Defence Ministry panel recommends blacklisting of strategic partners if they indulge in corruption
A defence ministry-appointed panel has recommended virtually unlimited penalties and a minimum five-year blacklisting of private sector firms that are to be selected as strategic partners for major military contracts if they indulge in corrupt practices or hire commission agents. This article was originally published in the Economic Times.
In its final report, the task force for selection of strategic partners (SP) — formed to identify major Indian companies like Tata, L&T and Mahindra for defence manufacturing projects of over Rs 10,000 crore — has specified that any attempt to influence military contracts will be met with stiff punishment.
Leaving the penalties to be imposed virtually unlimited, the ministry of defence (MoD) report says that in case the ministry discovers that the SP has attempted to influence anyone for a contract, it shall invite "liability or penalty as the MoD may deem proper, including but not limited to termination of this agreement, imposition of penal damages and refund of the amounts paid by the MoD'.
Corrupt practices have been described as an offer or promise to "give, directly or indirectly any gift, consideration, reward, commission, fees brokerage or inducement to any person in service of the MoD, directly or indirectly" to influence the contract.
On hiring of commission agents by SP — at least four companies could be chosen in the first stage based on their technical and financial strength — the committee has been equally harsh, saying the MoD would have the right to cancel the contract and recover all amounts paid. In addition, the SP would be "debarred from entering into any acquisition contract with the GoI for a minimum period of 5 years" if found guilty of hiring agents.
An agent has been described as "any person, whether Indian or foreign whatsoever, to intercede, facilitate or in any way to recommend to the GoI or any of its functionaries, whether officially or unofficially, to award it the status of a strategic partner".
"It is a good move, any Indian company serious about the sector would not indulge in any such practice as we have to work and live here," JD Patil, head-defence and aerospace, L&T, said
However, a top executive of another major defence player, who did not wish to be named, warned that the recommendation is vague and leaves an unlimited liability on company books that could make them reconsider participation. "This makes the MoD an authority to decide penalty and wrongdoing without legal process. Any fine or penalty for a perceived violation can be detrimental to business," he said.
"There are a number of restrictions suggested, including takeover rights in case of non-performance that would make companies think twice before even applying for SP status," another senior defence executive who did not wish to be named said.
Defence agents and corruption in military deals have been politically hot issues over the years with the UPA government facing several allegations of graft, including charges of officials receiving money from middlemen.
Once selected, the SP would need to give an undertaking that it has neither engaged nor will it hire any person or body to influence contracts.
"Strategic partner shall in such an event be liable to refund all payments made by the MoD in terms of the respective acquisition contract along with interest at the rate of 2% per annum above base rate of State Bank of India," it says.
The MoD is separately working on a blacklisting policy that is to be released this month, according to Defence Minister Manohar Parrikar. Under the new policy, an appellate board is likely to be formed within the ministry to consider past and future cases earmarked for blacklisting and debarment of companies would be considered as the last resort.
Originally published in the Economic Times