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AW-101 VVIP helicopters

On 01 January 2014 India cancelled the $770 million helicopter deal with Italian defense group Finmeccanica's AgustaWestland International Limited (AWIL) unit while agreeing to take the matter to arbitration. The contract signed on 08 February 2010 was for the supply of 12 AW101 helicopters for the use of VVIPs. The Ministry of Defence (MoD) said the decision had been taken on grounds of "breach of the Pre-Contract Integrity Pact (PCIP) and the agreement by AWIL... 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".

In August 1999, the IAF which is responsible for carrying out VVIP communication task, proposed the replacement of Mi-8 VIP helicopters due to severe operational constraints, such as, inability of Mi-8 to operate at night and in adverse weather, inability to operate safely at places in elevation beyond 2000 meters etc. IAF felt the need for the replacement of Mi-8 helicopters as they were completing their total technical life.

A global RFP was issued in March 2002 to which 4 vendors responded. The Technical Evaluation Committee shortlisted 3 helicopters and accordingly flight evaluations were conducted. Since, EH-101 of M/s. AgustaWestland was not certified for an altitude of 6000 meters, it did not participate in the flight evaluation. The Russian helicopter Mi-172 could not comply with 7 mandatory Operational Requirements (ORs). After flight evaluation, EC-225 of M/s. Eurocopter, France was found suitable for acquisition.

On November 19, 2003 a meeting was taken by Principal Secretary to PM on this subject. In the meeting, Principal Secretary observed that his main concern was that the framing of the mandatory requirements has led us effectively into a single vendor situation. It was also noted that PM and President have rarely made visits to places involving flying at an altitude beyond 4500 meters. In the meeting it was decided to make the mandatory requirement for operational altitude 4500 meters. The higher flying ceiling of 6000 meters, and a cabinet height of 1.8 meters could be made desirable operational requirements. It was observed that with these revisions, several helicopters which otherwise met all requirements but had been rejected due to the altitude restriction, would now come into the reckoning.

The meeting was followed by a letter dated 22 December 2003 from the Principal Secretary to PM to the Air Chief, stating that it was unfortunate that neither PMO nor SPG was consulted while framing these mandatory requirements. He suggested that CAS and Defence Secretary may jointly review the matter to draw up realistic mandatory requirements satisfying operational, security and convenience requirements of VVIPs and also set in motion a fast track process for selection and acquisition of the replacement helicopters.

In pursuance of the above directive, the ORs were deliberated at length between IAF, NSA, SPG/PMO and MoD between March, 2005 to September, 2006 and the above indicated changes were incorporated. The required numbers of helicopters for the entourage of VVIP was further deliberated between Air HQ, MoD and SPG/PMO. The quantity of helicopters proposed for procurement was revised from 8 to 12 helicopters by adding 4 helicopters in non-VIP configuration for security reasons.

The AON for the procurement of 12 helicopters was accorded by the Defence Acquisition Council under ‘Buy’ category with 30 percent offsets on 3rd January, 2006. RFP was issued to 6 vendors on 27th September, 2006. Three vendors, namely M/s Sikorsky, USA (S-92 helicopter), M/s AgustaWestland, UK (EH-101 helicopter) and M/s. Rosoboronexport, Russia (Mi-172 helicopter) responded to the RFP.

M/s. Rosoboronexport did not submit earnest money deposit and the Integrity Pact, along with their Technical and Commercial proposals. It had been made clear to M/s Rosoboronexport in February 2007 that this was a global tender and hence every contractual clause would be the same for all vendors. As no Integrity Pact and Earnest Money Deposit were received from M/s Rosoboronexport, their Techno-Commercial offer was not accepted.

The Technical Evaluation Committee evaluated the technical proposals of M/s Sikorsky and M/s AgustaWestland and recommended field evaluation trials of their helicopters. The Field Evaluation Trial of M/s AgustaWestland was carried out in UK and trials of M/s Sikorsky were carried out in USA from 16 January 2008 to February 2008. The Field Evaluation Trial team submitted its report in April 2008 and recommended AW-101 helicopter of M/s AgustaWestland for induction into Service. SPG was also part of the Field Evaluation Trial team.

The Staff Evaluation Report of Air HQ concluded that the S-92 helicopter was non-compliant with respect to four SQRs for the VVIP helicopter (Missile Approach Warning System, Service Ceiling of 4.5 km, Drift Down Altitude and Hover Out of Ground Effect). The Staff Evaluation Report assessed the VVIP helicopter AW-101 to be fully compliant with all SQRs. Technical Oversight Committee constituted on 6 August 2008 found that the field evaluation trials, compliance to SQRs and selection of vendors were done according to the prescribed procedures.

Contract Negotiation Committee (CNC) was constituted and it carried out its discussions with the vendor between 19 September 2008 and 21 January, 2009. While the CNC was progressing its discussions, Air HQ, recommended inclusion of Traffic Collusion Avoidance System (TCAS-II) and Enhanced Ground Proximity Warning System (EGPWS) for all 12 helicopters and SPG/PMO recommended inclusion of Medevac System for 8 VVIP helicopters. These additional equipment were considered to be essential for safe and effective operation of the helicopter in VVIP transportation role. SPG also agreed to these requirements. The CNC, thereafter, recommended conclusion of the contract at a negotiated price of EURO 556.262 million.

On completion of CNC the proposal was submitted for approval of the Cabinet Committee on Security (CCS). The CCS considered the proposal in its meeting held on 18 January 2010 and approved the proposal. In pursuance of the decision of the CCS the Ministry of Defence concluded a contract for the supply of 12 AW-101 VVIP helicopter with M/s AgustaWestland, UK on 08 February, 2010. The procurement case was, thus, progressed in accordance with the established procurement procedure in a transparent manner with all stages of procurement being followed meticulously. Security aspects as required by SPG/PMO and IAF were fully taken into consideration. The role of PMO which began in 2003 was to ensure that security, communication and other requirements of VVIP security were taken care of and the helicopter for VVIP use is selected on the basis of broad based QRs.

The procurement case was finalized in accordance with the Defence Procurement Procedure. The total cost of the contract for procurement of 12 (twelve) AW-101 helicopters was Euro 556,262,026. These helicopters would replace the ageing Mi-8 fleet in the VVIP Communication Squadrons of the Indian Air Force.

Contract signed with M/s. AgustaWestland includes specific contractual provisions against bribery and the use of undue influence. Article 22 of the contract deals with penalty for use of undue influence. This clause entitles the ‘Buyer’ to cancel the contract with the ‘Seller’ and recover from him the amount of any loss arising from such cancellation. Article 23 of the contract dealing with agents and agency commission requires the ‘Seller’ to confirm and declare that he has not engaged any individual or firm, whether Indian or foreign, whosoever, to intercede, facilitate or in any way to recommend to the Government of India or any of its functionaries, whether officially or unofficially, to award of the contract to the ‘Seller’ nor has any amount been paid, promised or intended to be paid to any such individual or firm in respect of any such intercession, facilitation or recommendation. This clause further entitles the ‘Buyer’ to consider cancellation of the contract without any entitlement or compensation to the ‘Seller’ who shall be liable to refund all payments made by the ‘Buyer’ in terms of the contract along with interest.

In addition to these contractual provisions, M/s. Agusta Westland has signed an Integrity Pact with the Government. The validity of this Integrity Pact is from the date of its signing and extends up to five years or the complete execution of the contract whichever is later. Under the Integrity Pact, the bidder commits himself to take all measures necessary to prevent corrupt practices, unfair means and illegal activities during any stage of the bid or during any pre-contract or post-contract stage. Any breach of the provisions of the Integrity Pact entitles the ‘Buyer’ to take actions against the ‘Seller’ which includes forfeiture of the earnest money, performance bond, cancellation of the contract without giving any compensation, to recover all the sums already paid with interest, to cancel any other contracts with the bidder and to debar the bidder from entering into any bid from the Government for a minimum period of five years which may be extended, etc.

These provisions are in place to check the role of middlemen and ensure the highest degree of probity, public accountability and transparency in defence acquisition cases. Besides this, the Pre-Contract Integrity Pact, signed with the vendor, provides for invocation of contractual provisions in case any wrong doing is established in addition to any action that may be required to be taken under the relevant provisions of the Prevention of Corruption Act and the Indian Penal Code.

A joint venture involving Agusta Westland by the Foreign Investment Promotion Board. This proposal was approved on 02 September 2011 based on an application by Indian Rotorcraft Ltd a joint venture of Tata Sons with Agusta Westland NV, Netherlands. This was later changed to Agusta Westland S.p.A Italy due to reorganization within the group. On 7th February 2012, an industrial licence for the manufacture of helicopters was granted by the Department of Industrial Policy and Promotion to Indian Rotorcraft Ltd. However, the validity of licence has since expired.

In February 2012 media reports stated that the scope of a probe by Italian prosecutors into allegations against unethical dealings by M/s Finmeccanica, Italy has widened to include the Indian contract signed with M/s Agusta Westland for purchase of 12 helicopters. Ministry of Defence asked for a report in the matter from the Indian Embassy in Rome. The report received indicates that Italian Magistrates/prosecutors are conducting preliminary investigation about allegations of financial malpractices occurring within M/s Finmeccanica, Italy and its subsidiaries in general and there is no specific probe being conducted about India related transactions.

Since the reports that had appeared in the media referred to alleged involvement of a middleman who is said to be a British Consultant, and the fact that the contract had been signed with M/s Agusta Westland, UK, Ministry of External Affairs (MEA) was requested to take up the matter with the Government of UK requesting their cooperation in verifying the allegations and helping us by providing relevant information relating to the alleged involvement of a middleman and/or of any Indian individual/entity. The UK side informed MEA in March 2012 that they had not launched any investigation and were awaiting the results of the Italian investigation in order to ascertain whether any further action needs to be taken.

In connection with the letter received from one Mr. Edmund Allen of Ganton Limited, USA, MoD had written on 19 April 2012 to CBI and Enforcement Directorate for necessary action, as Abhishek Verma and others were also being named in various media reports in connection with several defence deals. Later, Enforcement Directorate informed MoD in July 2012 that they were enquiring into the allegations.

In November 2012, a letter was received in MoD from the Director, Income Tax (Investigations) regarding allegations against Indians possibly involved in the deal as middlemen and seeking information about them. The current status of the case was conveyed to the income tax authorities in January 2013; in return, MoD asked Income Tax to share with it any ‘credible information’.

Following reports of the arrest of the Chief Executive of Finmeccanica in connection with the investigations in Italy regarding alleged wrong doing and unethical conduct by M/s Finmeccanica, parent company of M/s Agusta Westland, U.K., the Central Bureau of Investigation [CBI] was asked on February 12, 2013 to conduct an enquiry into the matter. The CBI registered a Preliminary Enquiry (PE) on February 25, 2013 in this matter.

A Show Cause Notice has been sent to M/s Agusta Westland, U.K. on 15th February, 2013 asking them to explain as to why steps should not be initiated for cancellation of the Contract. The operation of the Contract has been put on hold and further payments to M/s Agusta Westland, U.K. stopped. No decision to blacklist the Company has so far been taken.

While the Ministry of Defence (MoD) had received a letter dated 14th December, 2012 from Shri Prakash Javadekar, Member of Parliament (Rajya Sabha) on the subject matter, media reports relating to alleged payment of kickbacks/bribes by M/s Finmeccanica started surfacing since February 2012. Ever since then, MoD has pursued the matter with the Embassy in Rome to get credible information regarding the status of investigation and authenticity of the documents/records being cited in various media reports.

Given the independence of the Italian Judiciary from the executive and the preliminary investigations being covered by 'Secrecy' clause under the Italian law, no concrete information was received. The matter was also taken up, through the MEA with the U.K. Government in view of the alleged involvement of a British consultant and the fact that the contract had been signed with M/s Agusta Westland, U.K. The UK side informed MEA that they have not launched any investigation and are awaiting the results of the Italian investigation in order to ascertain whether any further action needs to be taken. MoD had, thus, taken prompt action to seek factual information from the concerned Authorities.

On 11 December 2013 CBI filed a chargesheet in the Augusta Westland helicopter deal. It registered case No.RC2172013A0003 on 12.3.2013 against the following six firms: M/s Finmeccanica, Italy; M/s Agusta Westland, U.K.; M/s IDS Tunisia; M/s Infotech Design System (IDS Mauritius); M/s IDS infotech Ltd. Chandigarh; and M/s AeromatrixInfotech Solution, India. While the operation of the Contract for procurement of 12 VVIP/VIP helicopters was put on hold, no decision had been taken so far to cancel the Contract.

India annulled the deal to purchase the AgustaWestland helicopters on January 1, 2014. The Government of India 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.

An open ended non bailable arrest warrant was issued by CBI against Mr. Christian James Michel on 24 September 2015. Red Corner notices were issued in December 2015 and January 2016 through Interpol under Prevention of Money Laundering Act and Prevention of Corruption Act on charges of conspiracy and abuse of official position in giving favours to M/s AWIL.

Extradition request was also made for Christian Michel James. A request for provision arrest for the purpose of extradition was made to the U.K. authorities on 4 January 2016 by CBI. Enforcement Directorate, another autonomous agency to handle private money laundering and Foreign Exchange irregularities, has also separately sent a Red Corner seeking arrest and a request for his extradition from the U.K. on 29 February 2016.

Based on the opinion received earlier from the Attorney General of India, it was the view of the Government that integrity-related issues are not subject to arbitration. However, AWIL 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 nominated Hon’ble Mr Justice BP Jeevan Reddy as its arbitrator.

On 08 April 2016, an Italian court found Giuseppe Orsi, the former head of the Finmeccanica industrial group, and the head of the chopper division of AgustaWestland, Bruno Spagnolini, guilty of international corruption and sentenced them to 4.5 and four years in prison, respectively, in respect to a deal for the sale of 12 helicopters to India. A court also ruled that former Indian Air Force chief Shashi Tyagi had been involved in corruption during the procurement process for the 12 AgustaWestland choppers.



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Page last modified: 06-05-2016 19:54:42 ZULU