Rafale Deal: Nine Questions the Supreme Court Verdict Leaves Unanswered

The petitions filed have all been dismissed but the controversy over the Narendra Modi government's decision to buy 36 Rafale aircraft from France will not go away so easily.

New Delhi: The Supreme Court on Friday dismissed petitions seeking an investigation into the controversial Rafale deal, arguing that its scope for judicial review is limited but also that there was no “occasion to really doubt” the decision-making process.

This, in a nutshell, sums up the contradictory, and thus flawed, nature of  the apex court’s judgment.

For instance, the Supreme Court maintains that its decision to deny a probe is “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”.

On the other hand, the judgment goes on to make specific value-judgements on at least two of the three main aspects of the deal, i.e. procurement process and the selection of Anil Ambani’s Reliance as an offset partner. On process, the stance that the court ultimately takes leads it to believe while there may have been “minor deviations”, they aren’t big enough to require “detailed scrutiny”. It also takes at face value the government’s claim that it had not interfered in Dassault Aviation’s choice of Reliance Defence as the French firm’s Indian offset partner. 

Only on pricing does the court refuse to get drawn in to the debate between the Modi government and the opposition on whether a higher or better price was struck for the 36 aircraft than was previously on offer. “It is certainly not the job of this court to carry out a comparison of the pricing details in matters like the present,” the judgment says.

The court appears to have taken its stand on process based on on documents submitted by the Modi government to the apex court and arguments made during the four-hour-hearing that the case received last month.

However, the final judgment shows that there are a number of details and arguments that the court has either ignored, side-stepped or merely accepted at face-value without further questioning.

The Wire breaks down the gaps in the judgment – with regard to process, price and offsets – and what’s been left uninvestigated as a consequence.

1) Why was the benchmark price controversy ignored?

The manner in which the benchmark price for the 36-Rafale-deal was changed at the last-minute has been a source of controversy over the last few months.

In particular, debate has centred around how a senior defence ministry official’s objections were overruled. And that the final decision to opt for a formula that delivered a higher benchmark price was taken not by the defence ministry or minister Manohar Parrikar but by the Cabinet Committee for Security.

In remarks made to the Economic Times last month, former senior defence ministry official Sudanshu Mohanty described the manner in which the change was approved as “strange, even queer”.

“Further, as per the information available in public domain, the Defence Acquisition Council headed by the defence minister and consisting of all top MoD honchos didn’t recommend the case, instead left it to the Cabinet Committee on Security to take a call. Why? This needs to be looked into. For, not in my fallible memory of defence capital acquisition can I recall such a thing — because it is strange, even queer,” Mohanty was quoted as saying.

While this issue could technically fall under the ‘pricing’ aspect of the Rafale deal, which the Supreme Court has chosen not to examine, it clearly highlights that there were not-insignificant deviations in the procurement process.

That the court has chosen to wholly ignore this matter is puzzling.

2) How did the deal change from 126 to 36?

“We cannot sit in judgment over the wisdom of deciding to go in for purchase of 36 aircrafts (sic) in place of 126”, the Supreme Court said, sidestepping the real issue at hand: the speed and manner in which the UPA-era, 126-aircraft deal was shelved and a new 36-aircraft contract was agreed upon without the procedures prescribed for this actually being followed.

The Supreme Court acknowledges the timeline given by the Modi government: That a “process of withdrawal” of RFP for the 126-jets was initiated in March 2015 and a new IGA was signed for 36 aircraft a few weeks later in April 2015. What it doesn’t acknowledge are other questions that have been raised.

These questions include: What paperwork was generated for this “process of withdrawal” in March 2015 and why has the government not been able to provide any proper details of this? Why were defence minister Manohar Parrikar and foreign secretary S Jaishankar not kept in the loop about this process? Why did Dassault CEO Eric Trappier say that the 126-aircraft deal was “95% complete” on March 28, 2015, if the process for withdrawal of RFP had already been initiated by then? What was the process undertaken before the IGA was signed? Who was consulted?

By not even trying to take a stab at these questions, or trying to obtain an answer during the court hearings, there appears to be a significant hole in the apex court’s assessment that there is no reason to doubt the procurement process.

As advocate-activist Prashant Bhushan and former union ministers Arun Shourie and Yashwant Sinha have pointed out in their CBI complaint, the 36-aircraft deal was strictly-speaking a new contract and thus should have gone through a number of mandatory procedures that appear to have been skipped, beginning with a “statement of case” by the Indian Air Force for the 36 jets.

3) Why was the lack of sovereign guarantee ignored?

Last month, The Wire broke the story that the intergovernmental agreement between France and India did not come with a sovereign guarantee, a legal obligation placed upon the country selling military equipment or aircraft.

A sovereign guarantee is a reassurance that is commonly found in defence contracts  that are signed between governments. The lack of such a guarantee was discussed during the court hearings and finds a brief acknowledgement in the judgment, as part of a summary of the petitioner’s arguments.

However, the verdict stops short of examining its significance or implication and does not discuss what it might mean for the manner in which the Rafale deal was negotiated by the Modi government.

Former defence ministry official Sudanshu Mohanty has criticised the fact that only a ‘letter of comfort’ was given by France, calling it only “morally-binding” and not “legally binding and enforceable”.

“[Without a sovereign guarantee] Either party can break the promise and go their different ways – and with impunity, although the moral aspect will doubtless stick. However, in matters of a buying nation’s commitment based on public funds, it can cause harm to the nation,” he said last month.

The Supreme Court also ignored concerns raised about the government dropping India as the seat of arbitration in the event of a dispute with France.

4) Why reiterate official stance despite not discussing pricing?

When the Supreme Court took up the petitions, it made it clear that it would not go into the “issue of pricing” or “matters relating to technical suitability of the equipment”.

Nevertheless, in the course of the hearings, it directed the Modi government to submit details “with regard to pricing and the advantages thereof” in a sealed cover.

Here’s where things get confusing. The court notes that it has examined all the price details and item-wise costings carefully, but then merely states that the government has claimed “there is a commercial advantage in the purchase of 36 aircraft” and that there are “certain better terms” with regard to the weapons package.

As Business Standard has reported, this isn’t strictly true. Analysis of the original RFP shows that Modi’s smaller 36-jet-deal is actually 40% more expensive on a per-fighter basis than the 2012 bid made by Dassault for the larger 126-aircraft contract.

The Supreme Court naturally does not go into this, and after reproducing the Centre’s submissions, merely goes back to its initial stance:

“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”.

5) How Hollande’s controversial statement was downplayed

The Supreme Court appears to place a great deal of emphasis on former French president Francois Hollande’s controversial remarks that Anil Ambani was foisted on the French side by India as an offset partner. However, the significance of Hollande’s remarks lie not in their content but because of the controversy they triggered.

Indeed, the judgement implies – wrongly – that suspicion over the Rafale deal began only after “certain newspapers reported a statement claimed to have been made [by Hollande]”.  

With regard to India pushing Anil Ambani’s Reliance forward as an offset partner, the verdict says: “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.”

There are two problems with this line of reasoning.

Firstly, questions over potential irregularities in the Rafale deal happened as soon as the deal was announced and then started to build up a year later. The Hollande remark, which suggested potential cronyism, only exacerbated existing concerns and certainly did not spark them.

Secondly, as The Wire and others have pointed out, there has not been a “categorical denial, from every side” with regard to Hollande’s remarks. There have been denials that merely reiterate bromides of what the existing rules are, but stop short of directly rebutting or hitting back at what the former French president has alleged.

Essentially, the Supreme Court has accepted a number of weak denials, and believes these comprehensively remove the doubts Hollande’s sensational claim raised.

6) Why was one Ambani brother confused for the other?

Over the past few months, both the BJP and Dassault Aviation have relied on a curious defence when asked questions about allegations of corruption and cronyism.

The saffron party’s leaders and Dassault CEO Eric Trappier have tried to imply that by choosing Anil Ambani’s Reliance Infrastructure as an offset partner for the 36-Rafale-deal, they are merely continuing a partnership that Mukesh Ambani’s Reliance Industries had with Dassault back in 2012. The implication being that this partnership was forged during the UPA era and has been carried over, thus providing a buffer to the NDA-II administration.

This couldn’t be further from the truth. As The Wire has pointed out, the business empires that the brothers run are wholly separate. The partnership that Mukesh Ambani had with Dassault in 2012 has nothing to do with with the partnership between Anil Ambani and the same company in 2015.

The Supreme Court also appears to be similarly confused. On page 25 of the verdict, it gets it right by acknowledging that after Dassault became the lowest bidder for the 126-aircraft-deal in 2012, it partnered with Mukesh Ambani’s Reliance Industries, a company it differentiates from Anil Ambani’s Reliance Defence by calling the former “another business group”.

On the very next page though, it quotes a Dassault press release that suggests that while Anil Ambani’s Reliance Aerostructure came into being in the “recent past”, there was “possibly an arrangement between the parent Reliance company and Dassault starting from the year 2012”.

These facts are simply wrong: Reliance Aerostructure’s parent company was never Reliance Industries. It was established well after 2012 and its parent company is the Anil Ambani-run Reliance Infrastructure.

That the Supreme Court’s verdict ignores, confuses and dangerously mixes up basic facts is a worrying sign. It is by relying in part on an untruthful defence deployed by Dassault and BJP party leaders that the apex court concludes there is no “substantial material on record to show that this is a case of commercial favoritism to any party”.

7) How HAL’s views were ignored

One narrative put forth by the Modi government for the need to quickly shift to a smaller 36-aircraft-deal through an intergovernmental agreement is that the public sector Hindustan Aeronautics Ltd proved to be an obstacle in clearing the larger 126-jet-contract.

The Supreme Court verdict summarises the problems that HAL allegedly posed – higher man-hours, contractual obligations and delays – and notes that it was because of this stalemate that the process of RFP withdrawal began in March 2015.

“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,” the judgment notes.

The problem with this is two-fold. First, public statements made by Dassault indicated that the problems with HAL had been largely resolved. Secondly, in September 2018, former HAL boss T. Suvarna Raju indicated that a workshare-agreement between the defence PSU and Dassault had actually been signed.

“Dassault and HAL had signed the mutual work-share contract and given it to the government. Why don’t you ask the government to put the files out in public? The files will tell you everything. If I build the planes, I will guarantee them,” Raju had told the Hindustan Times in an interview, refuting the allegation that differences over who would take responsibility for the aircraft had been a stumbling block.

These statements flatly contradict the Supreme Court verdict which claims that “negotiations had come practically to an end”.

This brings us to a larger point. If the Supreme Court summoned senior Indian Airforce officials to verify the Modi government’s claim that the Rafale was urgently needed, why was Raju or other former HAL officials not asked to provide testimony on whether the 126-aircraft tender was essentially dead and over by March 2015? The evidence that Raju or others could have provided would have shed some light on  the Modi government’s Rafale timeline.

8) Were official preconditions for buying Rafale through the inter-governmental route fulfilled?

The court notes the contention of the petitioners that under the Defence Procurement Guidelines for 2013, the government is allowed to purchase weapons and weapons systems through the inter-governmental agreement (IGA) route under three conditions:

(a) Proven technology and capabilities belonging to a friendly foreign country is identified by our Armed Forces while participating in joint international exercises;

(b) Large value weapon system/platform in service in a friendly foreign country is available for transfer or sale normally at a much lesser cost; or

(c) Requirement of procuring a specific state­ of­ the ­art equipment/platform where the Government of the OEM’s country might have imposed restriction on its sale and thus the equipment cannot be evaluated on ‘No Cost No Commitment’ basis. (emphasis added)

The petitioners had contended that none of these conditions were met and the court appears to concede as much by noting that “minor deviations” in process may have occurred:

“We have studied the material carefully. We have also had the benefit of interacting with senior Air Force officers who answered court queries in respect of different aspects, including that of the acquisition process and pricing. 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 contract or requiring a detailed scrutiny by the court.”

Having said this, the court then weakens its own argument – the entire logic of which is built around the imperative of military necessity – by adding gratuitously: “We have been informed that joint exercises have taken place and that there is a financial advantage to our nation”. (emphasis added)

After suggesting that the absence of the precondition for an IGA may be a minor deviation, the fact that the court felt compelled to clutch at the fig leaf of ‘joint exercises’ to justify the deal for an aircraft that had been in the IAF’s radar for more than a decade suggests the judges are not fully convinced by their own logic.

9) Did the court get it wrong on the CAG report on Rafale?

Hours after the full-text of the Supreme Court verdict became available publicly, one paragraph on the CAG audit of the Rafale deal drew more attention then the rest.

At one point, which addresses the pricing aspect of the 36-aircraft-contract, the judgement notes:

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. [Page 25]

The only problem with this? No such CAG report has been made public, nor is it being examined by the Public Accounts Committee (PAC).

The Wire reached out to two members of the PAC — BJD MP Bhartruhari Mahtab and Congress MP Rajeev Gowda — both of whom denied that the report had been shared with the parliamentary panel.

“Since I jointed the PAC less than a year ago, I haven’t been shown any CAG report,” Gowda told The Wire.

It’s also unclear whether a redacted version of the report has been placed before Parliament.

In a statement put out on Friday evening, petitioner Prashant Bhushan stated that the facts in this regard were “neither on record nor factually correct”.

“Obviously this factually incorrect statement must be based on some communication (not on record and unknown to us) made by the government to the court. That the court has relied on such communication which is factually incorrect on 3 counts shows how dangerous it is for the court to rely on statements made in a sealed cover (not subject to scrutiny or verification) and give its judgement on that basis,” Bhushan alleged.

The national auditor is currently examining the Rafale pricing issue. Last month, sixty retired bureaucrats wrote a letter to the CAG, complaining that it was deliberately delaying reports on demonetisation and the controversial aircraft deal.