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DEFENCE CONTRACTING IN INDIA: UNLIMITED LIABILITY AND THE RIGHT TO WORK IN A SAFE ENVIRONMENT

INTRODUCTION TO DEFENCE CONTRACTS
A contract is an agreement which is recognized and enforceable by law. In India, contracts are governed by The Indian Contract Act, 1872. Individual persons, companies, registered organizations and other entities are competent to contract provided they meet the basic requirements of competency as laid down within the Contract Act itself.[i] Furthermore, even the Sate can enter into contracts and it is provided that any and all contracts made in the exercise of the executive power of the Union or of the State Government shall be expressed to be made by the President of India or by the Governor of the respective state.[ii]
The government enters into many contracts on a regular basis for various purposes such as transportation, infrastructural development, health and wellness, education, etc. One of the main domains where the government is an important party is the arena of defence. The government buys products such as arms and ammunition, war-crafts, submarines, tanks, etc., and services such as communication, engineering, logistics, etc. Such agreements or contracts are known as “Defence Contracts”.
It is pertinent to note that these contracts are of a special category as they do not relate to any regular transaction but to the sale and purchase of defence equipment and services, which is done either on a national or an international scale with the governments of one or more countries being parties to the contract. Therefore, in India, though such agreements strictly fall under the definition of a contract, it is imperative that they are treated in a different manner owing to their extraordinary nature and for the same reason, there exists a document known as the Defence Procurement Procedure Rules, 2016 (DPP), which spells out a detailed guideline regarding how such contracts should be created and dealt with. The Rules even provide a model contract with a list of the Articles/sections which a defence contract should essentially contain.     
The most notable domestic players who have entered the defence supply market in India are the Tata Group, Mahindra Group, Hero Group, the erstwhile Anil Dhirubahi Ambani Reliance Group, Reliance Industries, Kalyani group and the London-based Hinduja Group.
The foreign companies from which the Indian Government purchases defence equipment and services are Lockheed Marin, Boeing and the Airbus Group.
The sample contract which the DPP Rules, 2016 provides contains 35 Articles and various clauses regarding the rights, duties and liabilities of the parties entering into the contract such as the specifications of the goods and services to be exchanged, the documents to be shared, payment methods, guarantees and warranty to be given by the supplier. In fact there are certain differences with respect to the obligations between Indian Vendors and Foreign Vendors and such distinctions have been provided in the sample contract as well.
Overall, the model contract is exhaustive in nature and upon inspection it can be safely concluded that it places high standards of duties, obligations and diligence requirements on the part of the seller while the buyer (Government of India) enjoys a plethora of rights which could even be considered somewhat arbitrary. The model contract provides that the buyer has the right to terminate the contract in cases of unnecessary delay, use of coercive methods or supply of below-standard equipments upon inspection. These are over and above the guarantee and warranty obligations undertaken by the seller while entering the contract in the first place. What lacks in this rather detailed and seemingly exhaustive contract is a “limited liability clause” in favour of the seller. The absence of such a clause provides the buyer a chance to manipulate the deals and the events so as to impose undue disadvantage and liabilities upon the seller.
RIGHT TO WORK IN A SAFE ENVIRONMENT v LIMITED LIABILITY OF THE SELLER
Sanjeet Singh Kalia v Union of India And Anr., is a 2017 case in which the Delhi High Court ordered the Government of India and the Hindustan Aeronautics Ltd. (HAL) to pay Rs. 55 Lakhs compensation to an IAF pilot who was rendered unfit due to a faulty MiG Aircraft.
Counsel for the petitioner; Adv Bharat Kumar has hailed this judgment as a revolutionary decision for it is the first which recognizes the right to work in a safe environment even for the defence forces of the nation. This decision by the Delhi High Court may just open the floodgates for a plethora of suits seeking compensation by defence personnel who suffer accidents during their tenure with the respective force. This judgment sets a precedent that the Fundamental Right to Life which includes the right to a safe working environment may outweigh the inherent risk that accompanies a job in the armed forces.
The government and the State-owned HAL may not have had problems in paying the compensation as the Hon’ble Court found that the IAF pilot was exposed to “more” danger than is reasonably expected in cases of defence personnel. However, it is a warning of what might be to come in the near future with more and more private entities both domestic and foreign, entering the defence supply market in India post the policy changes in FDI and launch of the Make in India project in 2014.     
Various foreign entities-suppliers have been raising their voices against this lacuna in the current model contracts that is being followed in India. To shift the liability of compensations in case such mishaps due to the equipment supplied by them, the foreign suppliers draw insurance policies, the cost of which is ultimately borne by the Government (buyer) thereby unnecessarily increasing the burden on the Public Exchequer.  
Despite there being concrete evidence of such a glaring omission in the standard contract provided by the Ministry of Defence and the demand for the incorporation of a limited liability clause, no steps have been taken to either include such provision or to reach an amicable solution.
CONCLUSION
The Delhi High Court sets a landmark precedent in its own right but what it also does is that it provides an opportunity for filing of thousands of suits by the defence personnel of the country who undoubtedly have been supplied with sub-standard weapons and equipment. Furthermore, the government may take a socialist-welfare approach as it a question of the safety of the nation’s armed forces but the private entities that supply the equipment and services, especially the foreign companies, have no stake or obligation whatsoever and therefore from their perspective, the demand for a limited liability clause seems perfectly valid, in the absence of which they shall continue buying insurance policies to cover their risks and obligations and the cost of which shall be ultimately borne by the buyer (Government).
For the time being, the Hon’ble Supreme Court of India has stayed this decision of the Delhi High Court upon appeal by HAL. The decision is eagerly awaited as it shall set the way forward in this grey area and unique battle between the limited liability of the contractors and the right of defence personnel to a safe work environment free from more risks than they signed up for.   

REFERENCES

[i]  Indian Contract Act, 1872, §11.

[ii] India Const. art. 299

ABOUT THE AUTHOR

Raghav Kansal is a 2nd Year law student at National Law University,Odisha

In Content Picture Credits: medium.com

 

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