British aero-engine maker Rolls-Royce's trouble in India over hiring a "commercial adviser" has its roots in the firm paying commission for orders from Defence Public Sector Hindustan Aeronautics Limited (HAL), which services both military and civilian planes with the company's engines, top defence ministry sources have said.
Rolls Royce had on December 27 last year informed Bangalore-headquartered HAL that it had hired Singapore-based Aashmore Private Limited and its executive Ashok Patni as its "commercial adviser" to help it out with "sales, logistics support, local business expertise and strategic advice" in the Indian market.
This "disclosure" from Rolls-Royce, which has over five decades of business association with India, came about after HAL issued it a notice to clarify on "intermediaries" hired by it in India to bag contracts from the Industrial Marine and Gas Turbine (IMGT) division of HAL between 2007 and 2011.
During this period, Roll-Royce had bagged over 50 civilian contracts for engines of planes and helicopters belonging to Oil and Natural Gas Corporation (ONGC) and Gas Authority of India Limited (GAIL) maintained by IMGT. These contracts were worth over `10,000 crore, sources said.
Apart from these 50 civilian orders, Rolls-Royce also bagged 50-odd defence contracts from HAL for repair and overhaul of military planes and helicopters from both the Indian Air Force (IAF) and the Indian Navy during this period, a senior Defence Ministry official said.
"Rolls-Royce has disclosed it paid commission to the commercial adviser for over 50 orders bagged from HAL's IMGT division, which handles all civilian aero-engine repair and overhaul work. However, our own investigation shows that there were 50-odd defence orders, too, which were done during the four-year period. Commission was paid for these defence contracts too and we have to conclusively establish this fact, and hence the CBI probe," said a source.
"It is also surprising that the British firm, which has worked in India for over five decades, hired a Singapore-based firm for Indian business expertise," the source said, reasoning out the decision to ask for a CBI probe and putting on hold future contracts with Rolls-Royce for Repair and Overhaul of six-types of IAF military planes, including Jaguar fighter jets. Rolls-Royce also supplies spares and aero-engines for Navy's two types of aircraft.
Under Indian defence procurement procedures, hiring of a consultant or agent for lobbying to bag contracts is strictly prohibited. However, hiring of consultants for civilian contracts is permitted in India. The company had also intimated HAL that its arrangement with Aashmore ended in January 2013.
"But, HAL is a defence establishment and it is convered by the defence procurement procedures," a Defence Ministry official argued. Defence Minister A K Antony had last week asked for the CBI probe into the Roll-Royce contracts signed between 2007 and 2011 following an internal probe by the HAL, which sought clarification from the British firm.
Ministry sources said the probe was to see if Rolls-Royce had violated any part of its defence contracts with India by hiring a consultant and not disclosing it.