Taking the bull by the horns

Taking the bull by the horns

I am placing herein the statement of facts of the AgustaWestland case in detail. A litany of omissions and commissions at various stages of the decision-making process indicates mala fide and corrupt actions, driven by the goal to favour a particular vendor. This has been recognised by the Italian court in their judgement. At the outset, it may be useful to highlight to honourable Members, some of the salient issues.

Creation of a single vendor scenario

At various stages from March, 2005 onwards, and despite specific direction to the contrary, ORs (Operational Requirements) and SQRs were set, amended and processes influenced to make AWIL, the “only alternative”. Violation of accepted norms of procurement processes. Unusually, a large number of deviations approved, counter-party to the supply agreements and exceptional dilution of FET standards. Suspect benchmarking of procurement costs, which may have led to the acceptance of materially overpriced supply agreements.

Delayed response to questions about the deal

It took a year and an arrest by the Italian authority for the then Indian authority to ask the CBI to investigate.  Cancellation of deal spurred by actions of supplier. The Deal was cancelled by the Government of India under advice from the A.S.G., not as a suo motu action, but in response to the vendor, seeking the appointment of an arbitrator.

Delay in action against the supplier Group

From the first media report, in February, 2012, the approval to cancel all dealings with the Group was given more than two years later on the eve of change in Government. In fact, the final order was given by the present Government. It is also significant to note that the judgement of the Italian court which spurred action from the Government of India was based inter alia on the CAG Report from India. On August 5, 1999, the Air Force proposed the replacement of MI-8 VIP helicopters due to various constraints imposed by the MI8’s limitations. A global RPF was issued to eleven vendors on March 20, 2002. The Technical Evaluation Committee shortlisted three vendors viz., MI- 172, EC-225, and EH-101. The flight evaluation of EH-101 could not be done as the helicopter was not certified for an altitude of 6,000 meters. There was a mention that this did not participate. They did participate, but it was not certified for an altitude of 6,000 meters, as a mandatory operational requirement. The EH-101 helicopter was later renamed as AW101 of AgustaWestland. After flight evaluation, only EC-225 was found suitable for acquisition, as it had met all mandatory operational requirements. The PMO, in December, 2003 – I am confirming that – observed that the framing of mandatory ORs has effectively led to acquisition into a single vendor situation. It was inter alia considered to make the operational altitude of 4,500 meters as mandatory and a higher flying ceiling of 6,000 meters and a cabin height of 1.8 meter as desirable operational requirement, ‘desirable’. From 2005 onwards, a series of measures were taken by the then Government which resulted in eventual acquisition of AW helicopter. These steps constituted a subject matter of stringent criticism by the Comptroller and Auditor General of India. And, tragically, the motives behind these decisions are today being doubted by the entire nation. As I said in my opening remarks, the fact that there was corruption in the matter is brought out in extensive details – Mr. Antony himself said that there was corruption – in recent judgements of Milan High Court. It dominates our public discourse. Sadly, it has also dented the country’s image and standing in the world. The country wants to know as to who instigated, who supported and who benefited from the corruption. We cannot let this pass.

On March 1, 2005, a meeting was chaired by the National Security Advisor. As I said, this was during UPA-I. The PMO wherein it was inter alia agreed that the ORs should broadly confirm to the parameters of MI-8 helicopters. It was also agreed that the Defence Secretary would take a meeting with participation of the Air Force, the SPG and the Secretary (Security) to draw up the operational specifications and the single-vendor situation should be avoided. The ORs were accordingly finalised in a meeting chaired by the Defence Secretary on May 9, 2005. The cabin height of 1.8 metres was made mandatory in the revised Service Quality Requirements. The acceptance of necessity for the procurement of 12 helicopters at Rs.793 crores was accorded by the Defence Acquisition Council on January 3, 2006, under ‘Buy’ category with 30 per cent offsets. The Request for Proposals was subsequently issued to six vendors including M/s AgustaWestland, Italy, on 27th September, 2006. These changes in SQRs eliminated the EC-225 helicopter which had met the Operational Requirements earlier and allowed AW-101 helicopter to enter the fray. As highlighted by the CAG in its Report, instead of making the SQRs broad based to increase the competition, those were made more restrictive, thereby narrowing down the choices to a limited range of helicopters. The purpose of avoidance of resultant single vendor situation could not be met and the acquisition process, again, led to a resultant single vendor situation. In effect, by changing the SQRs, a situation was created in which EC-225 helicopter, which had met all Operational Requirements earlier, was eliminated by putting the requirement of 1.858 metres of cabin as an essential criterion from the competition and facilitated emergence of AW-101 as a single vendor. While the RFP was issued to M/s AgustaWestland, Italy, the response to RFP was received from M/s AgustaWestland International Ltd., UK, which was not the entity to whom RFP was issued. Did the then Government examine the serious legal implications of this aspect? It later emerged that the Memorandum of Association of M/s AgustaWestland International Ltd., (AWIL) does not provide for any activity of M/s AWIL as an OEM and its Annual Report indicated that its business was coordinated with other group company, wherein its responsibility extended to customer relationship and coordinating customer requirements. I think that is what they did. The bid of M/s AgustaWestland International Ltd., UK, should have been rejected outright as it was not the agency to whom the RFP was issued. But for the logic, purpose and motive best available with the leadership of the then Government, this did not happen. Instead, the relentless push in favour of AWIL continued. In effect, the Government of India was signing an agreement for supply of helicopters with a company that had no OEM capability, which would appear highly irregular. There is also no tangible reason stated for this unusual structure. During the processing of the case, the following deviations from RFP or DPP were approved by the then Raksha Mantri. Now, I come to conduct of field trials abroad. I agree that you initially objected; that is your nature. The CAG Report has highlighted that the Field Evaluation Trial of AW101 of AgustaWestland was conducted on representative helicopters Merlin MK-3A and CIV01 and mock-up of the passenger cabin and not on the actual helicopter, whereas actual S-92 helicopter of Sikorsky was evaluated. Even at the stage of FET, the helicopter offered by AgustaWestland was still in its development phase. DPP mandates that FET must be carried out in all conditions where the equipment is likely to be deployed. RFP has categorically stated that FET would be carried out in India — this was the specific requirement of RFP– in varying climates, altitude and terrain conditions, on ‘no cost no commitment’ basis. Conduct of trials in India is extremely critical, especially, for helicopters meant to carry VVIPs because the terrain, climate and topographic conditions greatly vary with those of USA and UK.

22-05-2016This crucial aspect has been given a go-by by permitting trials in foreign lands. The serious nature of deviations from standard FET conditions for the AW-101 in terms of trials being held outside India and not on the actual helicopter was exacerbated by the fact that even at the time of FET, the Augusta Westland helicopter was in developmental stage. This created some problems when the three helicopters were received and were being put on test trials. I will just read one para from a file of Air Force where the trials were taking place. I quote, “At Srinagar, 5,400 feet above the sea level, effective payload of this helicopter is nil in OGL configuration at all ranges of temperature. Even in IGE configuration, a reduced payload is to be accepted. The common VVIP sorties to Nehru Helipad cannot be undertaken. Similar is the case of Gulmarg, Pahalgam where VVIP sorties have been flown in the past using Mi-17iv helicopter.” This file luckily was saved from a devastating fire which took place on June 3, 2014 which burnt down all the records in that particular office. But this file remained in the drawer of the officer. So, it survived. This could not be further verified because obviously the helicopter was stopped from testing after that. Additional commercial quotes sought from both the vendors. Third, acceptance of the partial compliance of the two SQRs in respect of AW-101 non-VIP version helicopter. Neither S-92 nor AW-101 fully complied with SQR in the FET. However, AW-101 was recommended for induction in spite of emerging as a single vendor by waiving off two parameters, while no such concession was granted to S-92. The warranty of ‘three years/ 2000 hours whichever is earlier’ on the airframe and ‘three years/1200 hours whichever is earlier’ on the engine offered by M/s Sikorsky and ‘three years/900 hours whichever is earlier’ offered on the whole helicopter by M/s AWIL was accepted instead of RFP stipulation of ‘three years/900 hours whichever is later’. Acceptance of option clause for three years instead of five years. Inclusion of additional items such as Traffic Collision and Avoidance System, Enhanced Ground Proximity Warning System for all 12 helicopters and Medevac system for 8 VVIP helicopters at CNC stage.

Deletion of Active Missile Approach Warning System, Incorporation of Rear Air Stairs in 04 non-VVIP helicopters. Completion of helicopter delivery in 39 months instead of 36 months. The accepted principle in procurement is that deviations must be approved only under exceptional circumstances, for robust rationale and exercising extreme caution. The numerous deviations approved appear to flout this norm, as has also been pointed out by the Comptroller and Auditor General in their report. That CAG Report has highlighted that the allowed offsets were not compliant with DPP and many Indian Offset Partners were not eligible. Augusta Westland gave a year-wise breakup of work from 2011 to 2014 to be executed by IDS Infotech under this offset programme even though the work has been completed well before the conclusion of the contract in 2010. Now, this is very important. Investigation in the matter so far revealed involvement of IDS Infotech as a conduit for transfer of bribe money. We have already got court orders on that too. I would explain what action we have taken on that. The benchmark cost arrived by CNC was unreasonably high and had provided no realistic basis for price negotiations. The benchmark cost as worked out by CNC was Euro 727 million, approximately, Rs. 4,877.50 cores, which is six times the estimated total project cost of Rs. 793 crores, in January, 2006, wherein the estimated unit cost of AW-101 – this is very important – was considered as Rs. 100 crore, approximately Euro 15 million, at the time of SOC. When the recommendation was given for acceptance of RFP, this was the price quoted by the Air Force – Rs. 100 crores, that is, Euro 15 million. The CAG Report has stated that the base price of US $ 27 million for the year 2000 was adopted by CNC, while the base price of AW- 101 VIP helicopter was US $ 18.2 million in the year 2010, as seen from the Internet.  Even the Air Force has estimated it as 15 million dollars in 2006. MoF, in their observation on CCS note, stated that they are unable to support the proposal. The Ministry of Finance also asked that a response to the letter of the MP, Shri Nathubhai G. Patel to the CVC may be incorporated in the final CCS note along with MoD’s response thereon.

The salient observations of MoF were based on following aspects: Final negotiated price being high as compared to the estimated AoN cost; SQRs not being broad-based; while the proposal of M/s ROE was rejected for want of EMD and Integrity Pact, the other two were considered despite certain features of both proposals not conforming to RFP requirements. The remaining two vendors were allowed to submit additional commercial quotes and later, M/s AWIL was allowed to make corrections in its EMD and Integrity Pact; FET not conducted in Indian conditions. During FET/SE, the helicopter offered from M/s Sikorsky was not accepted due to noncompliance with certain requirements and partial compliance with certain others while the helicopters offered by M/s AWIL were accepted despite partial compliance with certain requirements; and changes to the technical requirements made after opening of price bid and changes to certain terms and conditions of RFP made. Similar concerns were raised by the MP before the CVC, stating that the case is in violation of CVC norms. The CCS approved the proposal for procurement of 12 VVIP and VIP helicopters from Messrs Augusta Westland, UK, in the meeting held on  January 18, 2010, for the following reasons: (i) Augusta Westland helicopters have been selected after multivendor competition bid, for which RFPs have been issued to six vendors, out of which only two vendors responded. (ii) Augusta Westland helicopter was the only helicopter that met the SQRs framed for the VVIP version and the operational requirements of the IAF. The other helicopters participating in the trial did not meet the SQR. (iii) The present fleet of VVIP helicopters will complete their total technical life in the year 2010. (iv) The RFPs for the present procurement was issued on September 27, 2006 and any further delay would jeopardize the requirement. (v) Now that considerable time has elapsed, it is likely that a fresh tender would lead to further escalation of costs. The CCS approval for the decision appears predicated primarily on Augusta Westland being the “only helicopter” meeting the SQRs and multiple deviations from the SQRs including shortfalls were approved. In pursuance of the decision of the CCS, the Ministry of Defence concluded a contract on February 08, 2010 with M/s. AWIL, UK for the supply of 12 AW-101 VVIP/VIP helicopters with associated engineering package at an aggregated price of Euro 556.262 million In accordance with the payment terms, 15 per cent of the payment was done in February, 2010, and balance second tranche of 30 per cent was given in March, 2011. The matter started about corruption appearing in the various media in Italy from February, 2012. The Government of India, instead of taking action on the company, adopted. Media reports of alleged wrongdoing and unethical conduct by M/s. Finmeccanica, parent company of M/s. AWIL, UK, in connection with the purchase of VVIP helicopters and initiation of preliminary investigation against the company in Italy started surfacing since February, 2012. While Embassy in Rome was approached to get credible information regarding the status of investigation and authenticity of the documents/records being cited in various reports, however, no explanation was asked from the company and the operation of the said agreement continued. Even the deliveries of three helicopters were accepted in December, 2012. Only on receiving the reports of arrests of M/s. Finmeccanica Chief, Mr. Orsi, the Ministry of Defence, on February 12, 2013, asked the CBI to conduct an inquiry into the matter. The operation of the agreement was put on hold and payments stopped with issuance of the first Show Cause Notice (SCN) to M/s. AWIL, UK, on February 15, 2013. The Italian authorities commenced criminal proceedings from  June 19, 2013, at the Court of Busto Arsizio, Milan, in this case. The documents obtained through these proceedings have been shared with the CBI and the ED. Some of the documents so received were used in taking action for cancellation of contract. These documents included a classified document titled ‘Revised Operational Requirements for VVIP helicopters’. After consultation with ASG, a Second SCN was issued to M/s AWIL, UK on October 21, 2013. M/s AWIL, UK raised the issue of going for arbitration in the letter dated October 04, 2013, and, again in the response dated November 25, 2013 to the second SCN. Advice of AG was sought. The AG, inter-alia, advised that in view of the fact that on December 04, 2013, M/s AWIL, UK has given notice to nominate an Arbitrator within thirty days and the consequences of not appointing an Arbitrator would be quite serious, therefore, there does not appear to be any choice but to nominate an arbitrator. He stated that it is also necessary at this stage to issue termination/cancellation letter simultaneously or even prior to nomination of an Arbitrator. Accordingly, as per the advice of the AG, the contract was cancelled on January 1, 2014 and all the guarantees / bonds were invoked. The warranty bonds, the performance bond, the IPBG were encashed in full after court proceedings. However, against an advance payment of Euro 250.32 million given to M/s AWIL, only an amount of Euro 199.62 million towards delivery of three helicopters, were recovered.

In addition, the Government also suffered an estimated loss and damages of Euro 398.21 million. From the appearance of media reports about alleged wrongdoings in February, 2012. It took nearly two years to cancel the contract, and, that too, primarily as a response to an arbitration request by the supplier. In fact, the very delivery of the first 3 aircrafts could have been avoided. We must ask ourselves as to why,when even though the reports of wrongdoing and unethical conduct by M/s Finmeccanica in connection with the purchase of these helicopters and initiation of preliminary investigation against the company in Italy surfaced since February, 2012 .followed by a report of arrest of M/s Finmeccanica Chief, the action of putting on hold all procurement/acquisition cases in the pipeline with the entire Finmeccanica Group of Companies and other companies figuring in CBI FIR was approved on file by the then RM only on May 12, 2014 towards the fag end of the then Government’s tenure. It was the present Government that finally issued the order on July 03, 2014. As regards the issue of alleged substantial disregard and extensive delay in providing necessary documents by the Ministry in the Criminal court proceedings at Milan, it is stated that the documents were not in the custody of the MoD but in the custody of CBI before MoD became a civil party to the criminal proceedings at Milan. Vide its letter dated February 12, 2014, it has executed the LRs received from Italy on January 27, 2014. As far as the investigation by the CBI and the ED is concerned, it is strange that the CBI which registered an FIR in the matter on March 12, 2013, based on the reference made by the Ministry of Defence on February 12, 2013, did not bother to forward a copy of the FIR to Enforcement Directorate for nine months. It was only in December, 2013, that is, after a gap of nine months, CBI forwarded the FIR to Enforcement Directorate. Even more strangely, the Enforcement Directorate did not act on the FIR in July, 2014. It appears that invincible hand was guiding the actions or inactions by CBI and ED. After the present Government took over, CBI and Enforcement Directorate have been vigorously pursuing all aspects of the investigation including the arrests and/or extradition of three foreign nationals, namely, Mr. Carlo Gerosa, Mr. Guido Haschke and Mr. Christian Michel James. Red Corner Notices were issued in December, 2015 and January, 2016 Extradition request has also been made for Mr. Christian Michel James.

 One of the agencies has arrested an Indian national and attached property worth Rs. 11  crores belonging to Indian nationals and Mr. Christian Michel James. Pursuant to the judgment of Milan Appellate Court, Ministry of Defence have written to both the ED and the CBI to take into account the contents of the judgment and conclude the investigations expeditiously. MoD is initiating the process of blacklisting the concerned companies. It is most obvious to the entire nation that M/s AWIL was favoured at every stage. Even after the conclusion of the contract, when reports of wrong doing and unethical practices started appearing in February, 2012 and thereafter, It was only after the arrest of Mr. Orsi by Italian Authorities, the matter was referred to CBI for investigation. Even after handing over the matter to CBI no concrete action was taken to terminate the contract till January, 2014. MoD had no option but to cancel the contract based on legal advice. If the then Government had acted in right earnest and took proactive action immediately after appearance of reports of wrong doing, the country would not have been saddled with delivery of three helicopters in December, 2012 and the entire advance payment could have been recovered. There is an agreement that the corrupt practices were involved in the procurement of the AgustaWestland helicopters. The previous Government recognised this and approved putting on hold of the group in May, 2014 and the present Government passed the order.The Italian court judgement also unequivocally accepts and on that basis has passed jail sentences against involved individuals that the deal involved bribery and corruption. The Italian court judgement has outlined the payment of bribes to decision makers in India, in the bureaucracy, political establishment and the Air Force. The text of the judgement also makes reference to various individuals such as Tyagi family as well as some bureaucrats. The central matter in this issue is that of corrupt practices. Hence the main action required is to trace, detect and unmask the means of these corrupt practices and bribery through a thorough enquiry and investigation by agencies. Given the above background, this inquiry will necessarily focus on the roles of those named in the judgement of the Italian court. It is also important for ensuring a comprehensive investigation that any individuals with involvement in the AgustaWestland deal, even in tertiary manner, are removed from any direct or indirect role in investigation. The Government will leave no stone unturned to bring to justice those that have committed this corrupt act against our national interest.

( This write-up is based on the address by Manohar Parrikar in Rajya Sabha on May 4, 2016)

By Manohar Parrikar

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