Rafale: Comfort letter vs Sovereign guarantee, how legally is India covered

New Delhi, Nov 15: The arguments before the Supreme Court in the Rafale Deal case focused substantially around the 'no sovereign guarantee,' issue. The point came up when the petitioners challenging the deal said that the law ministry had initially red-flagged France's refusal to provide sovereign guarantee for the execution of the Rs 59,000 crore deal involving 36 Rafale fighter jets.

The government however went ahead and inked the deal in September 2016. Attorney General, K K Venugopal told the court that the deal was inked after the French government provided a comfort letter. He further went on to contend that the comfort letter provided was as good as a governmental guarantee.

How crucial is not having a sovereign guarantee to the deal. Experts say that there have been several deals where this phrase does not find a mention. In many government to government deals with countries such as Russia and US, this phrase has not been used. Instead the quality, prices apart from other assurances are built into them.

Now that brings us to the question is whether a sovereign guarantee is as good as a comfort letter. The sovereign guarantee is considered to be much stronger legally when compared to a comfort letter. Officials however explain that in the inter-governmental agreement or the IGA inked between India and France is a sovereign guarantee by itself.

The IGA has enough assurances apart from the associated commercial protocols that have been inked with Dassault Aviation that manufactures the jets. Hence these assurances backed by a comfort letter make the deal absolutely safe, an official explained.

The law ministry had in its opinion said that the French government must take full responsibility for the performance of the entire contract. It said that the French government must take responsibility for the supply of the jets and also their performance to the discharge of the 50 per cent offsets through a direct sovereign guarantee.

The French government however said that it cannot take direct responsibility, while adding that India would have to enter into an arbitration with Dassault Aviation if there were to be any dispute at a later stage. It was after much deliberation that the Cabinet Committee on Security accepted the comfort letter in August 2016.