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The Ministry of Defence (MoD) has unilaterally terminated a euro 556-million (Rs 4,730 crore at Wednesday’s exchange rate) contract with Anglo-Italian helicopter company, AgustaWestland, for 12 high-end AW-101 helicopters to ferry top leaders and high officials in safety and comfort.
MoD announced on the evening of January 1, “The Government of India has terminated with immediate effect the Agreement that was signed with M/s. AgustaWestLand International Ltd. (AWIL) on 08 February, 2010 for the supply of 12 VVIP/VIP helicopters on grounds of breach of the Pre-contract Integrity Pact (PCIP) and the Agreement by AWIL.”
MoD procurement policy requires every foreign defence vendor to sign an “Integrity Clause”, strictly prohibiting the bribing of Indian officials to win a deal.
The decision comes almost 11 months after Italian prosecutors in Milan arrested Giuseppe Orsi, the boss of giant Italian defence corporation, Finmeccanica, on February 12, 2013, for allegedly bribing Indian officials to win the deal. Orsi had headed AgustaWestland in 2010, when the IAF contract was signed.
MoD responded immediately by freezing the contract, suspending payments to AgustaWestland, and initiating a Central Bureau of Investigation (CBI) enquiry. A senior MoD official was despatched to Italy to obtain evidence of wrongdoing that could have influenced the award of the contract.
MoD has since stonewalled AgustaWestland’s requests to discuss the issue. The one face-to-face meeting between the two parties on November 20 was treated by MoD as a “final hearing” rather than as a discussion. The Anglo-Italian company invoked legal arbitration on October 4, but Defence Minister A K Antony said on November 26 that the government would not accept arbitration. After Antony publicly declared on October 30 that AgustaWestland had “violated the contract”, the company responded combatively that “the outcome of the proper legal processes should be awaited”.
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On Wednesday, while terminating the contract, MoD is attempting to minimise collateral damage. A "termination" means that the Indian Air Force (IAF) will retain the three AW-101 helicopters it has already taken delivery of. Payment for these will be adjusted from the amount India has already paid to AgustaWestland, that is about 45 per cent of the contract value.
"Cancelling" the contract would have required New Delhi to return the three helicopters and encash bank guarantees for the full amount paid, something that AgustaWestland had already signalled it would contest with all its might.
MoD was also measured on Wednesday in its response to AgustaWestland's arbitration request. While contending that a violation of the Integrity Clause did not merit arbitration, the government went ahead and named its arbitrator.
MoD announced on Wednesday: "Based on the opinion received earlier from the Attorney General of India, it has been the view of the Government that integrity-related issues are not subject to arbitration. However, AWIL has since pressed for arbitration and appointed an arbitrator from its side. In view of this, MoD sought afresh the opinion of the Attorney General. With a view to safeguard the interests of the Government, MoD has nominated Hon'ble Mr Justice B P Jeevan Reddy as its arbitrator."
On November 20, AgustaWestland had named former Supreme Court judge, Justice B N Srikrishna, as its arbitrator on this issue. According to the Indian Arbitration and Conciliation Act, 1996, which governs this contract, a third, neutral arbitrator is also to be appointed by mutual agreement.
Contacted for a comment, Jackie Callcut, CEO of AgustaWestland India, said: "We haven't received any communication from the MoD yet. We have no comment to offer other than to deny any wrongdoing and to reiterate that AgustaWestland will robustly defend the company's reputation."
In parallel with the Italian investigation, CBI is pursuing its own probe. It has registered an FIR against a former IAF boss, Air Chief Marshal S P Tyagi, and 14 others.
While the CBI has not produced clinching evidence yet, Italian investigators in Milan have presented before court a "budget document", that key middleman, Guido Haschke, allegedly prepared in 2008, along with his accomplice, Christian Michel. Reports from Italy say this budgets for payments to politicians ("POL" in the document) and some euro 15 million to a family (annotated as "FAM").
According to the Italian case, AgustaWestland paid some euro 51 million to Haschke, Michel and another accomplice, Carlo Gerosa, to seal the deal. The money was allegedly funnelled through software companies, Mohali-based IDS Infotech and Chandigarh-based Aeromatric Info Solutions Pvt Ltd.
