Seeking evidence of wrongdoing, defence official heading for Rome

Italian court rejects Indian request for documents. So on what basis will the MoD invoke the Integrity Clause? 

By Ajai Shukla

Business Standard, 17th Feb 13

A day after the defence ministry (MoD) stated that it had “initiated action for cancellation of contract for procurement of 12 AW101 helicopters for the use of VVIPs”, the ministry announced today that it was sending a senior official to Italy to ascertain facts in the case.

An MoD release today stated: “MoD is deputing a senior Joint Secretary to Italy to gather as much evidence as possible relating to the allegations of corruption in the acquisition of 12 AW 101 VVIP helicopters for Indian Air Force. The Official, Shri AK Bal, will be leaving for Rome as early as on Monday.”

The legal action initiated by the MoD yesterday amounted to the issue of a show cause notice to AgustaWestland “seeking cancellation of contract and taking other actions as per the terms of the contract and the Integrity Pact.” The Anglo-Italian company has been given seven days to respond.

On Wednesday, the MoD had put all payments to AgustaWestland on hold. With the show cause notice on Friday, the MoD declared, “The operation of the contract has been put on hold”.

Questions are already being raised over the legal basis on which the MoD was proceeding to cancel the contract, given that the Italian investigation was still ongoing. Prosecutors in that country have filed an investigation report, but the process of trial has not even begun. The arrest on Tuesday of Giuseppe Orsi, the CEO of Finmeccanica (the parent company of AgustaWestland, which sold the AW101 helicopters to India) was carried out based on the investigation report.

Today, AgustaWestland pointed out that the Indian MoD had only issued a show cause notice. An official release said, “The Indian Authorities have not cancelled the contract but have requested some clarifications within seven days. AgustaWestland is preparing its answer to timely meet the Indian authorities’ request (sic).”

Flatly rejecting any illegality on its part, AgustaWestland has stated that it “is confident that the full compliance with the law of its conduct and the conduct of its past and present Senior Executives and Managers will be demonstrated soon.”

Giuseppe Orsi, the arrested CEO of Finmeccanica, headed AgustaWestland at the time the contract for twelve AW101 helicopters was signed with India.

That the MoD’s response is more political than legal is evident from the worry within the IAF and the bewilderment of officials in the ministry’s acquisition wing. Senior IAF officials are concerned at the possibility of the Communications Squadron, having to fly VVIPs like the prime minister and the president with just three AW101 helicopters (which have already been delivered), while a fresh acquisition process is launched for nine more helicopters, typically involving a decade-long delay.

The MoD’s acquisition wing is even more perturbed. Officials say that about 35% of the total contract payment of Rs 4,000 crore has already been paid. Since just three helicopters have been received, cancelling the contract at this stage would involve a significant financial loss.

[Typically, 15% of the overall amount is paid at the signing of the contract, with the remaining amount linked to production and delivery milestones.]

MoD officials also point to the obvious difficulties in invoking the integrity clause at this stage when the Italian investigation has not yet even come to trial. So far, no Italian court has found wrongdoing; and the Indian Central Bureau of Investigation (CBI) has only now been asked to investigate the case.

“The talk about cancelling the contract is all political. Legally speaking, the MoD cannot invoke the Integrity Clause against AgustaWestland until either an Italian or Indian court finds wrongdoing,” says a top IAF officer.

According to the MoD’s lengthy factsheet released on Thursday, “both the contract and integrity pact signed with M/s AgustaWestland, U.K., contain specific provisions by which strict action including cancellation of contract, recovery of payment, blacklisting and penal action can be taken against the vendors.  Government is determined to take all possible legal and administrative action against the guilty parties and accordingly has ordered a thorough probe by CBI.”