Why the New Rules Matter

Over the past decade, India's civil aviation sector has grown into one of the world's largest and fastest-expanding aviation markets. Indian airlines have placed record orders for hundreds of aircraft from leading global manufacturers and committed billions of dollars to expanding their fleets. The appetite for aircraft, therefore, has never really been in question. The challenge has been financing those aircraft on terms that are competitive with those available in other major aviation markets.

For years, this was less a question of availability of capital and more a question of legal certainty. India's international commitments did not sit comfortably with the domestic legal framework governing insolvency, enforcement and aircraft repossession. That uncertainty increased the risk for lessors and financiers, which, in turn, had a direct bearing on the cost of financing available to Indian airlines.

This position has now undergone a significant change with the notification of the Protection of Interests in Aircraft Objects Rules, 2026 (the “2026 Rules”), framed under the Protection of Interests in Aircraft Objects Act, 2025 (the “2025 Act”). Together, the 2025 Act and the 2026 Rules seek to give full domestic effect to the Cape Town Convention on International Interests in Mobile Equipment and the Aircraft Protocol thereto (together, the “Convention”). India acceded to the Convention as early as 2008, but its principles had not, until the recent legislative changes, been fully implemented through domestic law.

This article looks at the background to this reform, the key features of the 2026 Rules and, more importantly, what the new framework means in practical terms for airlines, aircraft lessors and financiers operating in or dealing with the Indian aviation market.

Why Aircraft Finance Became a Legal Challenge in India

The Cape Town Convention, adopted in 2001, was intended to address a fairly straightforward problem: how can creditors be confident that their rights over high-value mobile assets such as aircraft, aircraft engines and helicopters will be recognised and enforced consistently across jurisdictions?

The Convention seeks to provide a uniform international framework for secured transactions involving such assets. At its heart is a simple commercial proposition. Where a creditor has a registered international interest in an aircraft, it should be able to enforce that interest, repossess the aircraft and, where appropriate, deregister and export it without being caught up indefinitely in local legal or insolvency proceedings.

That predictability matters because aircraft financing is heavily dependent on the creditor's ability to recover the underlying asset if the transaction goes wrong. The greater the uncertainty around enforcement, the greater the risk premium for the lender or lessor. Ultimately, that additional risk is reflected in the cost of financing for the airline.

India acceded to the Convention in 2008. Yet, for more than a decade, there remained a significant gap between India's international commitments and their practical implementation within the domestic legal system.

One reason was India's dualist approach to international law. Ratification of an international treaty does not, by itself, automatically make its provisions part of domestic law. Some form of implementing legislation is required. In the absence of such legislation, Indian courts and the Directorate General of Civil Aviation (“DGCA”) had to navigate the Convention alongside domestic laws, including the Insolvency and Bankruptcy Code, 2016 (“IBC”) and the Companies Act, 2013. There was no clear legislative answer on how competing regimes were to operate where their provisions appeared to overlap.

The difficulties became particularly visible during the insolvency of Jet Airways and, more recently, Go First.

When Go First entered insolvency proceedings in 2023, Section 14 of the IBC operated to impose a moratorium on enforcement actions against the company. This included attempts by aircraft lessors to recover aircraft that had been leased to the airline. The lessors argued that their leases had already been validly terminated before the commencement of insolvency and that their rights, including those recognised under the Cape Town Convention, should therefore continue to be enforceable.

The early stages of the proceedings, however, saw the IBC moratorium take centre stage. The aircraft remained grounded for a considerable period, while their value continued to decline. For lessors, this was not simply a matter of delayed recovery. Aircraft are high-value, rapidly depreciating assets, and every additional month on the ground can have significant commercial consequences.

The Go First experience consequently attracted considerable attention from the international aviation finance community. It also contributed to a downgrade in India's compliance rating by the Aviation Working Group, the industry body that monitors compliance with the Convention. The implications of such a downgrade extend beyond reputation. It can influence the risk assessment applied by lenders and export credit agencies to aircraft transactions involving Indian carriers and, ultimately, the financing costs borne by airlines.

The need for legislative clarity was therefore not merely theoretical.

Against this background, and following sustained engagement from global lessors, financiers and the Aviation Working Group, the Protection of Interests in Aircraft Objects Bill was introduced in the Rajya Sabha in February 2025. The Bill received assent and became law on 16 April 2025. The 2025 Act gave the Convention force of law in India and, importantly, contained an overriding provision intended to prevent conflicts between the Convention and existing Indian laws, including the IBC and the Companies Act.

The 2025 Act, however, was essentially a framework statute. It provided the legal foundation but left several operational matters to subordinate legislation. Procedures, forms, timelines and institutional responsibilities still needed to be prescribed.

Draft rules were subsequently published for public consultation in September 2025. Those proposals raised concerns among global lessors, financiers and the Aviation Working Group. Among other things, the draft contemplated a parallel domestic registry for international interests, required creditors to notify the DGCA before taking remedial action and appeared to expand the category of non-consensual liens that could take priority over registered international interests.

There was a concern that these provisions could recreate, in a different form, precisely the uncertainty and enforcement delays that the new legislation was intended to address.

The final Protection of Interests in Aircraft Objects Rules, 2026 sought to address several of these concerns and put in place a more structured domestic information and enforcement framework.

What Has Changed Under the New Framework

The 2026 Rules provide the operational framework for the protections created by the 2025 Act. For airlines, lessors and financiers, some provisions are particularly important because they directly affect reporting, priority, enforcement and insolvency.

The SRI Regime: Bringing Greater Transparency to Aircraft Interests and Dues

One of the important features of the Rules is the Structured Reporting and Information (“SRI”) system established under Rules 5, 6 and 7.

The SRI system is intended to provide the DGCA with a structured record of aircraft, international interests and certain outstanding dues associated with aircraft operations.

Rule 6 requires prescribed disclosures, referred to as Form I filings, in relation to aircraft subject to international interests. Rule 7, in turn, places an ongoing obligation on debtors, including airlines and other operators, to maintain records of specified dues and furnish them electronically to the DGCA on a quarterly basis.

These records cover specified dues connected with the ownership or operation of an aircraft, including airport-related charges such as landing, housing and parking charges.

The quarterly returns are required to be submitted by the fifth day of the calendar month following the end of each quarter. The obligation continues for as long as the aircraft remains registered with the DGCA in India.

A six-month transitional period, expiring on 30 July 2026, was also provided to enable debtors to update their records in relation to aircraft that were already registered or operating in India when the Rules came into force.

From a practical perspective, the SRI system gives the DGCA an aircraft-specific picture of creditors, outstanding dues and international interests. It is important, however, to distinguish this domestic information system from the International Registry under the Convention. The SRI system does not replace the International Registry, which continues to determine priority in accordance with the Convention.

For airlines, this means that reporting cannot simply be treated as a one-time compliance exercise. It is an ongoing obligation that will need to be integrated into internal finance, legal and operational processes.

When Other Claims Take Priority: Understanding Non-Consensual Rights

Another important aspect of the Rules is the manner in which they deal with non-consensual rights and interests.

The Rules seek to identify the categories of rights that may take priority over a registered international interest, broadly in line with the declarations made by India under the Convention.

These include liens held by Indian authorities for unpaid taxes or charges arising from the use of an aircraft, where such liens arose before a declared default. They also cover rights arising from a court order permitting attachment of an aircraft in satisfaction of a judgment.

At the same time, the Rules clarify that this framework does not restrict the protection available to unpaid wages of airline personnel under Article 39 of the Convention.

For financiers and lessors, this clarity is important. The priority of competing claims is a fundamental part of any aircraft financing transaction. Greater certainty on this point should make title and encumbrance diligence more predictable and reduce the scope for disputes over competing interests.

From Default to Deregistration: The IDERA Route Gets Faster

Perhaps the most commercially significant feature of the new framework is the treatment of the Irrevocable De-Registration and Export Request Authorisation (“IDERA”).

An IDERA is particularly important in aircraft financing and leasing because it provides a mechanism through which the relevant creditor can seek deregistration and export of the aircraft following a default.

The 2026 Rules introduce a defined process for enforcement. Broadly, where a creditor holds a validly executed and filed IDERA, the process begins with the filing of a prescribed notice of default, commonly referred to in industry commentary as a Form III filing.

The DGCA is required to acknowledge the filing on the date it is made. The notice is then published on the following working day, following which affected stakeholders are given a short period, generally three working days, to respond. The DGCA can thereafter proceed with the process for non-judicial possession and implementation of the IDERA.

Industry commentary on the Rules indicates that the DGCA is expected to complete deregistration within five working days of receiving a valid IDERA from the secured creditor.

The significance of this cannot be overstated.

Before the current framework, enforcement could become heavily dependent on court proceedings and prolonged litigation. For an aircraft lessor or financier, that uncertainty could translate into months or even years of exposure.

The new process is intended to move much of the enforcement mechanism away from the courtroom and towards an administrative process with defined timelines.

For creditors, this also highlights the importance of getting the transaction documentation right from the beginning. A properly executed and filed IDERA is no longer merely a standard transaction document; it is an important part of the enforcement architecture.

Two Months That Could Change the Insolvency Equation

The most direct response to the difficulties seen in the Go First proceedings is the treatment of aircraft creditors during insolvency.

Under the new framework, the moratorium that would ordinarily restrict creditor enforcement during insolvency does not apply to aircraft objects beyond a prescribed waiting period of two calendar months from the insolvency commencement date.

The significance of the provision lies in its certainty.

The two-month period operates automatically. It does not depend upon an order from the National Company Law Tribunal, approval from the Committee of Creditors or an application by the airline or resolution professional.

Once the two-month period expires, the creditor's remedies under the Convention, including repossession, deregistration, export and enforcement of an IDERA, cannot be blocked by an authority, including the Tribunal.

This represents a substantial shift from the uncertainty experienced in earlier insolvency proceedings involving airlines.

At the same time, the framework does not leave the aircraft unprotected during those two months.

The resolution professional is placed under an affirmative obligation to preserve the aircraft and protect its value during the waiting period, in accordance with the relevant lease or security agreement. This includes maintaining the aircraft in an airworthy condition, complying with applicable engine maintenance programmes, maintaining insurance and safeguarding engines and other aircraft components.

An airline or resolution professional can retain the aircraft beyond the two-month period only where, before the period expires, all defaults other than the insolvency filing itself have been cured and the resolution professional has entered into a written agreement to assume future obligations under the lease or security agreement.

The statutory ability of a resolution professional to disclaim an agreement under the IBC is not removed. However, any amendment to the agreement requires the creditor's consent.

Where a creditor chooses to remove the aircraft from India, the IDERA holder must, following the creditor's notice of default, discharge the relevant Appendix A dues before export is completed.

The practical message is clear: insolvency is no longer capable of creating an open-ended hold over leased aircraft. At the same time, the two-month window provides a limited opportunity for an airline and its stakeholders to explore whether the aircraft can be retained as part of a viable restructuring.

Who Decides When Things Go Wrong? Enforcement, Directions and Dispute Resolution

The DGCA has been designated as the registry authority under the 2025 Act and has been given powers to issue directions necessary for implementing the regime.

The Rules also provide for a fourteen-day public consultation period before such directions are finalised.

Another important aspect concerns dispute resolution. Certain commentaries indicate that disputes arising under the Cape Town framework may, upon specific application, be placed before the High Court. If implemented in practice as contemplated, this could help reduce the risk of fragmented proceedings before different lower courts and limit the kind of “satellite proceedings” that have historically complicated aircraft repossession matters.

The real test, however, will be how these provisions operate when faced with an actual default or insolvency. The effectiveness of any enforcement framework ultimately depends not only on the wording of the legislation but also on how consistently and promptly the relevant authorities apply it.

For Airlines: Lower Financing Costs, but Less Room for Delay

For Indian airlines, the 2026 Rules bring both advantages and additional responsibilities.

The most obvious benefit is greater predictability.

Aircraft lessors and financiers are likely to take the new enforcement framework into account when determining lease rentals, financing terms and risk premiums for Indian carriers. The Cape Town Convention compliance rating is also relevant to the broader cost of aircraft financing. If the new framework results in an improvement in India's compliance rating by the Aviation Working Group, Indian airlines could see financing costs reduce over time.

This could be particularly significant for an industry that is expanding its fleet on a very large scale. Even a relatively modest reduction in the financing or leasing cost of each aircraft can translate into substantial savings when applied across hundreds of aircraft over several years.

There is, however, another side to the equation.

Airlines now face more structured and continuing compliance obligations. Rule 7 requires quarterly reporting of specified dues, which means that finance, legal and operational teams will need to maintain accurate and up-to-date information for every aircraft covered by the regime.

This cannot be treated as a purely regulatory filing exercise. Inaccurate or outdated information could invite regulatory scrutiny and create complications at precisely the time when an airline may already be facing financial pressure.

More importantly, airlines now have less room for manoeuvre once financial distress sets in.

Under the new framework, the two-month waiting period effectively places a firm outer limit on the period for which leased aircraft can remain protected from enforcement during insolvency. After that period, repossession, deregistration and export may proceed.

For an airline attempting to preserve itself as a going concern, this makes early financial planning considerably more important. Resolution professionals will also need to work within a much shorter timeframe than was historically available in Indian insolvency proceedings.

For Lessors and Financiers: Greater Certainty, Stronger Enforcement

The benefits for aircraft lessors and financiers are perhaps more immediate.

Banks, export credit agencies, institutional lenders and other financial institutions can now look to a more clearly defined enforcement framework when assessing Indian aviation transactions.

The combination of a fixed insolvency waiting period, a largely administrative IDERA process and the statutory override of the IBC moratorium addresses many of the concerns that emerged during the Jet Airways and Go First insolvencies.

Where the relevant documentation, including the IDERA, has been properly executed and filed at the beginning of the transaction, creditors should have substantially greater confidence that enforcement can be completed within a defined timeframe rather than becoming dependent on lengthy litigation.

The clarification around non-consensual liens is equally important. Lenders and lessors conducting title and encumbrance diligence can now assess competing interests against a more clearly defined statutory framework.

The new regime does, however, come with its own compliance requirements.

Domestic reporting requirements operate alongside, and not instead of, the International Registry requirements. Rules 5 and 6 therefore create an additional compliance track for creditors dealing with Indian aircraft.

The final Rules have removed some of the more contentious features proposed in the draft, including the proposed parallel national interest registry. Nevertheless, lessors and financiers will need to be familiar with the relevant forms, response periods and DGCA procedures if they are to make effective use of the new enforcement framework.

For legal and transaction teams, this means that Indian aircraft transactions will need to incorporate these requirements into their standard closing and post-closing checklists, alongside the existing International Registry filings and other transaction documents.

The Rules Are New. The Real Test Begins Now.

While the 2026 Rules have generally been welcomed by the aviation finance community, it would be premature to assume that all uncertainty has disappeared.

The real test will come with implementation.

The effectiveness of the two-month waiting period and the expedited IDERA process will depend considerably on how the DGCA applies the Rules in actual cases, particularly during the initial period when airlines, resolution professionals, creditors and regulators are still becoming familiar with the new procedures.

There are also likely to be questions concerning the interaction between the new framework and other aviation and corporate laws, including the Bharatiya Vayuyan Adhiniyam, 2024 and the existing Aircraft Rules.

Some of these questions cannot realistically be answered in advance. They will emerge as actual transactions, defaults and insolvency situations test the boundaries of the new regime.

For the moment, therefore, the aviation finance market is entering a period of transition.

Market participants and their advisers will need to watch closely how the DGCA handles the first few default notices, how quickly deregistration and export processes are completed and, importantly, how courts respond if an airline or resolution professional attempts to resist enforcement despite the overriding provisions of the new framework.

The success of the reform will ultimately be measured not by the number of rules on the statute book, but by the certainty and speed with which those rules work in practice.

The Road Ahead: Will India Deliver on the Promise of Cape Town?

The Protection of Interests in Aircraft Objects Rules, 2026 represent an important step in bringing India's aircraft financing framework closer to the international standards contemplated by the Cape Town Convention.

The reform has taken several years to reach this stage and has been shaped, in no small measure, by the practical lessons emerging from the Jet Airways and Go First insolvencies. What was once largely an international commitment has now been given a much clearer domestic legal and procedural foundation.

The new framework introduces a structured reporting mechanism, provides for a more streamlined DGCA-led enforcement process and, most importantly, establishes a defined two-month waiting period for aircraft during insolvency before creditor remedies become enforceable.

For airlines, the changes should improve access to aircraft financing and, potentially, reduce financing and leasing costs over time. The trade-off is greater compliance discipline and a much shorter window in which an airline can seek to preserve leased aircraft during financial distress.

For lessors and financiers, the real attraction is predictability. Aircraft finance is built on the assumption that, if the transaction fails, the creditor can recover the asset within a reasonable timeframe. The 2026 Rules go a considerable distance towards providing that assurance in the Indian market.

The next phase, however, will be just as important as the legislative reform itself. The credibility of the new regime will ultimately depend on how it performs when tested by real defaults, insolvencies and disputes.

If the new procedures work as intended, India will have taken a significant step towards making its aviation finance market more predictable and internationally competitive. For a country whose airlines are placing some of the world's largest aircraft orders, that could have implications extending well beyond individual leasing transactions and into the broader cost and competitiveness of Indian aviation.

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Author: Shyamli Shukla, Senior Associate

MAHESHWARI & CO. Advocates & Legal Consultants