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Graft in defence buys: Negotiations need framework, fix system

On the legal side, negotiated resolutions need to be strictly regulated and be subject to judicial oversight.

Written by Sushant Singh |
Updated: July 27, 2015 2:35:37 am
Defence Procurement Policy, UPA, defence acquisitions, DPP, DPA Defence Ministry, DPP Defence Ministry, Corruption Act, Explained, Nation news, india news Defence Minister Manohar Parrikar

During public consultations with stakeholders, the expert committee on revising the Defence Procurement Policy (DPP) has considered alternatives to automatic blacklisting of defence suppliers accused of corruption. The policy of immediate blacklisting had stalled India’s defence acquisitions programme under the UPA, and raised concerns about the preparedness of the armed forces.

Currently, a company can be barred from contracting with the government as soon as a suspicion of wrongdoing emerges, and it remains blacklisted throughout the investigation. If the firm is prosecuted and convicted, it can be debarred for up to 10 years.

Doing away with blacklisting altogether is out of question, because that would defeat the objectives of a dozen criminal law statutes. While blacklisting will remain in the rulebooks as a deterrent against criminal misconduct by companies, it is recommended for use only as an instrument of last resort. The Defence Ministry will have options other than blacklisting the accused company.

Defence Procurement Policy, UPA, defence acquisitions, DPP, DPA Defence Ministry, DPP Defence Ministry, Corruption Act, Explained, Nation news, india news

The expert committee has looked at mechanisms used for mitigating wrongdoing in major contracts in western countries. One option being considered is of a negotiated resolution with the accused company. The UK and US use “deferred prosecution agreements”(DPA), whereby investigating authorities negotiate with firms accused of wrongdoing.

If successful, these negotiations lead to a written agreement. A DPA contains a “statement of facts” that set out the circumstances of the offence. This statement usually does not include an admission of guilt by the company. However, individuals who have acted illegally are prosecuted, and the company is obligated to hand over evidence.

The company also agrees to the imposition of a variety of sanctions, including fines, independent monitoring, full disclosure of information and adherence to financial reporting regulations. In return for its compliance, criminal prosecution is suspended. Thus, the time, costs and damaging effects of full investigation, indictment, prosecution and debarment are avoided, while appropriate reparations are made.

However, a proposal to create a DPA framework cannot be taken up by the Defence Ministry alone. While some legal experts opine that adopting a DPA framework will not need changes in the Prevention of Corruption Act, it will still need the concurrence of the Ministries of Law and Home. Also, all other departments will have to adopt DPA for their contracts as well. But the biggest stumbling block is likely to be political — no Indian government would want to be seen as being soft on the corrupt.

On the legal side, negotiated resolutions need to be strictly regulated and be subject to judicial oversight. A major overhaul of the criminal justice system would be needed before negotiated resolution agreements are introduced. Experts say these reforms would need to encompass both substantive law and procedural law, empowering law enforcement authorities to act judiciously since corporate criminal liability is in its nascent stages in India. Critics caution that negotiated resolution agreements introduced in a vacuum would only worsen further the dismal rates of prosecution in corruption cases against companies.

More importantly, it needs to be remembered that contrary to popular perception, blacklisting of companies is not the main reason for delayed or stalled defence acquisitions. Convoluted procurement processes, weak political guidance, resource crunch, lack of a defence industrial base, unrealistic requirements of the defence services, the fear of the three ‘C’s (CVC, CAG and CBI), and the lack of bureaucratic capacity and expertise — the Defence Ministry has no cost engineers, while the Pentagon has 12,000 — are the real issues that need to be addressed. Taking care of these will forestall situations in which the government might need to resort to blacklisting companies or enter into negotiated resolutions with them.

sushant.singh@expressindia.com

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