The Centre admitted in the Supreme Court on Wednesday that there was no sovereign guarantee from the French government on the deal for 36 Rafale jets in case the manufacturer, Dassault Aviation, defaults.
Sovereign guarantee is a promise by a government to discharge the liability of a third person in case of his default.
‘No legal validity’
Attorney-General K.K. Venugopal said there was a “Letter of Comfort” from France, which was as good as a sovereign guarantee. The petitioners countered that such a letter had no legal validity.
The Law Ministry had raised the lack of a sovereign guarantee as a key “problem” associated with the deal during inter-ministerial consultations before the Inter Government Agreement (IGA) was signed on September 23, 2016.
“The money involved in the procurement is high. Who will be responsible if Dassault does not deliver? The Law Ministry had left it to the government to decide,” advocate Prashant Bhushan submitted before a Bench, led by Chief Justice Ranjan Gogoi.
The Bench, comprising Justices S.K. Kaul and K.M. Joseph, heard the petitions for a probe into the decision-making process for the procurement of the jets.
Air Vice Marshal J. Chalapati explained in court how the fourth and fifth-generation fighter aircraft have “niche technology.” The court reserved the case for judgment.
The court questioned the government’s stand on having no “role” in Dassault’s choice of an Indian Offset Partner (IOP). An amendment in the Offset Policy, which allowed “no offset obligations” for the first three years of a contract, also came under the spotlight.
The amendment was made with retrospective effect shortly after the Joint Statement on the 36 jets was issued during Prime Minister Narendra Modi’s visit to Paris on April 10, 2015. According to the current offset contract, Dassault needs to inform the Centre about its IOP only by October 2019. “The formal proposal indicating details of IOPs and products for offset discharge should have been part of the main procurement proposal… What if the IOP is not good enough? Does it serve the country’s interests? What was the need to amend offset guidelines with retrospective effect,” Justice Joseph asked.
The Additional Defence Secretary submitted that IOPs would be confirmed by the vendor (Dassault) either at the time of seeking offset credits or a year prior to discharge of offset obligations. “If details of IOP are given initially, we would check if the IOP is valid. If given later, the OEM runs the danger of non-acceptance of the IOP by us. Penalty is imposed,” the Secretary said.
Former Union Minister Arun Shourie, one of the petitioners, said there was “government interference” in the choice of an IOP. Mr. Shourie has alleged that Reliance Defence, “a company with no defence experience”, is the IOP. “Dassault is a company which is in serious financial difficulties. But for this order of 36 jets, it (Dassault) would have been phased out…Dassault has experience since 1929. It would never have gone for an IOP registered only a few days before the deal,” Mr. Shourie argued.
The Attorney-General said the secrecy maintained by the government on the Rafale deal was not about the price of the aircraft but on its weaponry and avionics. Mr. Venugopal said the ₹670-crore price quoted in Parliament was that of a bare-bone jet. “Our adversaries will take advantage of a public disclosure of the price of weaponry and avionics. They will be able to evaluate the weapons. It is out of respect for the Supreme Court that we provided you specifics on weaponry, avionics,” he said.