Security document (mortgage) form and content

What is the typical form of a security document over the aircraft and what must it contain?

The security document is not required to be in any specified format or in any particular language. In practice, such security documents generally record the maximum secured amount and the underlying economic terms of the deal such as principal, interest and repayment dates.

Security documentary requirements and costs

What are the documentary formalities for creation of an enforceable security over an aircraft? What are the documentary costs?

The documentary formalities for creation of an enforceable security are similar to the formalities in relation to the title transfer documents. In this regard, see questions 4 and 5. If the owner of an aircraft is an Indian company or a company with a registered place of business in India, then additional requirements to perfect the security will apply, such as filing of charges (discussed in more detail below).

Security registration requirements

Must the security document be filed with the aviation authority or any other registry as a condition to its effective creation or perfection against the debtor and third parties? Summarise the process to register a mortgagee interest.

There is no separate register of aircraft mortgages in India. However, the Civil Aviation Requirements 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 mortgagor 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.

Registration of security

How is registration of a security interest certified?

The registration of a security interest is certified by an acknowledgement given by the ROC at the time such registration is done by filing the prescribed forms along with the supporting documents. The ROC maintains a register of charges, which evidences the existence of the charge over the aircraft, and records the nature and details of the instrument creating the charge. The register of charges is a public document and constitutes notice to third parties of the existence of such charge. Only charges created by Indian owners of aircraft are required to be registered with the ROC. There is no requirement to do so for a foreign owner of an aircraft operated in India.

In respect of filings made with the DGCA, an acknowledgement of the same may be obtained at the time of making the filing.

Effect of registration of a security interest

What is the effect of registration as to third parties?

See question 18. Priority of charges is based on the date of creation of charges, not on the basis of date of registration of charges, provided the charges are in fact registered within the statutorily prescribed period.

Security structure and alteration

How is security over aircraft and leases typically structured? What are the consequences of changes to the security or its beneficiaries?

The concept of trust and security trustee is recognised in India. Typically, in financing transactions involving one or more lenders, the security over aircraft and leases is structured through a security trustee who holds and enforces the security interests on behalf of the lenders.

As per law, a mortgagee’s right in an aircraft is a right in personam. Indian law also facilitates arrangements whereby a security trustee may hold the security for a changing group of beneficiaries. When the underlying loan is transferred or if the lenders change, although there is no security register in India it is advisable to inform the DGCA about such changes.

Security over spare engines

What form does security over spare engines typically take and how does it operate?

There is no requirement or regime in India for registration of a lease or mortgage of an engine, separate from that of the aircraft. In relation to leased aircraft, typically the engines are not considered as separate items.

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 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.