Rafale row: Government caught on wrong foot

New Delhi: The government has been caught on the wrong foot for not completing the process of floating a new Request for Proposal (RFP), which is mandatory in all defence purchases, before signing the Rafale fighter aircraft deal.  In the case that came up for hearing on Wednesday, Attorney General K K Venugopal tried to wriggle out of the knot by claiming that RFP was not required since it was a government-to-government agreement.

He had to, however, admit in response to a pointed question by Chief Justice Ranjan Gogoi that there is no “sovereign guarantee” from France for enforcing the contract for supply of 36 aircraft signed by Dassault Aviation. Because there is no such guarantee, India will have to go for international arbitration against the company or its offset partner in case of a default.  The petitioners’ case is that the government-to-government deal was only an alibi for not following the mandatory processes.

The AG did hand over a copy of the “letter of comfort” that the French government to the Indians, but Sudhanshu Mohanty, who was the financial adviser of the defence ministry from October 2015 to May 2016 during the negotiations, says the sovereign guarantee binds the government irrespective of whosoever is in power, while the “letter of comfort” is akin to a “letter of intent” that is neither legally binding nor enforceable and a successive government may or may not honour what is promised in such a letter.

The law ministry had in fact red-flagged absence of the sovereign guarantee, but its objection was overruled by the government.  Mohanty also questioned the changes made in the offset rules at the instance of Dassault, as revealed in the court, since they do not bring any added benefit to the government.  In any case, a letter of comfort is a notch below the sovereign guarantee as it cannot be enforced in a court of law or arbitration forum. A sovereign guarantee would have forced the French government to discharge the liability of Dassault, if it defaults in its contractual commitments.

Justice K M Joseph, whose promotion to the Apex Court came after months of delay since he had quashed dismissal of a Congress government in Uttarakhand by the Modi government, asked some pointed questions that may be also reflected in the judgment. He wanted to know how the national interest will be protected if the offsets partner (Anil Ambani’s Reliance) fails to keep its part of the contract. A defence official present in the Court merely said that Dassault can punish it as it was the French company that is liable to comply with terms of agreement with India.

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