricing requirements. Foreign investment-related aspects are dealt with by the Ministry of Commerce.
4.5 Please provide details of the procedure, including time frames for clearance and any costs of notifications.
As stated in response to question 4.3 above, all notifiable Combinations are required to be notified to and approved by the CCI. A brief overview of the timelines, costs and procedure is set out below:
- Form of the notification – The Combination Regulations specify that a Combination may either be notified in the shorter “Form-I” or a longer “Form-II” depending on the combined market shares of the parties to the Combination in the relevant market for overlapping business activities and in the markets that are vertically linked to each other. The parties may choose to notify a Combination in Form-II if their combined market share is (i) more than 15% in the relevant market for overlapping business activities, or (ii) more than 25% in the markets that are vertically linked to each other.
- Obligation to notify – In the case that a Combination involves an acquisition of shares, voting rights or assets, the acquirer is required to notify the Combination to the CCI. However, in case of a merger, the merging parties collectively are required to notify the Combination to the CCI.
- Timing of the notification – A Combination can be notified to the CCI at any time after the binding transaction documents have been executed between the parties.
- Timeline for the approval – The CA02 mandates that the CCI should form its prima facie opinion on actual or likely AAEC of a Combination within 30 days from the date of notification. In the event that the CCI prima facie observes that a Combination either has or is likely to have an AAEC in a relevant market in India, it has an additional 180 days to investigate further into the likely anti-competitive impact of the Combination on the relevant market, and either disallow or approve the same with necessary modifications if any, which may either be proposed by the CCI or the parties themselves. Upon expiry of 210 days from the date of notification, the Combination will be deemed to be approved by the CCI.
The CCI has recently introduced a deemed approval mechanism process which is called the Green Channel approval. The parties may avail of Green Channel approval only if they are not engaged in providing any similar/substitutable products, vertically linked products, or complementary products either directly or through any of their controlling or non-controlling stakes in any entity. In the case that a Combination is notified pursuant to the Green Channel, CCI’s Deemed Approval will be considered as having been granted once the Combination has been notified in Form-I and the CCI has acknowledged the receipt of the notification.
With regard to the costs of notification, a Form-I must be accompanied with a filing fee of INR 0.15 crores (approximately USD 21,000) while a Form-II will have to be accompanied with a filing fee of INR 0.5 crores (approximately USD 70,000).
4.6 Are there any sector-specific rules which govern the aviation sector in relation to financial support for air operators and airports, including (without limitation) state aid?
There are no sector-specific rules that prescribe financial support or aid to air operators and airports. The central government may, at its discretion, grant such aid or other financial support and facilities to the aviation sector as a matter of State policy, keeping in mind the growth and development of the aviation sector.
The current pattern of financing is predominantly based on internally generated resources of the AAI. Funding through external assistance, external commercial borrowings, loans and equity has been negligible. The allocation of budgetary grants is limited to certain airports in remote and inaccessible areas.
The National Civil Aviation Policy, 2016 (“NCAP 2016”) introduced the Regional Connectivity Scheme (“RCS”) that, inter alia, seeks to provide various concessions and support to air operators, airports and other stakeholders; for example, an excise duty of 2% is levied on aviation fuel, no airport charges are levied for operations under the RCS, etc.
Under the UDAAN Scheme, efforts have been made to provide support to Selected Airline Operator(s) in the form of Viability Gap Funding (“VGF”) and other concessions/support offered by the central government, State governments and airport operators, including: reduction of VAT to 1% or less on ATF at RCS airports located within a particular State for a period of 10 years from the date of notification; provision of minimum land, if required, free of cost and free from all encumbrances for development of RCS airports; providing multi-modal hinterland connectivity (road, rail, metro, waterways, etc.) as required; providing security and fire services free of cost at RCS airports through appropriately trained personnel and appropriate equipment as per applicable standards and guidelines by relevant agencies; provision of, directly or through appropriate means, electricity, water and other utility services at substantially concessional rates at RCS airports; and provision of a certain share (20%) towards VGF for respective RCS routes (pertaining to the State), provided the share of States in the North-Eastern region of India and Union Territories would be 10%.
4.7 Are state subsidies available in respect of particular routes? What criteria apply to obtaining these subsidies?
The NCAP 2016 seeks to sustain and nurture a competitive market environment in the civil aviation sector, including enhancement of regional connectivity through fiscal support and infrastructure development, providing for an RCS. The operation of the scheme is proposed to be through a market mechanism where operators will: assess demand on routes; submit proposals for operating/providing connectivity on such route(s); seek VGF, if any, while committing to certain minimum operating conditions; and the same shall be finalised in interaction with other market participants.
Further, the RCS scheme provides that for up to 10 years from the date of commencement of flight operations under an RCS, there will be no airport charges levied for operations under the RCS; landing, parking and Terminal Navigation Landing Charges (“TNLC”) shall be waived; and Route Navigation and Facilitation Charges (“RNFC”) will be levied on a nominal basis.
Prioritisation of routes will be carried out and reviewed from time to time so that there is balanced growth of regional connectivity in different parts of the country. The UDAAN Scheme provides for the eligibility criteria, such as having a valid air operating permit, including the minimum performance specifications for an RCS flight.
As per the scheme, a State will identify international routes for which the AAI will determine a subsidy amount per seat and invite bids from domestic carriers. This will be followed by airlines submitting their proposals, which will include the routes they wish to connect as well as the subsidy needed by them. The government will grant financial aid only for the actual number of passenger seats that are unsold, even if the airline had sought subsidy for a higher percentage of seating capacity at the time of bidding.
4.8 What are the main regulatory instruments governing the acquisition, retention and use of passenger data, and what rights do passengers have in respect of their data which is held by airlines and airports?
In India, data privacy and protection are governed by the provisions of the Information Technology Act, 2000 (“IT Act”), which provides legal recognition to transactions carried out by means of electronic data interchange. Sensitive personal data includes, inter alia, information relating to: passwords; credit/ debit card information; biometric information; and condition of physical, physiological and mental health, etc. The Personal Data Protection Bill 2018 in India follows the implementation of the General Data Protection Regulation (“GDPR”). The Telecom Regulatory Authority of India (“TRAI”) has stated that each user owns his data and the entities processing such data are mere custodians.
The transfer of personal data (defined as sensitive personal data or information) is governed by the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 (“SPD Rules”). The SPD Rules were issued under Section 43A of the IT Act, which holds a body corporate liable for compensation for any negligence in implementing and maintaining reasonable security practices and procedures while dealing with sensitive personal data or information. The SPD Rules expand on the scope of these reasonable practices and procedures. They define sensitive personal data and mandate the implementation of a policy for dealing with such data. Further, various conditions such as consent requirement, lawful purpose, purpose limitation, subsequent withdrawal of consent, etc. have been imposed on the body corporate collecting such information.
The SPD Rules also require the prior consent of the provider of the information while disclosing sensitive personal data to a third party. Transfer of sensitive personal data outside India is permitted on the condition that the same level of data protection is adhered to in the country, which is applicable to the body corporate under the SPD Rules.
The draft Bill sets out certain rights of the data principal whose data is being processed. These include: (i) the right to obtain a summary of their personal data held with the data fiduciary; (ii) the right to seek correction of inaccurate, incomplete, or outdated personal data; (iii) the right to have personal data transferred to any other data fiduciary in certain circumstances; and (iv) the right “to be forgotten”, which allows the data principal to restrict or prevent continuing disclosure of their personal data.
Under the draft, the Data Protection Authority may levy penalties on the fiduciary for various contraventions to the law. In the event that such body corporate that possesses or deals with sensitive personal data is negligent in securing such data, resulting in wrongful loss or gain to any person, such body corporate shall be liable for civil penalties and to pay damages by way of compensation to the person.
4.9 In the event of a data loss by a carrier, what obligations are there on the airline which has lost the data and are there any applicable sanctions?
The Information Technology (Indian Computer Emergency Response Team and Manner of Performing Functions and Duties) Rules, 2013 (“CERT-in Rules”) impose an obligation on all corporate entities, which includes airlines, to notify the Indian Computer Emergency Response Team (“CERT-in”) in case of a cybersecurity breach.
4.10 What are the mechanisms available for the protection of intellectual property (e.g. trademarks) and other assets and data of a proprietary nature?
Since India has acceded to the Agreement on the Trade Related Aspects of Intellectual Property Rights (“TRIPS”), various other pieces of legislation have been enacted over the years to protect Intellectual Property Rights (“IPRs”). The following statutes provide protection and remedies available to the respective IPRs:
(a) The Trade Marks Act, 1999, as amended by the Trade Marks (Amendment) Act, 2010. The remedies available are in the form of damages, account of profits, injunction, search and seizure, and forfeiture. Trademark infringement and counterfeiting are cognisable offences. False entries, applications or trade descriptions are offences and are punishable by way of imprisonment or fine.
(b) The Copyright Act, 1957, as amended by the Copyright (Amendment) Act, 2012. The remedies available under the Act are similar to those under the Trademark Act; furthermore, infringement of copyright is punishable with imprisonment that may extend up to three years, or a fine of up to INR 200,000.
(c) The Patents Act, 1970, as amended by the Patents (Amendment) Act, 2005.
In addition to the above-mentioned remedies, criminal remedies are also available for offences such as false entries in the register, false claims and false information given to the government. According to the Designs Act, 2000, the remedies available for the infringement of copyright are also available for the infringement of registered design owners. In recent times, the courts in India have strictly enforced IPRs.
While injunctions still remain the prominent and effective remedy, as can be seen above, courts have in exceptional cases awarded punitive damages. Recently, intellectual property owners have increasingly been recording their IPRs, especially trademarks, before the relevant customs authorities to prevent counterfeit products from entering the Indian market.
4.11 Is there any legislation governing the denial of boarding rights and/or cancelled flights?
The DGCA has issued CARs (Section 3, Series “M”, Part IV – Facilities to be provided to passengers by airlines due to denied boarding, cancellation of flights and delays in flights), which govern the rules and regulations relating to denial of boarding rights and/or cancelled flights. The CAR in question provides for the refund of the ticket fare amount and compensation in the event of denied boarding, even though the passenger has been given a confirmed booking for travel on the flight and has checked in for the flight well within the specified time ahead of the departure of the flight.
Airlines are required to inform the passenger of the cancellation at least two weeks before the scheduled time of departure and arrange an alternate flight/refund as acceptable to the passenger. In case the passengers are informed of the cancellation less than two weeks before and up to 24 hours of the scheduled time of departure, the airline shall offer an alternate flight or refund the ticket, as acceptable to the passenger. Additionally, the airline shall provide passengers with facilities at the airport in accordance with the CAR in the event the passengers have already reported for their original flight and whilst they are waiting for the alternate flight.
In case of foreign airlines, the amount of compensation paid to the passengers can be made in accordance with the regulations of their country of origin or as prescribed by the CAR.
Further, the airlines are required to display their policies in regard to compensation, refunds and the facilities that will be provided by the airline in the event of denied boarding, cancellations and delays on their respective websites as part of their passenger Charter of Rights.
4.12 What powers do the relevant authorities have in relation to the late arrival and departure of flights?
As per the CAR (Section 3, Series “M”, Part IV – Facilities to be provided to passengers by airlines due to denied boarding, cancellation of flights and delays in flights) issued by the DGCA, in the event of delay, the airlines are required to provide facilities such as meals, refreshments and/or hotel accommodation depending on the number of hours of delay of the flight. An exception to the above has been provided for delays caused due to extraordinary circumstances, as defined in the CAR, which could not have been avoided even if all reasonable measures had been taken.
4.13 Are the airport authorities governed by particular legislation? If so, what obligations, broadly speaking, are imposed on the airport authorities?
The AAI is the nodal authority controlling all airports in India. It was established under the AAI Act, 1994, later amended by the AAI (Amendment) Act, 2003 to provide a legal framework for airport privatisation and the functions of the AAI, which includes the efficient management of airports, civil enclaves and aeronautical communication stations. Further, it states that it is the duty of the AAI to provide an air traffic service and air transport service at any airport and civil enclave. In the discharge of its functions, the AAI shall have due regard to the development of the efficiency, economy and safety of the air transport service.
4.14 To what extent does general consumer protection legislation apply to the relationship between the airport operator and the passenger?
In case of airline operators and passengers, the DGCA has set up the “AirSewa” web-portal/mobile application to deal with travel-related passenger grievances. The CAR (Section 3, Series “M”, Part IV – Facilities to be provided to passengers by airlines due to denied boarding, cancellation of flights and delays in flights) also provides for passengers to file for grievance related to delays, cancellations, etc., on the AirSewa App or through the portal. The AirSewa portal launched by the DGCA provides a facilitative platform for passengers to file complaints with the respective airline. The Consumer Protection Act, 2019 also provides an additional remedy for passengers to claim compensation for any deficiency in the service provided by airlines.
In case of airport operators and passengers, there is no specific legislation and the general consumer protection legislation, i.e. the Consumer Protection Act, 2019, as amended from time to time, shall apply. In the case of Geeta Jethani v. Airport Authority of India, the National Consumer Disputes Redressal Commission (“NCDRC”) held the AAI liable for deficiency in service in maintaining an escalator, resulting in the death of a young child at the Indira Gandhi International Airport. The NCDRC, while holding that a complaint was maintainable under the Consumer Protection Act, 1986, stated that maintenance of the airport is a statutory function of the AAI. It is the duty of the AAI to manage the airports, to provide air traffic service, air transport service and air safety service, to regulate the entry and exit of passengers and visitors at the airports, to provide transport facilities to the passengers travelling by air and to have due regard for the safety of such service. The quantum of penalty in this case was decided on the basis of the criteria set out under the Carriage by Air Act, as the complainants were non-residents.
4.15 What global distribution suppliers (GDSs) operate in India?
Computer Reservation Systems (“CRSs”) or Global Distribution Systems (“GDSs”) are computerised systems that contain information about air carriers’ schedules, availability, fares and fare rules, through which reservations can be made or tickets may be issued. In India, GDSs are not governed by specific legislation. However, the DGCA has issued CARs to regulate and promote fair competition in the airline sector and to ensure that consumers do not receive inaccurate or misleading information on airline services. The said CAR on the CRS and GDS prescribes obligations on system vendors and participating carriers, as well as subscribers.
4.16 Are there any ownership requirements pertaining to GDSs operating in India?
The DGCA CARs are applicable to all GDSs, and to their essential elements operating in India displaying or selling air services, irrespective of: (i) the legal status or nationality of the system vendor; (ii) the source of the information used; or (iii) the location of the relevant data processing centre, and irrespective of where the air services are provided. There are no specific ownership restrictions.
4.17 Is vertical integration permitted between air operators and airports (and, if so, under what conditions)?
A vertical integration which is in the nature of a combination between an air operator and an airport is not specifically governed under the provisions of the CA02. Accordingly, such a combination, if permitted under other applicable laws, would be assessed by the CCI for any appreciable adverse effect on competition in India.
The AAI entering into an OMDA with private parties for the development and modernisation of airports is one such example. The OMDA sometimes does prescribe restrictions on vertical integration between airline operators and airport operators.
To date, only horizontal mergers have taken place between airline operators in India, such as Air India and Indian Airlines, Jet Airways and Sahara Airlines, Kingfisher Airlines and Deccan Airlines, etc.
4.18 Are there any nationality requirements for entities applying for an Air Operator’s Certificate in India or operators of aircraft generally into and out of India?
Yes, the DGCA has prescribed conditions for effective control of airlines in the following manner:
- A scheduled or non-scheduled operator’s permit can be granted to:(a) a citizen of India; or (b) a company:
■ that is registered and has its principal place of business in India;
■ whose chairman and at least two-thirds of its directors are Indian citizens; and
■ that is substantially owned and effectively controlled by Indian nationals.
- An air cargo operator’s permit can be granted to:
a) a citizen of India;
b) a group of individuals of Indian nationality or a registered trust or society;
c) a non-resident Indian or overseas corporate body; or
d) an Indian-registered company having its principal place of business in India with or without foreign equity participation (excluding non-resident Indian equity).
5.1 Which pending legislative or regulatory changes (if any), or potential developments affecting the aviation industry more generally in India, are likely to feature or be worthy of attention in the next two years or so?
a.) The Ministry of Finance on September 30, 2021 amended Condition No. 102 of Customs Notification No. 50/2017 which now permits transfer of aircraft from one lessee to another without re-exporting the aircraft, subject to certain conditions being satisfied. Earlier, in order to transfer a lease from one lessee to another within India, the aircraft had to be physically exported and then re-imported into India for re-lease of the aircraft, which can now be avoided.
b.) The MoCA has now notified the Drone Rules, 2021 (the “Rules”) in supersession of the Unmanned Aircraft System Rules, 2021 on August 26, 2021. The Rules provide for registration, licencing requirements for pilots, and airspace segregation for drone operations. Operations in certain restricted zones will need prior approval of the regulator. The MoCA has also introduced an online platform for airspace maps and certification of drones.
c.) On June 22, 2020, the DGCA amended the CAR on Registration and Deregistration of Aircraft. The amendment includes a new para. 7A which provides for the recordation of IDERA and/or its Certified Designee in the prescribed format with the DGCA. This is likely to facilitate aircraft deregistration under the IDERA process without much administrative hassle.
d.) The International Financial Services Centres Authority Act, 2019 (the “Act”) was notified by the Government of India on December 19, 2019 to provide for the establishment of an authority to develop and regulate the financial services market in the IFSCs in India. The Ministry of Finance by way of a Notification dated April 27, 2020 established the International Financial Services Centres Authority (“IFSCA”) with its head office in Gandhinagar, Gujarat. The Gujarat International Finance Tec-City (“GIFT City”) is a Government of India initiative to provide a platform to set up Indian companies whose businesses, inter alia, include banking, insurance, aircraft financing and leasing activities, etc. in the IFSC established under the Act.
e.) The Ministry of Finance by a Notification dated October 16, 2020 notified that aircraft leases, including operating leases, financial leases, and hybrid of operating and financial leases of aircraft, helicopters or engines or any other parts, are considered “financial products” under the Act. The inclusion of aircraft leases as financial products has created an opportunity for the establishment of a viable aircraft leasing market in India, especially in GIFT City. The Government has provided multiple tax benefits and ease of set-up for lessors proposing to lease aircraft through establishments in the IFSC.