With the National Company Law Tribunal (NCLT) reserving its order on low-cost airline Go First’s urgent plea for voluntary insolvency, aircraft lessors sought de-registration and repossession of 20 aircraft leased to the Go First airline. The lessors did so by filing applications with the Directorate General of Civil Aviation (DGCA) using their Irrevocable Deregistration and Export Request Authorisation (IDERA). 

Insolvency laws in India -

Ø  Insolvency is a term for when an individual or company can no longer meet their financial obligations to lenders as debts become due.

Ø  In India, the Insolvency and Bankruptcy Code, 2016 (IBC) creates a consolidated framework that governs insolvency and bankruptcy proceedings for companies, partnership firms, and individuals.

Ø  In the case of a corporate debtor, an application for insolvency proceedings must be submitted to the Adjudicating Authority (AA), which is the NCLT. The application may be filed by a financial creditor (Section 7), an operational creditor (Section 9), or the corporate debtor (Section 10).

Ø  In this case, admission of Go First’s plea under Section 10 of the IBC would have led to an immediate and complete moratorium on recovery of assets leased to the debtor (Go First), making it extremely difficult for lessors to repossess their aircraft.

Ø  However, since the order was reserved, lessors are well within their rights to seek deregistration and repossession of planes. 

What is the purpose of IDERA?

Ø  The Convention on International Interests in Mobile Equipment/ the Cape Town Convention (CTC) of 2001 protects lessors’ interests in case of defaults by the lessee.

Ø  As per the CTC, the lessor can seek de-registration and export of aircraft without consent of the airline using IDERA - a voluntary measure that provides greater security to creditors.

Ø  Thus, IDERA empowers lessors to get their aircraft deregistered from the registry of the country where the lessee is based, repossess and fly them out, in cases like those of lease payment defaults.

Ø  The objective of IDERA is to simplify and improve the efficiency of aircraft leasing operations, minimising the losses they would have to incur if their planes got stuck in litigation.

Ø  The IDERA makes lessors ready and willing to lease out aircraft in countries that follow the CTC protocols in letter and spirit.

India and IDERA -

Ø  Although India ratified the CTC in 2008, its incorporation in India’s legal framework has been a work in progress.

Ø  The last CTC-related amendments to India’s aviation rules took place in 2018, simplifying deregistration and export of aircraft through IDERAs.

Ø  However, some provisions of the IBC pertaining to moratorium on assets are in conflict with the CTC and IDERA provisions.

Ø  This is the reason why lessors have vehemently opposed Go First’s NCLT plea, as its admission would put their aircraft under moratorium.

What is the procedure followed by the Indian Aviation Regulator (DGCA)?

Ø  The lessor (IDERA holder) must file an online application with the Director General of Civil Aviation (DGCA) seeking to enforce an IDERA with regard to a specific aircraft.

Ø  The DGCA immediately posts on its website the application filed by the IDERA holder.

Ø  The application includes requisite details including the operator’s (airline’s) name, Indian registration of the aircraft, and details of the lessor.

Ø  The date of the application is considered the date of declared default.

Ø  The DGCA then moves to deregister the aircraft within five working days from the date of declared default, and informs airport operators about the date of deregistration.

Ø  Meanwhile, airport operators are required to compute outstanding dues of the aircraft for three months prior to the date of declared default. Earlier dues, if any, are not included in the calculation.

Ø  The lessor then submits all the payment certificates to the regulator, along with the request to export/fly out the aircraft from India.

Precedents in India regarding IDERAs -

The bankruptcy of Jet Airways was the first big test pertaining to IDERAs for India.

Most of the 100-plus planes in Jet’s fleet were on lease, and lessors were able to repossess their planes after deregistration in an efficient, regulated, and structured manner.

Over the past couple of years, lessors have repossessed through the IDERA route a few aircraft that were being operated by no-frills carrier SpiceJet.

Manipur is in the grasp of large-scale communal riots between Meitei and Kuki groups. These developments are worrying and have exposed the total collapse of law and order. 

The Kukis and Meiteis -

Ø  The Kuki people are an ethnic group in the South-eastern part of Mizoram and Manipur in India.The Kuki constitute one of several hill tribes within India, Bangladesh, and Myanmar. In Northeast India, they are present in all states except Arunachal Pradesh.

Ø  The Meitei people, also known as the Manipuri people are the predominant ethnic group of Manipur in Northeast India. They represent about 53% of Manipur's population.

Ø  Some fifty tribes of Kuki peoples in India are recognised as scheduled tribes. 

Background of Kuki-Meitei divide -

Ø  The friction started escalating with the advent of the Naga national movement in the 1950s, and the call for an independent Naga nation.

Ø  The Naga insurgency was countered by the rise of insurgent groups among the Meiteis and Kuki-Zomi.

Ø  Kuki-Zomi groups began to militarise, and the Kukis launched their own movement for ‘Kukiland’. However, the Kuki-Zomi demand was for a state within India.

Ø  The Kukiland demand created a rift between the Kuki and Meitei communities.

Ø  The Naga-Kuki clashes of 1993 resulted in cornering of Kukis in one district (Churachandpur) and this led to a sense of insecurity amongst Kukis.

Ø  Reason behind the recent unrest -

Ø  Recently, the Manipur High Court asked the state government to send a recommendation to the Centre within four weeks on the demand for ST status by the Metei community.

Ø  A 'Tribal Solidarity March' was organised (tribals who account for about 40 per cent of the state’s population) to protest the demand of non-tribal Meiteis.

Ø  The violence started with the retaliatory destruction of the Anglo-Kuki War Memorial Gate by Meitei mobs. 

Why the state government should be held responsible for the Riots?

Ø  Exclusivist and biased policies over the years set the preparatory ground for these riots.

Ø  Concerted attempts both by the state government and valley-based civil society organisations (CSOs) to dilute the intra-state constitutional asymmetry under Art 371C.

Attempt to undermine the historical protection for tribal land rights —

Ø  After several attempts to extend the Manipur Land Revenue and Land Reforms Act, 1961 (MLR&LR Act) to the hill areas, a controversial Bill (along with two others) was introduced by the state in 2015 to amend this law.

Ø  These Bills precipitated an unprecedented tribal uprising. 

A series of discriminatory developmental and land-related policies —

Ø  The declaration of large swathes of land in Kuki-Zomi-Hmar inhabited areas in Southern Manipur as Reserved Forest (RF), Protected Forest (PF), Wildlife Sanctuary (WS), and Wetlands without following established procedures.

Ø  These policies have direct bearing on existing tribal land rights.

Ø  Lawless law enforcement — A series of evictions took place in the past couple of months and several villages and churches in Imphal were razed without following the due process after the Manipur high court dismissed the appeal against state’s refusal to regularise Dak Chitha (land document).

Ø  Consequence of State Government's discriminatory policies -

Ø  Existing asymmetrical institutions like the District Councils and the Hill Areas Committee (HAC), mandated under Article 371C of the Indian Constitution to protect tribal rights and interests, were rendered toothless. 

Further rift between Meitei and Tribals —

Ø  The recent resolutions by the HAC [which tried to negate any action of the state to declare areas as RF, PF, and WS, without its input] invited condemnation from various Meitei CSOs.

Ø  As civil society groups, both in the hills and valley, became more vocal and aggressive to push their radicalised communal agenda they opened up new sites of conflict.

Way forward -

Ø  A mechanism is immediately required to reach out to people across ethnic divides.

Ø  Taking lessons from Jammu and Kashmir there is a need for public dialogue to work on contentious issues and maintain law and order.

Ø  The Union government must take actions to stop infiltration from Myanmar to maintain the demography of the state.

Conclusion -

Government officials have denied the reports that India and Russia have suspended negotiations on trade settlement in Indian rupee. The officials admitted that there are issues on how Russia could use the excess rupee in Vostro accounts, but the talks to iron out these differences continue. A Rupee Vostro account is a foreign bank’s account with an Indian bank in rupees in India.

Ø  There were reports that India and Russia have suspended efforts to settle bilateral trade in rupees.

Ø  As per this report —

Ø  Bilateral trade between India and Russia is highly favourable towards Russia.

Ø  Since Russia's invasion of Ukraine on Feb. 24 last year, India's imports from Russia have risen to $51.3 billion until April 5, from $10.6 billion in the same period in the previous year.

Ø  Exports from India in the same period fell slightly to $3.43 billion from $3.61 billion in the previous year.

Ø  Hence, Moscow believes it will end up with an annual rupee surplus of over $40 billion if such a mechanism is worked.

Ø  It feels rupee accumulation is not desirable.

Ø  However, government officials have denied this report.

What is international trade settlement in rupees?

Ø  When countries import and export goods and services, they have to make payments in a foreign currency.

Ø  Since the US Dollar is the world’s reserve currency, most of these transactions are entered into US dollars.

Ø  If an Indian buyer enters into a transaction with a seller from Germany, the Indian buyer has to first convert his rupees into US dollars.

Ø  The seller will receive those dollars which will then be converted into Euros.

Ø  Here, both the parties involved have to incur the conversion expenses and bear the risk of foreign exchange rate fluctuations.

Ø  In the process of trade settlement in rupees, instead of paying and receiving US dollars, the invoice will be made in Indian rupees if the counterparty has a Rupee Vostro account.

Why does the RBI want to settle payments in rupees?

Reduce India’s dependency on US dollars — In the long term, it will shift some demand into Rupees from USD.

Facilitate trade with sanctions-hit countries — The mechanism for international settlement in rupee might have been aimed particularly at facilitating trade with sanctions-hit Russia, possibly Iran, and forex-starved Sri Lanka.

Stability of Indian rupee — India is a net importer and the value of the Indian rupee has been declining consistently. The rupee was the worst performing Asian currency in 2022, witnessing a fall of around 10%. Using the rupee for international trade transactions will help check the flow of dollars out of India and slow the depreciation of the currency.

Global acceptance of Indian Currency — International trade settlements in rupee are expected to gradually contribute to the global acceptance of the currency. Later it may be possible to repay loans taken from fund banks like the Asian Infrastructure Investment Bank in Indian currency.

Steps taken by RBI to promote international trade settlement in rupees -

In July 2022, the RBI has provided an additional arrangement for invoicing, payment, and settlement of exports/imports in the rupee.

As part of this mechanism, in December 2022, India saw its first settlement of foreign trade in rupee with Russia.

So far banks of 19 countries including the UK, New Zealand, Germany, Malaysia, Israel, and United Arab Emirates have been permitted to make settlements in rupees.

What are the complications?

Limited Acceptance —

The Indian rupee is not widely accepted as a settlement currency in international trade.

The rupee is not fully convertible. India's share of global exports of goods also is just about 2%.

These factors reduce the necessity for other countries to hold rupees.

Complications in terms of formulating the monetary policy —

The internationalisation of the rupee can potentially limit the ability of the central bank to control domestic money supply and influence interest rates as per the domestic macroeconomic conditions.

If a substantial portion of its trade is in rupee, non-residents would hold rupee balances in India which would be used to acquire Indian assets.

Large holdings of such financial assets could heighten vulnerability to external shocks, managing which would necessitate more effective policy tools.

Challenges in promoting invoices in rupee —

In the prevailing global atmosphere of trade protectionism and geopolitical rivalries, promoting invoices in rupee with various countries will not be an easy task.

Currently, India’s share in global trade is not significant enough and it is highly dependent on the import of fossil fuels, edible oils, gold, silver, etc.

This makes it an unlikely possibility for exporting countries to consider the Indian rupee as an invoicing currency, unless it suits their interests.

Government officials have denied the reports that India and Russia have suspended negotiations on trade settlement in Indian rupee. The officials admitted that there are issues on how Russia could use the excess rupee in Vostro accounts, but the talks to iron out these differences continue. A Rupee Vostro account is a foreign bank’s account with an Indian bank in rupees in India.

Ø  There were reports that India and Russia have suspended efforts to settle bilateral trade in rupees.

Ø  As per this report —

Ø  Bilateral trade between India and Russia is highly favourable towards Russia.

Ø  Since Russia's invasion of Ukraine on Feb. 24 last year, India's imports from Russia have risen to $51.3 billion until April 5, from $10.6 billion in the same period in the previous year.

Ø  Exports from India in the same period fell slightly to $3.43 billion from $3.61 billion in the previous year.

Ø  Hence, Moscow believes it will end up with an annual rupee surplus of over $40 billion if such a mechanism is worked.

Ø  It feels rupee accumulation is not desirable.

Ø  However, government officials have denied this report.

What is international trade settlement in rupees?

Ø  When countries import and export goods and services, they have to make payments in a foreign currency.

Ø  Since the US Dollar is the world’s reserve currency, most of these transactions are entered into US dollars.

Ø  If an Indian buyer enters into a transaction with a seller from Germany, the Indian buyer has to first convert his rupees into US dollars.

Ø  The seller will receive those dollars which will then be converted into Euros.

Ø  Here, both the parties involved have to incur the conversion expenses and bear the risk of foreign exchange rate fluctuations.

Ø  In the process of trade settlement in rupees, instead of paying and receiving US dollars, the invoice will be made in Indian rupees if the counterparty has a Rupee Vostro account.

Why does the RBI want to settle payments in rupees?

Reduce India’s dependency on US dollars — In the long term, it will shift some demand into Rupees from USD.

Facilitate trade with sanctions-hit countries — The mechanism for international settlement in rupee might have been aimed particularly at facilitating trade with sanctions-hit Russia, possibly Iran, and forex-starved Sri Lanka.

Stability of Indian rupee — India is a net importer and the value of the Indian rupee has been declining consistently. The rupee was the worst performing Asian currency in 2022, witnessing a fall of around 10%. Using the rupee for international trade transactions will help check the flow of dollars out of India and slow the depreciation of the currency.

Global acceptance of Indian Currency — International trade settlements in rupee are expected to gradually contribute to the global acceptance of the currency. Later it may be possible to repay loans taken from fund banks like the Asian Infrastructure Investment Bank in Indian currency.

Steps taken by RBI to promote international trade settlement in rupees -

In July 2022, the RBI has provided an additional arrangement for invoicing, payment, and settlement of exports/imports in the rupee.

As part of this mechanism, in December 2022, India saw its first settlement of foreign trade in rupee with Russia.

So far banks of 19 countries including the UK, New Zealand, Germany, Malaysia, Israel, and United Arab Emirates have been permitted to make settlements in rupees.

What are the complications?

Limited Acceptance —

The Indian rupee is not widely accepted as a settlement currency in international trade.

The rupee is not fully convertible. India's share of global exports of goods also is just about 2%.

These factors reduce the necessity for other countries to hold rupees.

Complications in terms of formulating the monetary policy —

The internationalisation of the rupee can potentially limit the ability of the central bank to control domestic money supply and influence interest rates as per the domestic macroeconomic conditions.

If a substantial portion of its trade is in rupee, non-residents would hold rupee balances in India which would be used to acquire Indian assets.

Large holdings of such financial assets could heighten vulnerability to external shocks, managing which would necessitate more effective policy tools.

Challenges in promoting invoices in rupee —

In the prevailing global atmosphere of trade protectionism and geopolitical rivalries, promoting invoices in rupee with various countries will not be an easy task.

Currently, India’s share in global trade is not significant enough and it is highly dependent on the import of fossil fuels, edible oils, gold, silver, etc.

This makes it an unlikely possibility for exporting countries to consider the Indian rupee as an invoicing currency, unless it suits their interests.