A Rafale fighter jet performs during the Aero India air show at Yelahanka air base in Bengaluru.
The Union Law Ministry has raised questions over several clauses in the multi-billion deal for 36 Rafale jets from France, saying they 'compromise' India’s interests, The Indian Express reported on Monday.
The main sticking points, according to the Law Ministry, involve issues of liability, bank guarantees, arbitration and a higher-than-usual offset clause.
The deal to buy the fighter jets was struck earlier this year on January 26, India’s Republic Day, where French President Francois Hollande was the chief guest. The Indian government had said at the time that only the financial aspects of the deal remained to be worked out. However, even the preliminary agreement is not a done deal yet, The Indian Express reported, citing official documents.
Read more from our special coverage on "RAFALE DEAL"
In a hurry to seal the deal during the French President’s visit, several loopholes were overlooked, which have now been red-flagged by the law ministry, the report added.
“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 India could 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,” a senior officer involved with the matter was quoted as saying.
The ministry has objected to the liability clause with the French government and two French suppliers. It has advised the Defence Ministry to have a joint and severe liability clause if India’s interests are not to be compromised.
Along with the deal’s pricing, the ministry is said to have raised concerns on many clauses, including liability of France if they are unable to implement the deal completely. The conditions are being heavily loaded in favour of the French nation, the newspaper reported.
As per the terms of the deal, the French government has refused to give any bank guarantees. Instead, it has offered to provide a ‘comfort letter’ from its prime minister.
The ministry has red-flagged the clause as the contract involves huge pay-outs without actual delivery. In the past, the practice has been submission of adequate government or sovereign securities.
In November 2015, PM Modi had reportedly convinced Hollande to agree to a 50% offset clause, the report says, quoting a defence ministry official. Usually, a 30% clause is mandatory in contracts that are of Rafale deal’s size, 50% clause was an exception in line with an earlier combat aircraft deal.
Material Breach & arbitration
The deal states that in case of material breach by French firms, India would first take legal recourse against the companies, without involving the French government — a condition that has been red-flagged by the law ministry .
Meanwhile, for disputes, the deal had zeroed in on Geneva (Switzerland) for arbitration proceedings. The law ministry has advised the defence ministry to have the seat of arbitration in India, especially when the Centre has been trying to make India a hub for international arbitration, the report added.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.