Op-Ed: India Should Beware Golden Rule
(Source: Defense-Aerospace.com; published Jan 29, 2014)

By Giovanni de Briganti
PARIS --- In recent weeks, India’s Ministry of Defense has taken a number of actions against foreign defense contractors that are unexpected, and unwarranted, in a country that claims to respect the rule of law.

The ministry has adopted the habit of black-listing suppliers simply on suspicion of corruption, and in the absence of formal evidence. Having apparently decided that his reputation as “Mr Clean” trumps all other considerations, defense minister AK Antony is thus acting as if he was not subject to the rule of law, even when the Delhi high Court told him otherwise.

In May 2009, for example, MoD decided “to put on hold all contracts with the companies” involved in a case being investigated by the Central Bureau of Investigation (CBI), but this order was challenged by some of the companies before the Delhi High Court.

Antony was finally force to admit to Parliament in a written answer of Nov. 24, 2010 – fully 9 months after the court’s decision - that “The High Court, after hearing both sides, set aside the [holding] order in its judgment dated February 11, 2010, directing that penal action against the companies can be taken only after following the principles of natural justice.” (Emphasis added—Ed.)

Disregard for the rule of law?

Antony promised at the time that “A decision regarding penal action will be taken after examining the replies of the companies and in consultation with the Ministry of Law,” but has since made no public reference to this case. Yet, black-listing continues unabated.

In July 2010, AK Antony again told Parliament that the Central Bureau of Investigation (CBI) “had recommended blacklisting” six MoD suppliers on the basis of “illogical gratification,” without further explanation. He named the companies as Singapore Technologies Kinetics Ltd, Israel Military Industries Ltd., Rheinmetall Air Defence and Corporation Defence Russia, as well as two Indian firms, TS Kisan & Co Pvt Ltd. and RK Machine Tools.

Also on Nov. 24, 2010 Antony told Parliament that “Irregularities in respect of some Israeli defense companies have come to notice and appropriate restrictions have been placed on dealing with these companies,” but again provided no details. The six firms were effectively debarred from doing business with MoD for ten years in March 2012, according to local media reports.

But the high-handedness with which the ministry treats its foreign suppliers has found no better illustration than the AgustaWestland helicopter contract. Antony first announced he had frozen the contract – including all payments and deliveries - when Italian investigating magistrates arrested the CEOs of Finmeccanica and AgustaWestland for suspected corruption in the sale of 12 AW101 helicopters (they were later freed).

When AgustaWestland filed for arbitration, as allowed by the contract, Antony refused, and finally terminated the contract on Jan. 1, 2014, on “grounds of breach of the Pre-contract Integrity Pact (PCIP) and the Agreement by [Agusta Westland International Ltd, AWIL],” a breach that has not been proven. And, while maintaining in the same statement that “integrity-related issues are not subject to arbitration,” he did appoint an arbitrator, thereby conceding his previous refusal to do so was untenable.

The Italian trial continues, and no conviction has been secured. The CBI continues to investigate alleged corruption in India, including AW’s, but has so far made public no evidence, and has filed no report of its investigations.

Another decision by Antony was to put on hold a torpedo contract awarded to Finmeccanica’s Whitehead Alenia Sistemi Subacquei (WASS) unit just days after it was approved on December 23 by the Defence Acquisitions Council, which he chairs.

At the time, the Indian DNA news agency reported Jan. 3 that “With nearly ten major defence deals kept pending for one reason or other, and the defence minister AK Antony more worried about his clean image, the nation’s defence preparedness is being called into question.”

DNA added that “Antony may have achieved the record as the longest serving defence minister of the country, but in his tenure of seven years, the nation’s defence preparedness has suffered a setback [and] his over-cautious approach has led to long delays.”

The final straw was the banning of the entire Finmeccanica group, including its subsidiaries AgustaWestland, WASS, Selex, Alenia Aermacchi and Oto Melara, from attending the Defexpo defense show, which is due to open on Feb. 6 in New Delhi.

On Jan 28, the Press Trust of India reported, quoting unnamed MoD sources, that fully 27 firms had been kicked out of the show, including “15 firms which are facing CBI inquiry and 12 firms that have already been blacklisted.”

It is worth noting that this decision has not been publicly announced, that it was leaked just over a week before the show opens, and that it ‘names and shames’ exhibitors that have paid to exhibit, and who have no effective way to respond to this attack on their reputation. Just as a matter of courtesy, why were these companies simply prevented from booking – and paying for – exhibition space?

A shabby way to treat suppliers

Whichever way one looks at it, it is a pretty shabby way to treat vendors, especially as they have no legal recourse. Moreover, as of Jan 27 Finmeccanica headquarters in Rome had not received any official notification of its expulsion.

The problem that Antony does not want to admit is that India is a corrupt society, where public servants routinely abuse their office for personal gain. Indian politicians have shown they are powerless to change this behavior, and so find it convenient – especially in pre-election times such as these -- to burnish their anti-corruption credentials by attacking those wily and corrupt foreign suppliers, who come to India with suitcases full of dollars to tempt honest Indian bureaucrats to deviate from the straight and narrow path of honesty.

Alas for this nice picture, the wrongdoing to date is mostly Indian, at least from a legal point of view, as expressed by the Delhi High Court when it said that “penal action against the companies can be taken only after following the principles of natural justice.”

Black-listing with no legal basis; unilateral contract cancellations disregarding agreed procedures; refusal of arbitration; cancelling a contract a week after approving it; kicking exhibitors out of a trade show with no recourse: all these maneuvers are illegal, or at the very least represent an abuse of power, and highlight the defense ministry’s cavalier attitude to legal niceties.

In fact, in almost 40 years of covering defense issues, your correspondent has never encountered anything to compare with India’s recent behavior towards defense contractors.

Americans like to quote the “Golden Rule” which states that “He who has the gold, rules.” But although it may aptly describe India’s attitude to foreign suppliers, this rule has no legal force, and is not recognized by international law.

It’s high time for India to understand that, if it wants to be treated as a great democracy and a legitimate trading partner, it cannot simply ignore the rules and the customs of international commerce.

-ends-




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