Rafael Deal and The Power of Judicial Review

I. Introduction

India spends around 2.5 per cent of its GDP in defence, approx. Sixty billion US dollars each year. India domestically produces only 45% to 50% of defence products it uses, and the rest are imported, making India the second-largest defence importer.²

In September 2016, The Modi Government inked the 36 Raffael Jet Agreement with France after four years of negotiation and price escalation, following the withdrawal of the deal of 126 Jets announced in 2012 as a result of MRCA competition. It created a series of political Ripples around the country. Opposition party Congress made several allegations from Price escalation to Favouritism to Reliance Defence Limited. In pursuance of this, in September 2018, A writ petition was filed in the Supreme court of India seeking cancellation of the Inter-Governmental agreement alleging corruption with various other claims. On 14th December 2018, while using its power of judicial review, the Supreme Court dismissed all the petitions seeking a probe into the alleged irregularities in the deal. It gave a clean chit to the Union government, citing no evidence of wrongdoing. This paper aims to analyze the scope and limits of judicial review and understand the Court’s reasoning to dismiss the petitions.

II. Background

In June 2001, the Government granted in-principle approval to procure 126 fighter jets. In January 2016, India announced its MRCA Competition winner French's Dassault Rafael as the lowest bidder to acquire 126 Raffael Jets to Increase the Combat capabilities of India. Out of 126 Jets, 18 had to be supplied by Dassault in a fly-away condition, and Rest 106 Jets had to be manufactured by the Hindustan Aeronautics after a technology transfer.³

Just when the deal was about to get signed, the Dassault group raised speculations on the capability and capacity of HAL to manufacture those 106 Jets and demanded two separate contracts for the deal. One for those 18 jets which Dassault will deliver in a fly-away condition, and the other is for the rest of 106 aircraft manufactured by HAL. The question was, who would guarantee the jets manufactured in India. ⁴The deal again got delayed when its Price escalated from 60-65 billion to 120 billion. The defence ministry announced that the Government would not sign the agreement in the fiscal year of 2013-2014 due to budgetary constraints.

In 2015 during France’s visit, Prime minister Modi announced that India would acquire 36 Raffael Jets in a fly-away condition citing Critical operational necessity. In July 2015, the defence minister informed Rajya Sabha that the deal to purchase 126 jets had been withdrawn, and negotiations to acquire 36 aircraft had begun.⁵ This deal finally took the shape of an Inter-Governmental Agreement of 7.87 billion and was inked in September 2016. This new deal included the agreement that provided components superior to those in the original deal, particularly the weapons package, tailor-made enhancements for the Indian Force, and performance-based logistics. This deal also included a 50% Offset-clause to invest 50 perfect of the contract value to be invested back to India and created a 51:49 joint venture named Dassault Reliance Aerospace Limited (DRAL).⁶

The issue arises from the group of writ petitions, filed as Public Interest Litigation under Article 32 of the Indian Constitution regarding the procurement of 36 Rafale Fighter Jets for the Indian Air Force. Out of these writ petitions, after the first two initial petitions listed, the Court the Government of India to apprise the Court of the details of the steps taken in the decision-making process to satisfy itself of the correctness of the decision-making process.

III. Issues and concerns

Three main issues raised in the case were:-

1. Was the decision-making process properly and duly been followed while making such a reward, and Did Prime Minister Modi decide to go ahead with the deal without the approval of the Cabinet Committee on Security?

2. Is there any Mala-fide role of the Indian Government in choosing the Indian Offset Partners (IOPs)? Was Reliance Defence made Dassault Aviation’s Indian Offset Partner without the approval of the Minister of Defence, as required by the Defence Offset Guidelines? Further, was Hindustan Aeronautics Limited (HAL), the previously proposed Offset partner, improperly removed?

3. Does the deal suffer from pricing irregularities? The Price per aircraft from the first deal to the second deal approximately doubled.

IV. Judgment

The Court can not ignore that the tender in question is not related to the construction of a road or bridge but a defence tender, related to the military strength of a nation, which is of the utmost importance and necessary for the nation’s security, stability, and, capability to withstand any external aggression. This nature of tender gives the Government far more leeway and limits the extent to which the Court can apply its judicial scrutiny. Not only that, there are certain areas of governmental activity where the Court is incompetent to investigate beyond an initial decision about whether the Government's claim is bona fide.

For similar reasons, and considering the lack of expertise of the Court, it cannot indulge in questions like the justification of Price and technical feasibility of tender. These are complex questions that require different sets of considerations that are not in the Court’s expertise to scrutinize.

Even if there is some minor deviation from the decision-making process, it can’t be the sole ground for the judiciary to interfere and declare the tender void or to set aside the contract. In the present case, the Government has broadly followed the decision-making process. Since there is a financial advantage to the nation according to the Government and a need for aircraft, it will not be correct for the Court to scrutinize each aspect of the acquisition process.

The Government has also not disclosed much about pricing details, claiming national security, and contractual terms and conditions. It still, however, was shared with the Controller and Auditor General (CAG) and the Public Accounts Committee (PAC), then examined its report. The Government still provided the material on pricing details and an explanatory note. After reviewing it, the Court was satisfied and held that it is not the Court’s job to compare the pricing details in matters like the present.

Regarding the Original Equipment Manufacturer (OEM), it is free to choose its Indian Offset Partner (IOP) as per the Defence Procurement Procedure (DPP) 2013. The commercial agreement itself does not assign any role to the Indian Government to give any options to the French Government. Unless there is some concrete evidence to show any favouritism to any particular IOP or any party, mere news can’t be the basis for the Court to scrutinize and set aside the tender.

V. Critical Analysis

In India, there is no express provision for the judicial review, but it is an integral part of it, the power of which flows from Articles 32, 226, and 227 while its charter flows from article 13 of the constitution, While Article 13 restricts the parliament to make any law which can offend the rights conferred under Part III of the constitution, Article 32, 226 and 227 allows any person to approach either the High Court or the Supreme Court to enforce any of fundamental rights under the Part III of the constitution.

The power of judicial review comes from the rule of law, which gives the judiciary the ability to review the validity of constitutional amendments or law and review any administrative actions. The actions of a state, public authorities, and bureaucracy are all subject to judicial review; they are thus all accountable to the courts for the legality of their actions.⁷ The power of judicial review is an essential feature of the constitution and a part of the basic structure, first incorporated in the Keshvananda Bharti Case.⁸ The Court held that the parliament could not alter the basic structure, though it could amend the constitution. This power of judicial review can only be taken away by the Government if there is an alternative effective institutional mechanism or authority.⁹ Any provision to the extent that they exclude the jurisdiction of the High Courts and Supreme Courts under Articles 226, 227, and 32 of the constitution can be declared unconstitutional as they damage the power of judicial review.¹⁰

Our constitution view governments as juristic person capable of making contracts and acquiring properties, just as any private person. Article 298 gives the power to the Government to carry out any trade or business, hold, acquire or dispose of property and make contracts for any purpose.¹¹ There is no requirement for any existing legislation to exercise the power of the executive.¹² Provided that if any activity of state or centre falls outside their legislative domain, then it would be subjected to the laws made by the other Government having the necessary legislative power over it.¹³ Article 299 puts the weight on formalities and special conditions, without which the contract can not be enforced and bind the Government. The requirement includes Formal and expressed agreement in writing and authorization to the Government officials to enter into the contract on behalf of the president or the governor. The provision of Article 299 is mandatory. It is impossible to seek or obtain a waiver of the requirements,¹⁴ and the Government cannot be held liable for the damages for breach of such contracts.¹⁵

Government contracts or tender can be reviewed under the three grounds of irrationality, illegality, and procedural impropriety.¹⁶ Such agreements can also be subject to the principles of equality of opportunity under Article 14 of the constitution.¹⁷ Another substantial base of judicial review can be the Doctrine of proportionality, which means that the action or measure taken by the administration must not be drastic than what is necessary to achieve the desired result.¹⁸

The Court also made the distinction between government contracts and private contracts. The Government does not enjoy the freedom and discretion of a private party in entering into contracts, and it cannot act arbitrarily “its action must be in conformity with standard or norms which are not arbitrary, irrational or irrelevant.”¹⁹ The Court is primarily concerned with the decision-making process or how the Government made the decision and if there is a violation of principles laid down in Article 14 of the Constitution. It cannot extend itself to the scrutiny of the detailed terms and conditions of the contracts. Courts have inherent limitations on the scope of any such inquiry, was the view given in Sterling Computers Ltd. v. M&N Publications Ltd.²⁰A tender cannot be accepted solely based on its Price, being the highest or lowest depending upon whether the tender or contract is for the sale of public property or the execution of works on behalf of the Government.²¹ An award of contract or tender is essentially a commercial transaction. It requires commercial decisions to arrive at a conclusion. The state is free to choose its method to arrive at a decision, including the terms and conditions.²² If there is no evidence to show that the contract has altered to benefit any particular tenders or class of tenders, it is not open for judicial scrutiny.²³ Suppose the contract award is bonafide and is in the public interest. In that case, courts will not interfere even if there is a procedural aberration or error in assessment or prejudice to a tenderer in exercising the power of judicial review. The Court will not use its power of judicial review to protect private interest at the cost of public interest or to decide contractual disputes, was the view given in Jagdish Mandal v. State of Orissa and Ors.²⁴

Furthermore, there are inherent limitations in exercising the power of judicial review. Government is the guardian of the state’s finances, and it has the freedom to use it as per their needs and requirements. Quashing any contract without the necessary expertise could result in a heavy administrative burden and increased budgeted expenditure.²⁵ Any decisions made should be done in the public interest and for the public good in some cases become counter-productive by causing injury to the public in general.²⁶ The Court will only intervene if there is a constitutional or statutory violation, including the Wednesbury principles of irrationality, illegality, and procedural impropriety. The burden of proof will fall on the person’s shoulders, challenging the decision. Unless the aggrieved party can prove its case, the Court will hesitate to intervene.²⁷

The same principles are deployed in the present case by the Supreme Court. The defence tender requires a different and complex set of considerations, which gives the Government far more freedom to choose a decision and limits the extent to which the Court can apply its judicial scrutiny. Not only that, considering the need for the aircraft, setting aside the tender could have resulted in a heavy administrative burden, increased budgeted expenditure, and left the military unprepared. So even if a slight deviation might have occurred in the decision-making process, it could not be the reason to set aside the tender. As long as the tender is made without irrationality, illegality, procedural impropriety, or the principles laid down in Article 14 of the constitution, the Court will not interfere. To trigger the Court’s power of judicial review, the burden of proof will be on the person challenging the decision to show that there is a violation of any of the principles laid down by the Court mentioned above.

VI. Conclusion

In the last few decades, we can see the involvement of the Indian Government in economic and commercial activities is continually increasing, and so does the rise in disputes and thus increase in need of the Court to apply its judicial scrutiny to resolve such conflicts.

The concept of judicial review is not new, and many judgments have already cleared out the idea, scope, and extent to which the Court can exercise its judicial powers. A sense of consistency can also be seen continuously reinforcing those concepts that in facto clear the powers and limitations conferred on the judiciary, establishing that the prime reason for the Judicial review is to prevent the constitutional right of equality and arbitrariness or favouritism to any particular party. The apex court can also grant a stay or injunction order as a temporary relief if the relevant facts and circumstances allow them to do so and when court beliefs benefit the public interest.

It is also clear that the scope of Judicial review is minimal, and the Government has vast powers in terms of contractual obligations. Not only can the Government enter into any contract with individuals or businesses, but it can also decide its terms and conditions. The highest or lowest bid cannot be the sole basis for selection of the tender, the Government is free to choose the tender based on the needs and requirements of that particular tender, and it is not open to judicial scrutiny as long as it does not reek of mala-fide, unreasonableness, and arbitrariness.

As more and more cases are ending up in the High and Apex courts, facts and the nature of contracts are getting more complicated. Even though the scope of judicial review is still somewhat narrow, the Supreme Court or the High Court using the constitutional power of judicial review can still review them.

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