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French court awards India damages for faulty Siachen kit

Ranvir Nayar in Paris

After a long and contentious court battle against a French supplier of faulty defence material, the Indian government has won nearly 3 mn French Francs in damages, making it the first case of its kind.

The office of the Controller of Defence Accounts in New Delhi received the first cheque of nearly 2.5 mn French Francs a few days ago and attempts are now underway to recover the balance amount and also recover the costs and interest on the principal sum of 2.5 mn Francs, which could add up to yet another 1.5 mn Francs.

The judgment and its outcome could have far-reaching implications for future and contemporary Indian defence contracts, since a large number of such cases are pending all across Europe. Most of the cases have been dormant or literally written off because of government inaction to start the recovery procedures in time.

Defence analysts based in Paris told rediff.com that scores of similar case are pending all over Europe where companies have supplied sub standard or defective supplies to the Indian government. "These cases are all winnable. And the government could recover over 1 bn dollars just from these small cases, not counting the punitive damages that they might gain. All they have to do is to take the cases up seriously,'' the analysts say.

They point out that even in the current case, the government had fumbled all along. First it failed to appoint a lawyer or answer the summons of the lower court. "Looking from here, it appeared as if there were some people within the Indian government who wanted the government to lose the case. The handling of the entire episode was so shabby,'' the analysts say.

In the case Moncler, a French company making sleeping bags for use in the mountains, had been awarded a contract by the Ministry of Defence to supply nearly 8,600 pieces of sleeping bags for the use by the Indian soldiers in the freezing Siachen area. The contract, worth nearly 12 mn French Francs or over Rs 100 million, was awarded in May 1992. The supplies were completed within a year in several batches. A number of these bags were subsequently found faulty. And in September '93, the government tried to encash the bank guarantee which was 20 per cent of the contract amount.

However, Moncler, which had by then declared voluntary bankruptcy, moved a Paris court and obtained a stay on the encashment of the bank guarantee. In 1995, Moncler filed another case against the French bank asking the court to order the bank to return the guarantee money that Moncler has deposited with the bank. In that case, the Government of India was also summoned to give its version of the story. However, despite numerous reminders the government failed to present its case before the Paris court.

The government's mishandling of the case is also apparent from the fact that even while this dispute with Moncler was in progress, the government had shortlisted Moncler for another tender calling for supplies of similar bags, an order twice the size of the previous order.

Moncler used this dichotomy in the government's attitude to convince the lower court that the government was acting in a mala fide manner and had caused damage to its prospects. The government's handling of the arbitration was also used by Moncler to strengthen its case. These arguments resulted in an extremely harsh order by the court which criticised the Indian government in strong words for acting in a mala fide and irresponsible manner and using its huge force against a small company. The court also ordered the French bank to pay the guarantee money to the French company and awarded heavy damages, along with costs and interest, that the Indian government was to pay up to the French company.

However, there was still no response from the government and Moncler was pressuring the bank to release the guarantee money as per the court orders, but the bank hesitated to oblige before expiry of the 30 day period thus allowing the government to appeal against the decision . Finally the government woke up, literally the last day before the period expired.

Says Vijay Phadke, the lawyer for the Indian government, "Our appeal was literally drawn up at the last minute. We had less than 48 hours to move court when I was asked by the government to take up the matter. Our first aim was to get a stay on the lower court's order asking the bank to return the guarantee money to the company. If the money had been released, the case would have been over as Moncler is a bankrupt entity,'' Phadke, who is a corporate lawyer advising European investors in India, told rediff.com.

Phadke says in February '98, the appeal court stayed the order of the lower court and ordered that the bank guarantee be put into an escrow amount for the duration of the trial. And less than a year later, the court also overturned the lower court's order. Phadke says he also took special care to have the court expunge the strong remarks against the Indian government. "It is a remarkable victory. Initially it was a hopeless case. But we have managed in restoring the image of the Government of India,'' Phadke says.

Defence analysts say the case also calls for the government, especially the Ministry of Defence, to examine its procedures for monitoring defence supplies, and for enabling defence authorities to launch their own cases against errant suppliers.

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