MoD may scrap deal with AgustaWestland

MoD may scrap deal with AgustaWestland

Ministry believes there is enough ground to invoke integrity pact

With Italian firm AgustaWestland moving the legal process of arbitration against the freezing of the Rs 3,648-crore VVIP chopper deal since February on corruption charges,the Defence Ministry is considering going ahead with its plans to cancel the deal by invoking the stringent integrity pact.

As reported,the helicopter firm took recourse to the arbitration process — a lengthy legal process that involves the setting up of a three-member tribunal to decide on contract issues — last week,claiming that the ministry’s decision to freeze payments since February was against the provisions of the contract.

Sources in the ministry say that one of the options that is now being seriously considered is an outright cancellation of the contract on the grounds that the Italian firm adopted unfair practices in bagging it. In February too,the ministry has sent a show-cause notice to the firm asking it to explain why the contract should not be cancelled.

The Defence Ministry’s case for cancellation has been bolstered in the past few months by evidence that it has received from Italy where a wide ranging investigation pointed to the payment of 55 million Euros in bribes and hiring of middlemen for bagging the contract. Court hearings against two former CEOs who have been implicated in the probe are currently on and former Indian Air chief S P Tyagi has also been named.


The ministry believes that it has a strong case and that the scrapping of the deal — which could now become a necessity given the fact that a formal arbitration process has been initiated — would ensure minimum loss to the government due to multiple safeguards in the contract. The beginning of the legal process will also mount pressure on the CBI to complete its investigations into the case so that a watertight case can be presented.

The integrity pact that was signed by AgustaWestland on 3 October 2008 specifies that the seller cannot employ any individual or firm to intercede on its behalf for the contract. The CBI investigations,as well as the Italian probe and ongoing court case,point to a network of agents and dealers who helped the firm bag the contract.

The Defence Ministry can invoke specific sections 6,7,10 and 12 of the integrity pact,which are also reflected in the 22 and 23 sections of the final contract that was signed in 2010. While section 6 of the pact specifies that the company cannot pay bribes or influence officials,section 7 ensures a commitment from the seller that there have been no previous transaction in the last three years where the company has indulged in corrupt practices. The pact also says that the Prevention of Corruption Act (PCA) and chapter 9 of the IPC should not be violated.

India has till now made two payments for the helicopters — the first one was Euro 86,439,303 or 15 per cent of the value of the contract and the second tranche was for Euro 166,878,607 that amounted to 30 per cent of the contract value.

Exit route: what contract says

The seller company had to provide full bank guarantees for the 45 per cent of the payments that have already been made

In case of violation of integrity pact,buyer can cancel the contract,encash bank guarantees and ban the company for 5 yrs

Integrity pact also has clauses that make it mandatory for the seller to return,in case of violation,the money that has been made,along with an interest rate

The interest rate applicable would be 2 per cent higher that the London Interbank Offered Rate (LIBOR) that is present on that date

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