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Process on to Encash Bank Guarantee From Agusta

A day after terminating the `3,727-crore deal with AgustaWestland for 12 VVIP choppers, the Union Ministry of Defence (MoD) on Thursday initiated the process of encashing `1,700 crore bank and performance guarantees that the Italian firm had provided for executing the 2010 contract.

Published: 03rd January 2014 08:11 AM  |   Last Updated: 03rd January 2014 08:11 AM   |  A+A-

A day after terminating the Rs. 3,727-crore deal with AgustaWestland for 12 VVIP choppers, the Union Ministry of Defence (MoD) on Thursday initiated the process of encashing Rs. 1,700 crore bank and performance guarantees that the Italian firm had provided for executing the 2010 contract. This the first time ever in independent India’s history that a contract, which was midway through being executed, was scrapped.

“The process of recovering the bank guarantees has started,” MoD sources said and added that the government would not lose any money as a result of terminating the deal.

To buttress the point, sources noted that the Indian Air Force (IAF) was holding on to the three helicopters that AgustaWestland delivered to it in December 2012. The bank guarantees provided by the Italian company and the choppers are enough to make up for any loss, they said.

“The MoD is sitting over a Rs. 1,500-crore bank guarantee and another Rs. 200-crore performance guarantee from AgustaWestland,” sources said and added that the three helicopters held by the IAF were worth Rs. 900 crore.

“That make it a total of Rs. 2,600 crore. On the other hand, the government has paid only Rs. 1,800 crore to AgustaWestland as per the payment schedule mentioned in the February 2010 contract,” sources pointed out. 

This is the second time that the government is encashing the bank guarantees. It had in 2012  encashed Rs. 224 crore from the Israeli Military Industries, after it was blacklisted over corruption charges in the contract for setting up an ordnance factory for artillery ammunition in Nalanda, Bihar. The project was yet to begin and the execution of the contract had not yet started, when the deal was cancelled and bank guarantees encashed.

The MoD had terminated with immediate effect the AgustaWestland contract for 12 AW-101 helicopters on Wednesday over allegations of Rs. 352 crore bribe paid to several persons in the government, including former IAF chief S P Tyagi and some middlemen, to swing the deal in favour of the Italian firm.

The bribery charges came to light in February 2012, during a probe against AgustaWestland’s parent firm Finmeccanica in Italy. It was alleged that Finmeccanica often bribed officials to win overseas contracts.

The MoD initiated probe in the case after Finmeccanica CEO Giuseppe Orsi’s arrest in February 2013 in connection with the bribery charges in the chopper deal.



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