Image source: https://bit.ly/3b47pss

This article is written by Abanti Bose, from Amity University Kolkata, India. This article sheds light on the important provisions and objectives of The Air Corporations (Transfer of Undertakings and Repeal) Act, 1994. 

Introduction

The Indian aviation industry is one of the major industries in India and it has undergone drastic changes since its emergence. The principal regulatory body of civil aviation in India is the Directorate General of Civil Aviation (DGCA), which is supervised by the Ministry of Civil Aviation (MoCA). 

The history of the civil aviation sector in India can be dated back to 1912 with its first domestic route between Karachi and Delhi. In October 1932, J.R.D. Tata flew the inaugural flight of his airmail carrier, Tata Airways from Karachi to Mumbai, which was renamed Air India in 1947. After the independence, 9 airline transport companies carried passengers and cargo within the territory; but Indian Government, along with Air India, set up Air India International in 1948 to strengthen the aviation sector. However, in 1953 with the enactment of The Air Corporation Act, 1953, Indian Government nationalized the aviation industry, which resulted in merging of the all major airlines into two airlines namely, Air India International (AI), which facilitated international flights and Indian Airlines Corporation (IAC) for domestic flights.

The Air Corporations (Transfer of Undertakings and Repeal) Act, 1994 came into force on 29th January 1994. The Act repealed The Air Corporation Act, 1953 and hence ended the monopoly of Air India and Indian Airline that led to privatization in the civil aviation sector and the emergence of several private airline operators such as Jet Airways, Modiluft Airlines, Damania Airways, etc. and later on contributed to the birth of various low-cost carriers (LCC), which made air transport cheap and accessible to the Indian citizens. 

https://lawsikho.com/course/judgment-writing-and-drafting-course-for-judicial-services

Important provisions 

The important provisions of The Air Corporations (Transfer of Undertakings and Repeal) Act, 1994 are as following;

Defining important terms

The act lays down the definition of important terms such as “corporation”, “company”, and “appointed day” under Section 2 of the act.

The effect of vesting undertakings in the company

Section 4 of the act states that the undertaking of a corporation shall be deemed to include assets, rights, powers, authorities, etc. arising out of the property as were immediately before the appointment day in ownership or power of that corporation. It also states that any contracts or working arrangements being present prior to the appointed day and that affects the corporation, will cease to exist. 

Grants licence to the companies

Section 5 of the act states that from the appointed day all license, permits, quotas and exemptions, which have been granted to a company under any law being in effect shall be deemed to have been granted to the company within which the undertaking had been vested.

Exemption from tax

Under Section 6, when any exemption has been granted or made or any benefit is available to a corporation under Income Tax Act, 1961, such exemption or benefit shall continue to have effect in the company where the undertaking is vested. Similarly, exemption from deduction of tax from any payment made by a corporation under any provision of the Income Tax Act, 1961 shall continue to persist with respect to the company where such undertaking had been vested. 

Granting of guarantee

Section 7 states any guarantee given in advancing of loan lease finance shall continue to function for that company. 

Provision for employees

Section 8 of The Air Corporations (Transfer of Undertakings and Repeal) Act, 1994 has laid down a detailed provision for the employees, it mentions that the officers and employees shall have the similar remuneration, insurance, tenure, etc. as prior to the enforcement of the act; they are entitled to enjoy the same benefits in pension schemes, provident fund, gratuity, etc. However, this section does not safeguard any regulations made under Section 45 of The Air Corporations Act, 1953. 

In the case, Air India Cabin Crew Association & Ors. v. Union of India, the Supreme Court held that the Air Corporations (Transfer of Undertakings and Repeal) Act, 1994 has repealed the Air Corporations Act, 1953, therefore, the regulations made under Section 45 of the Air Corporations Act, 1953 are not valid, which in turn weakened Air India’s case. It was also contended that Section 8 of The Air Corporations (Transfer of Undertakings and Repeal) Act, 1994 does not ensure or protect regulations of The Air Corporations Act, 1953. 

Power of the Central Government to give direction and remove difficulties

The Act empowers the Central Government to issue directions for the effective performance of the company and the company is under the obligation to comply with such directions. In the case of H.M.R. Rao v. Union of India & anr, the court held that the Central Government enjoys overall power, supervision and control over the companies as mentioned under this act. 

The act also allows the Central Government to remove the difficulties that arise as a result of the enactment of the act, provided such order would not be made after the expiry of a term of two years of this act coming into force. 

Repealing The Air Corporations Act, 1953 and the Air Corporations (Transfer of Undertakings and Repeal) Ordinance 1994

Sections 11 and 12 of The Air Corporations (Transfer of Undertakings and Repeal) Act, 1994 repealed The Air Corporations Act, 1953 and The Air Corporations (Transfer of Undertakings and Repeal) Ordinance 1994 respectively. 

Objective and scope of the Act

The objective and the scope of the said act can be stated as follows:

  1. The main objective of the act is to provide for the transfer and vesting of undertakings of Indian Airlines and Air India, and in the companies formed and registered as Indian Airlines Limited and Air India Limited. 
  2. This act repealed the Air Corporation Act, 1953 and enforced the privatization of the aviation sector, thus leading to the emergence of various private airline companies such as Air Sahara, ModiLuft Airlines, NEPC Airways, etc. Later, low-cost carriers emerged such as IndiGo, SpiceJet, etc. with reduced fares, which facilitated air travel among the citizens of India and brought about huge financial changes in the domestic civil aviation sector. 
  3. The act grants license, permits, quotas, etc. to a corporation in connection with its affairs and business.
  4. The said act facilitates the exemption of taxes, which has been granted or made in accordance with any provision under the Income Tax Act, 1961
  5. Furthermore, Section 7 of the Act states that any guarantee given in favour of a corporation in accordance with any loan or lease finance shall continue to be operative. 
  6. Section 8 of the act laid down elaborate provisions in respect to officers and employees.
  7. The act authorizes the Central Government to issue directions and removal of difficulties that arises after the enactment of the act under Section 9 and Section 10 respectively.  

Importance of the Act

The Air Corporations (Transfer of Undertakings and Repeal) Act, 1994 was an important measure taken by the Indian Parliament, which changed the course of the Indian aviation sector. It ended the monopoly of Indian Airlines and Air India and several financially autonomous airline industries such as Jet Airways, Modulift Airlines, etc. were given license to operate as Scheduled Private Airlines. The act enabled various low-cost carriers (LCC) such as IndiGo, SpiceJet, etc. to come into play under the aviation sector, which, in the present day, has made air travel affordable and easily accessible to the masses. The privatization of the aviation sector by the said act led to huge development in the airline industry; the Indian civil aviation sector ranks third in the whole world. Apart from this, the act played a crucial role in granting license, permits, quotas, etc. to the companies. It also made provisions for exemption of taxes. Additionally, this act lays down elaborate provisions for all its employees and officers regarding their remuneration, tenure, insurance, etc. It also repealed The Air Corporation Act, 1953 which nationalized the aviation sector. Henceforth, The Air Corporations (Transfer of Undertakings and Repeal) Act, 1994 played a crucial role in strengthening the dynamics of the aviation sector. 

Critical analysis

The enactment of Air Corporation Act, 1953, empowered the Indian Government to nationalize the aviation sector merging all the major airlines into two airlines namely; Air India and Indian Airlines. However, due to various eminent factors The Air Corporation (Transfer of Undertaking and Repeal) Act, 1994 was enacted and brought into force, which repealed the previous act and gave birth to the modern aviation system in India. Such factors include:

  • During the 1970s and 1980s, due to warfare and domestic disputes, Air India and Indian Airlines operated a number of unprofitable routes and were forced to manage its ageing fleet.
  • The “Open Sky Policy” adopted by the government in 1990 in allowance of “air taxi operators” once again allowed several private operators to facilitate air transport services. 

After implementing the said act, the changes, which were brought about in the aviation sector laid the groundwork for the modern Indian aviation industry. Private airlines started to dominate the aviation sector in 1994, although Air India and Indian Airlines remained government-run airlines. The year 2000, marked the boom in the aviation sector, various low-cost carriers with drastically reduced fares challenged the major airlines such as Air India and Jet Airways. These low-cost carriers now account for 70% of the market and it has propelled India into the third-largest aviation market in the world. 

The Air Corporation (Transfer of Undertaking and Repeal) Act, 1994 has strengthened the route of the Indian aviation industry. After the implementation of the act, the equity stake of Foreign Direct Investment (FDI) up to 49% and Non-Resident Indian (NRI) up to 100% were permitted through the automated FDI route within the domestic air travel services sector. The allowance of financially autonomous industries in the aviation sector brought about a huge financial boom and resulted in ranking India among the top three countries in the world in the domestic civil air transport sector as it made air transport in the country within the reach of the commoners. The act played a key role in aviation as well as the financial sector of the country. 

The act not only brought about economical changes in the aviation sector, but it also laid down the various provisions for the exemption of taxes, granting of a license, various concessions and facilities available to the officers and employees working under the aviation sector. Moreover, the act authorizes the Central Government to give directions to the company regarding the exercise and performance, which the company is bound to follow. The act also permits the Central Government to remove any difficulties, which might arise after the enactment of the act. 

Recommendations 

The Indian aviation industry has been facing financial challenges; the national airlines have reported huge economic losses during the year 2002-2003. To cope up with the challenges, the infrastructure of the airlines and airports should be developed and modernized. The companies and corporations are experiencing such difficulties; due to changing government policies, de-regularization, global competitiveness, taxes and fares, sourcing of air transport fuel, airport infrastructure development, etc. In order to overcome these conditions The Air Corporation (Transfer of Undertaking and Repeal) Act, 1994 should lay down provisions for:

  • Promotion of civil aviation.
  • Making air transport accessible, affordable and competitive.
  • Aviation security and safety.
  • Improving organizational effectiveness and service performance.
  • Liberalization of the international air travel sector.
  • Development of Human Resources.
  • Restructuring and modernizing airports all over the country.

Although the act aimed for improving the aviation industry; there has been limited progress in improving the productivity, efficiency and competitiveness of the services. The act should be shaped by the Indian Government to achieve the desired growth, efficiency and capacity-enhancement in the public and private sector of the industry.

Conclusion

The Air Corporation (Transfer of Undertaking and Repeal) Act, 1994 has brought about essential changes such as granting of a license, exempting taxes, laying down proper provisions for employees and officers and empowering the Central Government in the issuance of directions regarding the functioning of powers and duties, and the company is bound to follow such directions. The said act also repealed The Air Corporation Act, 1953, which led several private airline industries to shape the path of the aviation sector and result in the huge financial and industrial growth of the aviation sector in the following years. India became the world’s third-largest civil aviation industry in recent years. It recorded air traffic of 131 million passengers in the year 2016 of which 100 million passengers belonged to the domestic flights.  

With the aim to modernize the airline industry, increase the number of operational airports, reduce the cost of flying, increase the number of routes and accommodate more aircraft in the coming years, it was a significant step taken by the Indian legislative body, which successfully shaped the path of the civil aviation sector in India.

References


LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join:

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

LEAVE A REPLY

Please enter your comment!
Please enter your name here