After losing bank bond, AgustaWestland pins hope on arbitration

By Ajai Shukla

Business Standard, 26th May 14

The defence minister’s corner office in South Block, New Delhi, which is readying for a new incumbent, has its first piece of work cut out. On Friday, an Italian court permitted the defence ministry (MoD) to encash bank guarantees worth Euro 228 million, after terminating a Euro 556 million deal with AgustaWestland for twelve AW-101 helicopters to fly top Indian leaders in safety and style.

The MoD was seeking to recover Euro 278 million it had paid AgustaWestland, after unilaterally terminating the contract on New Year Day, alleging that the Anglo-Italian helicopter maker had bribed Indian officials to win the contract. An Italian magistrate had stayed that request on March 17, but the Court of Milan has now overturned that stay.

In a statement on Sunday, the MoD announced, “The appellate court in Milan, Italy, in its judgement on Friday, 23 May, 2014, has substantially upheld the claims of Government of India against AgustaWestland International Ltd (AWIL), A W Spa and Deutsche Bank, Italy on the encashment of Bank Guarantees and Performance Bond in the VVIP helicopter case. The court also ordered AWIL and A W Spa to reimburse legal costs of Government of India. MoD is studying the order and will take immediate steps to recover the amounts fully.”

Italian defence giant, Finmeccanica, which owns AgustaWestland, admitted on its website that the Italian court had “partially upheld” the MoD’s complaint. It said, “AgustaWestland will assert its rights to recover the aforesaid amounts in the arbitration process already initiated.”

A three-person arbitration board is due to review the matter. AgustaWestland invoked arbitration last November, naming former Supreme Court judge, Justice BN Srikrishna as an arbitrator.

On January 1, the MoD chose Justice BP Jeevan Reddy as a second arbitrator. The Indian Arbitration and Conciliation Act, 1996, which allows each of the disputants to name an arbitrator, mandates that the third must be appointed by mutual agreement.

AgustaWestland sources reveal that the company is corresponding with the MoD to agree on the third arbitrator, after which arbitration will commence.

The scandal broke on February 12, 2013, when Italian prosecutors arrested Giuseppe Orsi, the boss of Italian defence giant, Finmeccanica, on charges of bribing Indian officials to win the deal. In 2010, when the helicopter contract was signed, Orsi had headed AgustaWestland.

Following his arrest, the MoD quickly froze the contract, suspended payment to AgustaWestland, and initiated a Central Bureau of Investigation (CBI) enquiry. The CBI has filed First Information Reports against 15 people, including former IAF boss, Air Chief Marshal S P Tyagi.

While the CBI investigation has not presented clinching evidence, Italian investigators have presented a "budget document", allegedly prepared in 2008 by key middleman, Guido Haschke, and his accomplice, Christian Michel. The “budget document” lists payments to politicians ("POL" in the document) and some euro 15 million to an unnamed family (annotated as "FAM").

The Italian prosecutors allege that 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 Aeromatrix Info Solutions Pvt Ltd.

Three AW-101 helicopters have already been supplied to the Indian Air Force.