Did Supreme Court really give cleanchit to Modi-government in Rafale deal ?
The total cost of 36 Rafale fighter aircraft is Rs 59,262 crore, finalised by BJP led NDA government, whereas the 126 planes during the Congress-led UPA time would have cost Rs 1,72,185 crores.
The judgement delivered by the bench of Chief Justice Ranjan Gogoi, Sanjay Kishan Kaul and K M Joseph did not get into the pricing issue which is the main contention in the whole deal.
“Adequate Military strength and capability to discourage and withstand external aggression and to protect the sovereignty and integrity of India, undoubtedly, is a matter of utmost concern for the Nation. The empowerment of defence forces with adequate technology and material support is, therefore, a matter of vital importance. Keeping in view this, it would be appropriate, at
the outset, to set out the parameters of judicial scrutiny of governmental decisions relating to defence procurement and to indicate whether such parameters are more constricted than
what the jurisprudence of judicial scrutiny of the award of tenders and contracts, that has emerged till date, would legitimately permit. We are satisfied that there is no occasion to really doubt the process, and even if minor deviations have occurred, that would not result in either setting aside the contractor requiring a detailed scrutiny by the Court. We have been informed that joint exercises have taken place, and that there is a financial advantage to our nation. It cannot be lost sight of, that these are contracts of defence procurement which should be subject to a different degree and depth of judicial review. Broadly, the processes have been followed. The need for the aircrafts is not in doubt. The quality of the aircraft is not in question. It is also a fact that the long negotiations for procurement of 126 MMRCAs have not produced any result, and merely conjecturing that the initial RFP could have resulted in a contract is of no use. The hard fact is that not only was the contract not coming forth but the negotiations had come practically to an end, resulting in a recall of the RFP. We cannot sit in judgment over the wisdom of deciding to go in for purchase of 36 aircrafts in place of 126. We cannot possibly compel the Government to go in for purchase of 126 aircraft. This is despite the fact that even before the withdrawal of RFP, an announcement came to be made in April 2015 about the decision to go in only for 36 aircrafts. Our country cannot afford to be unprepared/underprepared in a situation where our adversaries are stated to have acquired not only 4th Generation, but even 5th Generation Aircrafts, of which, we have none. It will not be correct for the Court to sit as an appellate authority to scrutinize each aspect of the process of acquisition.”, the judgement states.
What is the Rafale deal ?
Going into to the history of Rafale deal, the judgement states, “As far back as in the month of June of the year 2001, an inprinciple approval was granted for procurement of 126 fighterjets to augment the strength of the Indian Airforce. Simultaneously, a more transparent Defence Procurement Procedure (“DPP”) was formulated for the first time in the year 2002. A robust ‘offset clause’ was included in the DPP in the year 2005 so as to promote Indigenisation and to that effect Services Qualitative Requirements (“SQRs”) were prepared in June 2006. On 29th June 2007 the Defence Acquisition Council (“DAC”) granted the “Acceptance of Necessity” for the procurement of 126 Medium Multi Role Combat Aircrafts (for short “MMRCA”) including 18 direct flyaway aircrafts (equivalent to a single squadron) to be procured from the Original Equipment Manufacturer (“OEM”) with the remaining 108 aircrafts to be manufactured by Hindustan Aeronautics Limited (for short “HAL”) under licence, to be delivered over a period of 11 years from the date of signing. The bidding process commenced in August 2007. Six (06) vendors submitted proposals in April, 2008. The proposals were followed by technical and field evaluations; a Staff Evaluation Report and a Technical Oversight Committee Report. All these were completed in the year 2011. The commercial bids were opened in November, 2011 and M/s Dassault Aviation (hereinafter referred to as “Dassault”) was placed as the LI sometime in January 2012. Negotiations commenced thereafter and continued but without any final result. In the meantime, there was a change of political dispensation at the centre sometime in the middle of the year 2014. According to the official respondents negotiation continued. A process of withdrawal of the Request for Proposal in relation to the 126 MMRCA was initiated in March 2015. On
10th April, 2015 an IndoFrench joint statement, for acquisition of 36 Rafale Jets in flyaway condition through an InterGovernmental Agreement (hereinafter referred to as “IGA”), was
issued and the same was duly approved by the DAC. The Request for Proposal for the 126 MMRCA was finally withdrawn in June 2015. Negotiations were carried out and the process was
completed after InterMinisterial Consultations with the approval of the Cabinet Committee on Security (for short “CCS”). The contract along with Aircraft Package Supply Protocol; Weapons
Package Supply Protocol; Technical Arrangements and Offset contracts was signed in respect of 36 Rafale Jets on 23rd September, 2016. The aircrafts were scheduled to be delivered in
phased manner commencing from October 2019.”
Who filed the writ petitions ?
The first writ petition i.e. Writ Petition (Criminal) No.225 of 2018 has been filed by one Shri Manohar Lal Sharma, a practicing lawyer of this Court. What is sought for in the said
writ petition is registration of an FIR under relevant provisions of the Indian Penal Code, 1860 and a Court Monitored Investigation. The further relief of quashing the InterGovernmental Agreement of 2016 for purchase of 36 Rafale Jets has also been prayed for. Writ Petition (Civil) No.1205 of 2018 has been filed by one Vineet Dhanda claiming to be a public spirited Indian. The petitioner states that he was inspired to file the writ petition being agitated over the matter on the basis of the newspaper articles/reports. The third writ petition bearing Writ Petition (Criminal) No.297 of 2018 has been filed by one Shri Sanjay Singh, a Member of Parliament alleging illegality and nontransparency in the procurement process. The said writ petition seeks investigation into the reasons for “cancellation of earlier deal” and seeks a scrutiny of the Court into the alteration of pricing and, above all, how a ‘novice’ company i.e. Reliance Defence came to replace the HAL as the Offset partner. Cancellation of InterGovernmental Agreement and registration of an FIR has also been prayed for. The fourth and the last writ petition bearing Writ Petition (Criminal) No.298 of 2018 has been filed by Yashwant Sinha, Shri Arun Shourie and Shri Prashant Bhushan claiming to be public spirited Indians. They are aggrieved by nonregistration of FIR by the CBI pursuant to a complaint made by them on 4th October, 2018 which complaint, according to the petitioners, disclose a prima facie evidence of commission of a cognizable offence under the provisions of the Prevention of Corruption Act, 1988. The prayer, inter alia, made is for direction for registration of an FIR and investigation of the same and submitting periodic status reports to the Court.
The writ petitions raised three broad areas of concern, namely, (i) the decision making process; (ii) difference in pricing; and (iii) the choice of IOP.
Decision Making Process
“The details of the steps in the decision making process leading to the award of the 36 Rafale fighter aircrafts’ order have been set out in response to the order dated 10th October, 2018.
The Government states that the DPP 2002 has been succeeded by periodical reviews in 2005, 2006, 2008, 2011, 2013 and 2016. In other words when it is stated that only those cases in which RFP is issued after 1st June 2013 will be processed as per DPP 2013, in this case where the RFP was issued much prior to 1st April 2013 and it was withdrawn, as already noted, in June 2015, a question may arise as to how it could be claimed that DPP 2013 was followed. Also, we notice that the official respondents have sought support from paragraph 71 of the DPP 2013. Para 71 of DPP 2013, in respect of the IGA has been referred to, which postulates possibilities of procurement from friendly foreign countries, necessitated due to geostrategic advantages that are likely to accrue to the country. Such procurement would not classically follow the Standard Procurement Procedure or the Standard Contract Document, but would be based on mutually agreed provisions by the Governments of both the countries based on an IGA, after clearance from the Competent Financial Authority (hereinafter referred to as “CFA”). Of the total procurement of about Rs.7.45 lakh crores since 2002 under DPP, different kinds of IGAs, including Foreign Military Sales and Standard Clauses of Contract account for nearly 40%. With the object of promoting indigenization, a robust offset clause is said to have been included since 2005. As per the Defence Offset Guidelines of 2013, the vendor/Original Equipment Manufacturer (hereinafter referred to as “OEM”) is free to select its IOPs for implementing the offset obligation. As far as the endeavour to procure 126 fighter aircrafts is concerned, it has been stated that the contract negotiations could not be concluded, inter alia, on account of unresolved issues between the OEM and HAL. These have been set out as under:
“i) Man Hours that would be required to produce the aircraft in India: HAL required 2.7 times higher Man Hours compared to the French side for the manufacture of Rafale aircraft in India. Dassault Aviation as the seller was required to undertake necessary contractual obligation for 126 aircraft (18 direct flyaway and 108 aircraft manufactured in India) as per RFP requirements. Issues related to contractual obligation and responsibility for 108 aircraft manufactured in India could not be resolved.”
“These issues are stated to have been unresolved for more than three years. Such delay is said to have impacted the cost of acquisition, as the offer was with ‘inbuilt escalation’ and was influenced by EuroRupee exchange rate variations. The stalemate resulted in the process of RFP withdrawal being initiated in March 2015. In this interregnum period, adversaries of the country, qua defence issues, inducted modern aircrafts and upgraded their older versions. This included induction of even 5th Generation Stealth Fighter Aircrafts of almost 20 squadrons, effectively reducing the combat potential of our defence forces. In such a situation, government to government negotiations resulted in conclusion of the IGA for the supply of 36 Rafale Aircrafts, as part of a separate process. The requisite steps are stated to have been followed, as per DPP 2013. An INT7 was constituted to negotiate the terms and 7 Indian Negotiating Team conditions, which commenced in May 2015 and continued till April 2016. In this period of time, a total of 74 meetings were held, including 48 internal INT meetings and 26 external INT
meetings with the French side. It is the case of the official respondents that the INT completed its negotiations and arrived at better terms relating to price, delivery and maintenance, as
compared to the MMRCA offer of Dassault. This was further processed for inter-ministerial consultations and the approval of the CCS was also obtained, finally, resulting in signing of the
agreement. This was in conformity with the process, as per para 72 of DPP 2013.”
Pricing
“The challenge to the pricing of the aircrafts, by the petitioners, is sought to be made on the ground that there are huge escalations in costs, as per the material in public domain,
as found in magazines and newspapers. We did initially express our disinclination to even go into the issue of pricing. However, by a subsequent order, to satisfy the conscience of the Court, it was directed that details regarding the costs of the aircrafts should also be placed in sealed covers before the Court. The material placed before us shows that the Government has not disclosed pricing details, other than the basic price of the aircraft, even to the Parliament, on the ground that sensitivity of pricing details could affect national security, apart from breaching the agreement between the two countries. The pricing details have, however, been shared with the Comptroller and Auditor General (hereinafter referred to as “CAG”), and the report of the CAG has been examined by the Public Accounts Committee (hereafter referred to as “PAC”). Only a redacted portion of the report was placed before the Parliament, and is in public domain. The Chief of the Air Staff is stated to have communicated his reservation regarding the disclosure of the pricing details, including regarding the weaponry which could adversely affect national security. The pricing details are stated to be covered by Article 10 of the IGA between the Government of India and the Government of France, on purchase of Rafale Aircrafts, which provides that protection of classified information and material exchanged under the IGA would be governed by the provisions of the Security Agreement signed between both the
Governments on 25th January, 2008. Despite this reluctance, the material has still been placed before the Court to satisfy its conscience. We have examined closely the price details and comparison of the prices of the basic aircraft along with escalation costs as under the original RFP as well as under the IGA. We have also gone through the explanatory note on the
costing, item wise. Suffice it to say that as per the price details, the official respondents claim there is a commercial advantage in the purchase of 36 Rafale aircrafts. The official respondents have claimed that there are certain better terms in IGA qua the maintenance and weapon package. It is certainly not the job of this Court to carry out a comparison of the pricing details in
matters like the present. We say no more as the material has to be kept in a confidential domain.”
Offsets
The issue of IOP is what has triggered this litigation. The offset contract is stated to have been governed by the Defence Offset Guidelines of DPP 2013. Two of the said contracts
were signed with Dassault and M/s MBDA Missile Systems Limited on 23rd September, 2016, the same day on which the IGA was signed between the Government of India and the
Government of France. These are the French industrial suppliers of the Aircraft package and Weapon Package respectively. There are stated to be no offset obligations in the first three years, but the offset obligations are to commence from October 2019 onwards. The complaint of the petitioners is that the offset guidelines contemplate that the vendor will disclose details about the Indian Offset partner however, in order to help the business group in India in question, an amendment was carried out in paragraph 8 of the Offset Guidelines that too with retrospective effect. By virtue of the said amendment it is contended that cloak of secrecy is cast about the Offset partner and the vendor is enabled to give the details at a much later point of time. It is contended, however, that other provisions of the Offset Guidelines remain unamended, and, therefore, Government cannot pretend ignorance about the Indian Offset partner as has
been done in the affidavit filed. It is complained that favouring the Indian business group has resulted in offence being committed under the Prevention of Corruption Act. A joint venture is stated to have come into being between Reliance Defence and Dassault in February 2017, which is stated to be a ‘purely commercial arrangement’ between the two private
companies. Media reports of February 2012 are stated to suggest that Dassault, within two weeks of being declared the lowest bidder for procurement of 126 aircrafts by the previous
Government, had entered into a pact for partnership with Reliance Industries (Another business group) in the Defence sector. Dassault has also issued a press release stating that it
has signed partnership agreements with several companies and is negotiating with over hundred other companies. As per the guidelines, the vendor is to provide details of the IOPs, either at
the time of seeking offset credit or one year prior to discharge of offset obligation, which would be due from 2020 onwards.”
“It is no doubt true that the company, Reliance Aerostructure Ltd., has come into being in the recent past, but the press release suggests that there was possibly an arrangement between the parent Reliance company and Dassault starting from the year 2012. As to what transpired between the two corporates would be a matter best left to them, being matters
of their commercial interests, as perceived by them. There has been a categorical denial, from every side, of the interview given by the former French President seeking to suggest that it is the Indian Government which had given no option to the French Government in the matter. On the basis of materials available before us, this appears contrary to the clause in DPP 2013
dealing with IOPs which has been extracted above. Thus, the commercial arrangement, in our view, itself does not assign any role to the Indian Government, at this stage, with respect to the
engagement of the IOP. Such matter is seemingly left to the commercial decision of Dassault. That is the reason why it has been stated that the role of the Indian Government would start
only when the vendor/OEM submits a formal proposal, in the prescribed manner, indicating details of IOPs and products for offset discharge. As far as the role of HAL, insofar as the
procurement of 36 aircrafts is concerned, there is no specific role envisaged. In fact, the suggestion of the Government seems to be that there were some contractual problems and Dassault was circumspect about HAL carrying out the contractual obligation, which is also stated to be responsible for the nonconclusion of the earlier contract. Once again, it is neither appropriate nor within the experience of this Court to step into this arena of what is technically feasible or not. The point remains that DPP 2013 envisages that the vendor/OEM will choose its own IOPs. In this process, the role of the Government is not envisaged and, thus, mere press interviews or suggestions cannot form the basis for judicial review by this Court, especially when there is categorical denial of the statements made in the Press, by both the sides. We do not find any substantial material on record to show that this is a case of commercial favouritism to any party by the Indian Government, as the option to choose the IOP does not rest with the Indian Government.”
Conclusion:
The judges concluded, “In view of our findings on all the three aspects, and having heard the matter in detail, we find no reason for any intervention by this Court on the sensitive issue of purchase of 36 defence aircrafts by the Indian Government. Perception of individuals cannot be the basis of a fishing and roving enquiry by this Court, especially in such matters. We, thus, dismiss all the writ petitions, leaving it to the parties to bear their own costs. We, however, make it clear that our views as above are primarily from the standpoint of the exercise of the jurisdiction under Article 32 of the Constitution of India which has been invoked in the present group of cases.”
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