Tuesday, 1 June 2010

Fundamentally different: legal issues spin off from fighter bases tussle

A forward airfield that also serves as an Indian fighter base. Italian company, Selex, had stalled the modernisation of 30 airfields by going to court against the contract

by Ajai Shukla
Business Standard, 1st June 10

For the last seven months, an Italian company, Selex Sistemi Integrati, had blocked a crucial aspect of India’s defence readiness in Indian courts, until an irate Supreme Court threw out a Selex petition on 24th May. Since November 09, the upgrading of 30 operationally vital military airfields had been effectively suspended by India’s Ministry of Defence (MoD) after Selex filed a writ petition in the Delhi High Court challenged the MoD’s award of that contract to a consortium led by Tata Power’s Strategic Electronics Division (SED).

Selex pleaded that, in awarding the Modernisation of Airfield Infrastructure (MAFI) contract to the Tatas, the MoD had erred since the Tata consortium had neither the experience, nor the technical capability, to execute such a contract. Selex also alleged that the Tatas had squeaked ahead in close bidding (the Tata bid: Rs 1094 crores, or US $234 million; the Selex bid: Rs 1141 crores, or US $244 million) by leaving out expenses like transfer of technology within country.

In rejecting Selex’s petition, a two-judge Supreme Court bench acidly wondered whether an Italian court would have heard an Indian company on a matter so vital. The bench noted, “This court is not a Robin Hood… do you want us to stop the modernisation of the airfields?”

Selex has effectively lost its case, and perhaps a great deal more in future business since the MoD will not easily forgive the slur of being labelled incompetent. But Selex’s ill-advised foray into the Indian judicial system has spun off what will be a landmark judicial exercise: a careful legal examination of the rights of foreign companies in Indian tenders. At stake here is an issue that will reverberate beyond national security: can a foreign companies allege a violation of its fundamental rights in contesting the award of an Indian contract?

This issue, which will now be examined by a bench of the Delhi High Court, rests on three articles of the Constitution of India. The first, Article 226, under which Selex went to court, empowers the High Court to consider writ petitions from those who believe their rights, including fundamental rights, have been violated. The second, Article 14, provides equality before the law to all people within the territory of India. And the third, Article 19, provides citizens of India (Note: not foreign nationals) a number of freedoms, such as those of movement; speech, assembly, formation of unions, etc. Article 19(1)(g), which has been critical in this case, allows citizens of India “to practise any profession, or to carry on any occupation, trade or business.”

Selex pleaded to the Delhi High Court for the award of the contract, initially invoked all three articles before backing off from Article 19(1)(g). It approached the Delhi High Court under Article 226, claiming its right to equality under Article 14, read in conjunction with Article 19(1)(g). Now, what will be examined afresh by a Delhi High Court bench, is whether a foreign company, without Indian shareholders, can claim constitutional protection under Article 14 without it being read through the window of Article 19(1)(g).

Recognising the importance of clarity on this issue, the two-judge Delhi High Court bench that referred this question to a higher bench noted, “Almost all large tenders today are being challenged in writ proceedings before the Court and are coming up for judicial scrutiny. It is thus necessary to settle the legal issue in question. The question which thus arises for consideration is whether in the matter of scrutiny and award of tender, the fairness of procedure under Article 14 of the Constitution of India can be examined de hors the rights under Article 19(1)(g) of the Constitution of India to carry on the business and trade at the behest of a foreign company invoking the jurisdiction under Article 226 of the Constitution of India, especially keeping in view the fact that the issue of fairness in treatment and absence of arbitrariness when involved on the basis of Article 14 in tender matters is relatable to the doctrine that the State has to be fair in distribution of State largesse to its citizens.”

If the High Court bench rules that protection under Article 14 necessarily flows through the guarantees of Article 19, this will effectively deny foreign companies a remedy under the Constitution of India, i.e. the writ petition route, to challenge the award of contracts. Left with only the time consuming recourse of a civil legal challenge, foreign disruptions to the contracting process will be minimised.

Besides the fine legal issues that have emerged from this confrontation, the national security dimensions of defence contracting merit a comment. It says as much about globalisation as about Indian defence procurement rules that a foreign company, which has built most of China’s airfield network, and which has continuing interests in China and Pakistan, can challenge in court the MoD’s right to award a crucial airfield turnkey project to an Indian company.

Indian corporates entering defence production are sinking tens of crores of their own money, largely unsupported by government, into creating indigenous capabilities. If the MoD is serious about indigenisation, it must create the legal and regulatory framework required for supporting Indian companies with security sensitive projects, even when their bids are marginally more expensive than those of foreign bidders.


AK said...

This is not the first and definitely not the last time that the modernization of the armed forces has been stalled due to some vested interests. Anyone who loses a bid promptly makes a media leak or court case to stall the process. Hopefully we will see the light at the end of this tunnel. MoD should also make strict guidelines in this regard, we cannot have foreigners (Italians!!) obstructing our modernization.

Mrugen said...

I agree we need to look into this matter. After all we need a clean Defence Contract Awarding system,plus a system that ensures that the forces don't lose out precious time being tangled in court cases rather which should be fairly utilized for preparing for Warfare(of all kinds!!) and continue training and modernizing at equal rate.
Indian defence contractors be given equal opportunities and sometimes a chance to grow .
Foreign firms which develop our enemy capabilities should be barred from contracts at that would prevent them from fuelling an Arms Race, which is quite dangerous as final Aim of such organizations is "Profit at all costs", but we don't that happenning,this "Selex Issue shows this is true ", such contractors don't care about us and we don't we need to trust such Organizations.

We must at end ensure we get the best Equipment & facilities for our Defence Forces need's and that too within a time frame ,not affecting their war preparedness at any cost.

Anonymous said...

selex is a problematic company!!! They supply radars to Pakistan also!!!

Anonymous said...

That pic is great, however as a forward airbase with ample amount of space, its very difficult to comprehend the thinking behind the location of the hangars.

Namely the following:-

1) Why are 2 fighters (top of the line, air superiority planes like mig 29) sharing 1 hangar? In a surprise attack or a retaliatory attack a forward air base is likely to be hit (the fighters will be prime targets). So if a cruise missile or carpet bombs/LGBs are used, and succeed in hitting a hangar then 2 fighters are destroyed.

2) Why share hangar?

3) A base like this should always try to preserve its most valuable assets (fighters) from enemy raids. Hangars so close to each other make the enemy’s job a tad simpler. Therefore, the location of the hangars should be as far or away from each other as possible.

I know IAF/MoD does not have limit less cash but spending 200 plus mil on choppers for NETAS is not really indicative of being a pauper’s air force either.

@ Ajay ;

Your thoughts please?



Int64 said...

I agree with you Ajay. MOD should support Indian companies.

Anonymous said...

Ajai any opinion.
Chinese are copying Su-30MKI to make their J-11 to Su-30MKI by buying,stealing and copying from equipment from French,Isreal And Importantly Russia.Somes pic of Chinese Su-30MKI:-
And most imp they are basing them in Southwest that is near INDIA.

They already got J-10,J-7NG near India and now THIS.Any comment.

darshan said...

Selex approaches court for legal remedy as provided in contract documents.
Did MoD not know that the same company has done work for china/Pakistan/Italy.

How can legal remedy be denied to any entity which is working under the legal framework. Tomorrow if India buys aircraft from US thru FMS, and if there are some problems - can India not approach judiciary for remedy.

Hypothetical questions are good -

NJS said...

Chini hindi bye bye , india is always ready for another 1962 (no preparedness )

Anonymous said...

SELEX believed that it will be supported by the UPA head.

One wonders what will the final fate when Ottavio Quattrochi was allowed to flee India, the cases withdrawn, allowed to access his ill-gotten money and now , his son openly pedaling influence in New Delhi.

Apart from this, there have been several instances of Italian firms being involved in other scandals in India.

Ra said...

In defense matters, there should be some provisions that may stop foreign companies from getting such legal time outs which may directly delay the projects. Or such anticipated timeouts may be included in the projects from the very beginning.

Anyhow I could not think that Italians being in the same iota group as Indians, could have obstructed the Indians in such matters.

Sudip Das (sudipdas@engineer.com) said...

I beleive the MOD should include a clause in tender enquiry that any company which goes to the judiciary after losing atender should be barred from participating in defence tenders for a period of five years if they lose the suit . This way errant companies can be kept at bay .