Law Ministry redflags liability issues in Rafale deal

The refusal of the French government to give any bank guarantees also remains a major issue. France has instead offered to provide a “comfort letter” from its prime minister.

By: Maneesh Chhibber | New Delhi | Published:March 14, 2016 3:17 am
india Rafale deal, Rafale jets deal, india france Rafale, india france Rafale deal, Rafale deal india, india Prime Minister Narendra Modi’s direct intervention and dialogue with French President Francois Hollande was believed to have led to the thaw in the deadlock in the Rafale jets deal.

The multi-billion dollar deal for purchase of 36 Rafale fighter jets from France has run into legal issues.

Despite claims to the contrary by government functionaries, including Defence Minister Manohar Parrikar, even the preliminary agreement is not a done deal, official documents accessed by The Indian Express show. While pricing continues to be a bone of contention, Indian officials have also raised questions over key clauses, including liability of Paris in case of any shortfall in implementation of the deal, being heavily loaded in favour of the French.

The refusal of the French government to give any bank guarantees also remains a major issue. France has instead offered to provide a “comfort letter” from its prime minister.

Sources said since the contract involves huge pay-outs without actual delivery, this is a matter of concern. In the past, the practice has been submission of adequate government/ sovereign guarantees.

During French President François Hollande’s visit in January as chief guest at the Republic Day parade, both India and France had claimed that the deal for purchase of the 36 fighter jets was almost finalised, with Delhi saying that “only the financial aspects” were left to be sorted.

In the hurry to conclude the deal during the high-profile visit, several loopholes were appararently overlooked. Sources said the Union Law Ministry has now strongly red-flagged key issues.

The Defence Ministry refused to respond to a detailed questionnaire sent by The Indian Express, with its spokesperson saying, “The MoD doesn’t react to issues which are being discussed between two governments.”

Prime Minister Narendra Modi’s direct intervention and dialogue with French President Francois Hollande was believed to have led to the thaw in the deadlock in the Rafale jets deal.

In November 2015, before he left for COP-21 climate conference in Paris, Modi had spoken with Hollande and convinced the French President to agree to a 50-per cent offset clause, a Defence Ministry official had told The Indian Express. While 30 per cent offset clause is mandatory in defence contracts of the quantum of the Rafale deal, an exception of 50 per cent was made in line with the earlier Medium Multi-Role Combat Aircraft (MMRCA) deal, which was cancelled.

A senior officer involved with the matter said, “While many senior government functionaries, including those in the Ministry of Defence, have favoured out-of-box thinking to take the deal forward, when we examined the draft Inter-Governmental Agreement (IGA) and the draft Supply Protocols, we were left wondering as to how could India agree to all the stipulations suggested by the French side. In our opinion, the two documents were not drafted with the interest of the Government of India in mind. Many suggestions have been forwarded. But it is for the Prime Minister’s Office and the Defence Ministry to take a final view.”

The Law Ministry has objected to the watered-down liability clause, to be signed by the French government and the two French suppliers. The Defence Ministry has been advised that unless there is a joint and severe liability clause, India’s interests would remain compromised.

Law Ministry officials have also redflagged the clause in the IGA that in case of material breach by French companies of their obligations under the Supply Protocols, the Indian side would first take recourse to legal route against the companies without involving the French government.

While the initial agreement provides that in case of any dispute, arbitration proceedings can be initiated in Geneva (Switzerland), the Ministry of Defence has been advised that the seat of arbitration be in India, especially since the government hopes to turn India into a hub for international arbitration.

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  1. D
    Mar 14, 2016 at 3:54 am
    Increase the production of Su30 mkis, speed up Tejas Mk-1a and naval Tejas which will make up for numbers. Go on with AMCA and FGFA with Russia and we are good without Rafaels.
    1. N
      Nagar Iyer
      Mar 14, 2016 at 1:19 am
      OMG!!! France in anti- national today. Bajrang dal should protest at French emby.
      1. D
        Mar 21, 2016 at 2:48 pm
        You can go complain to Sonia madam...
        1. G
          Mar 13, 2016 at 11:20 pm
          They should junk this deal and start m production of LCA and Naval LCA!. For- 8 - 12 billions we would have more than 200 LCA and 100 Naval LCA. Why is IAF insistent on this fighter, 36 nos of Rafale is not going to be a game changer anyway! This needs proper investigation IAF does not seem to have plan B atall!
          1. B
            Mar 14, 2016 at 2:37 am
            Fools. Every news is planted to fool you s. And you fools blog even, UMING that you are intellectual?
            1. K
              Mar 14, 2016 at 12:48 am
              France is only interested in its voters, citizens and their livelihood, they rather sell these jets to India without anyone asking any questions about the quality, accountability and ability of the aircraft. If the Rafael is good it will sell by itself, unfortunately this is not true.
              1. D
                Deeply Concerned
                Mar 14, 2016 at 12:11 am
                So preity parkaer is a liar too, like his PM, not even a prelim deal and look at the credit being taken for swift deal. When the number reduced from 126 to 36 and the prices escalated to $10 bn dollars, the alarm bells are howling. Now even the diehard chaddi brigade will have to wear a goonghat too with their full pants
                1. G
                  May 11, 2016 at 3:42 pm
                  A procrastinating for years and will of the gusts for a handful of rice, then that is the best war omnirole aircraft, over taking 1.5 times its weight in armaments, that does no aircraft in the world, proven in combat and directly available, with a much more simple maintenance as American aircraft, thereby from much cheaper on 20 years of use You'll find yourself with old United States aircraft perfect for the parade of the National holiday but not if you really want you defend and make war!lt;br/gt;lt;br/gt;Out gusts been recognized best combat aircraft by the Air Forces of Switzerland, India, Egypt, Qatar and still more very well behave in exercise Red Flag against the F 22 Americans and Eurofighter English which has pus intervene in Libya because not enough well equipped!
                  1. D
                    Mar 14, 2016 at 1:06 am
                    France is being tricky to the point of being untrustworthy. India should seriously re-think. And India should deploy such vast amount of money internally in R and D and self production. Its challenging but can be done.
                    1. R
                      Mar 14, 2016 at 2:29 am
                      Just don't buy the Rafale. More on my blog rvpointatblogspotdotcom but only after six hours.
                      1. R
                        Ravindra Sharma
                        Mar 14, 2016 at 3:02 am
                        No alternative but to make in india , in between Russia is our most reliable partner .
                        1. X
                          Mar 13, 2016 at 11:49 pm
                          What happened to the deal signed by our Great Pathfinder and Brilliant Negotiator? It seems it won't happen in the next three years also. And what is our scholar defense minister from IIT doing?
                          1. C
                            Curious onlooker
                            Mar 14, 2016 at 2:03 am
                            India's need to replace and augment its air power as quickly as possible should not be risked by revisiting contractual agreements already entered into. Law officers of India should not try to be too clever by calling into question clauses previously agreed to. 36 jets is a far cry from the 126 planes India wanted to buy and acquiring it should not be needlessly prolonged at risk of national security. If India continues to be difficult,France should do the honourable thing; call off the deal. Let India go could find the the country which will sell fighter jets free.
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