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Project 75 / Scorpene - Allegations of Impropriety

On 21 March 2006 Raksha Mantri Shri. Pranab Mukherjee made a suo-motto statement in Lok Sabha regarding the Scorpene Submarine Project. "A section of the Press had published certain reports inter alia alleging the involvement of middlemen and payment of commission in the Scorpene Contract stating that a Rs. 16,000 crores contract was signed with France and that an extra amount of Rs. 4,500 crores was paid to the French firms than what was earlier negotiated. Appropriate rejoinders were sent to the magazine on 14 Feb. 2006. An unstarred question no. 1689 was replied to in Rajya Sabha on 8 March 2006 on the subject of "Purchase of Submarines". The allegations have been repeated on 20th March 2006 by the leaders of opposition in Lok Sabha and Rajya Sabha and a former Defence Minister.

Shri. Pranab Mukherjee stated that the facts of the case are contrary to these allegations. No contract or contracts were signed with French firms for Rs. 16,000 crore for the Scorpene project. The total cost of the two contracts signed with the two French firms, M/s ARMARIS and MBDA, for the project is Rs. 7,197 crores. The Government did not pay an extra amount of Rs. 4,500 crore than what was negotiated earlier. On the contrary, after the present Government came to power, it re-examined the project even though all negotiations had been completed in 2002 and the Ministry of Finance had accorded approval to the project in 2003. The present Government held negotiations and was able to achieve a reduction of Rs. 313 crore in the contracts with the two French firms from the negotiated position in 2002. In addition, the signing of Integrity Pacts with the French firms was made mandatory and the first two Integrity Pacts ever to be signed by the Ministry of Defence were signed along with the contracts.

As a result of the negotiations, the Government was also able to achieve several long-term concessions. These included the revision of the escalation formulae to the advantage of the Indian side by adjusting the fixed element in the ARMARIS contract and placing a cap on escalation in the MBDA contract. A cap was also placed on the Exchange Rate Variation (ERV) for calculation of profit for the Public Sector Undertaking, Mazagon Docks Limited (MDL).

Besides the contract with the two French firms, the only other contract that was signed was with the Defence Public Sector undertaking, Mazagon Docks Limited (MDL), for Rs. 5,888 crores for the indigenous construction of the submarines. Therefore, even taking into account the value of contract signed with MDL, the total value of all contracts signed for the Scorpene project is Rs. 13,085 crores out of the sanction accorded for Rs. 18,798 crores towards the project. Out of the balance amount of Rs. 5,713 crores, Rs. 3,553 crores is for payments towards taxes and Rs. 2,160 crores towards other items to be acquired during the project period for which only preliminary steps have been taken. No contract or contracts have been signed for the items under this head. A Technical Agreement was also signed between India and France to ensure the continued support of the French Government to the "project.

The Integrity Pacts signed to ensure transparency of the project, contain severe penalties in case of breach of any of its provisions. The safeguards include cancellation of the contract, recovery of all advances with interest at a rate of 2% higher than the European Inter Bank Offered Rate or EURIBOR, non-payment by the buyer of any dues on any other contract to make such recoveries, imposition of Liquidated Damages and the recovery of all sums paid to any middleman or agent. In addition, the French Government has also informed that it is a signatory to Organization for Economic Cooperation and Development (OECD) convention on Combating Bribery of Foreign Public Officials in International Business Transactions and that the French laws have been made more stringent to combat corruption.

The French company that has been accused of committing to pay commission to the alleged middleman denied all the allegations and has stated that all the e-mails published in the articles in a journal that carried this story are fake and fabricated. The French Embassy in India has also, in a Press communiqué, termed these articles as slanderous and noted that the French company is filing a complaint against the journal. The French company has since been reported to have filed a case in the Delhi High Court on 24th February 2006 against the journal which first made the allegations. The Court, when it heard the matter on 27th February 2006, is also reported to have given 30 days to the journal to respond to the submissions made by the company.

Some press reports also sought to establish a link between the Scorpene project and the breach of security that had occurred in the Directorate of Naval Operations in the Naval Head Quarters. On the issue of breach of security, during the course of a Court of Inquiry held in May 2005 by the Air HQrs, it was established that a pen drive recovered from Lt (Retd) Kulbhushan Parashar, a former Indian Navy Officer, contained classified information pertaining to the Directorate of Naval Operations. A Board of Inquiry was convened to hold a full investigation into the matter. The Board established that there had been a leakage of information, primarily of commercial value, to unauthorized persons. However, the leaked information did not pertain to the Scorpene project.

The Board severely indicted three Naval Officers namely Captain Kashyap Kumar, Commander Vinod Kumar Jha and Commander Vijyendra Rana. It also showed the involvement of some retired officers and civilians. The three Naval Officers severely indicted by the Naval Board of Enquiry were dismissed from the Navy on 26th October 2005, in exercise of the powers conferred under Section 15 of the Navy Act, 1957 read in conjunction with Regulation 216 of the Regulations of the Navy Part II (Statutory). One of the dismissed officers, Capt. Kashyap Kumar has filed a writ petition in the Delhi High Court in Nov. 2005 challenging his dismissal from Service.

On 18th February 2006, the Ministry of Defence referred the matter relating to the leakage of information from the Directorate of Naval Operations in the Naval Headquarters to the Central Bureau of Investigation for further investigation and filing of criminal proceedings against the dismissed officers as well as the civilians and retired officers involved in the leak of information".

On 14 November 2008 14 the NGO Centre for Public Interest Litigation, seeking CBI investigation into the Rs 1,600 crore Scorpene submarine deal, contended before the Delhi High Court that the Centre was trying to protect the middlemen involved in the deal. "Investigation of the CBI clearly points in the direction of the involvement of middlemen and payment of commissions in the Scorpene deal, the Government is still maintaining that no investigation is required," said NGO's counsel Prashant Bhushan. The petitioner alleged that 4 percent kickbacks were paid to middlemen in the the Rs 16,000 crore deal with French company Thales. The government informed the court that the investigating agency found no evidence of involvement of kickbacks in the deal. But on 19 December 2008 the CBI expressed its willingness to reconduct the preliminary inquiry into allegations of kickbacks in the Scorpene submarine deal after it failed to convince the Delhi High Court that it had made an honest effort to investigate the matter earlier.



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