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French govt. didn’t guarantee Rafale deal, Centre tells SC

‘Letter of Comfort’ given by Paris is good enough, says Attorney-General

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. 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.

Law Ministry’s objection

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 policy/guidelines with retrospective effect,” Justice Joseph asked.

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