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.