India's Top Investigation Agency Files Case Against Rolls Royce Over Alleged Fraud in Hawk Aircraft Procurement

The Central Bureau of Investigation (CBI) has registered a case against British aerospace company, Rolls Royce India Pvt Ltd, along with its director Tim Jones, and private individuals Sudhir Choudhrie and Bhanu Choudhrie, along with unidentified public servants and private individuals.

The case alleges a conspiracy to defraud the Government of India in the procurement of Hawk Aircraft from Rolls Royce plc, UK, and its associate group companies, including Rolls Royce Turbomeca Limited.

According to information, a preliminary inquiry was initiated into the matter in 2016. The inquiry was against Rolls Royce plc, Bhanu Choudhrie, unknown officials of the Ministry of Defence and others.

Rolls Royce
Reuters

The investigation revealed that unknown officers of the Ministry of Defence, between 2003 and 2012 entered into a criminal conspiracy with Tim Jones, Director of Rolls Royce India Pvt. Ltd.; Sudhir Choudhrie; Bhanu Choudhrie; Rolls Royce plc, UK; British Aerospace Systerre UK; and others with an intention to cheat the Indian Government in the matter of procurement of Hawk Aircraft from Rolls Royce plc UK, and its associate group companies.

Hawk 115 Advance Jet Trainer

The CBI said that the unknown public servants misused their official positions and approved and procured 24 Hawk 115 Advance Jet Trainer (AJT) aircraft for GBP 734.21 million, besides permitting licence manufacturing of 42 additional aircraft by Hindustan Aeronautics Limited (HAL) against materials supplied by the said manufacturer for an additional amount of USD 308.247 million for the said 42 License Manufactured aircraft and USD 7.5 million towards Manufacturer’s Licence Fee, in lieu of huge bribes.

“Enquiry further revealed that vital documents pertaining to the said transaction were seized from the premises of Rolls Royce India Pvt. Ltd. during a Survey conducted by Income Tax Department in 2006-07, but the accused persons, in furtherance of the conspiracy and to evade investigation by Indian agencies, caused disappearance of such vital documents,” said the CBI official.

Enquiry has revealed that the Cabinet Committee on Security (CCS), Ministry of Defence in the meeting held on September 3, 2003 approved procurement of 66 Hawk 115 Aircraft and signing of an Inter-Government Agreement between the Governments of India and UK for long-term product support.

The key approvals accorded by the Cabinet Committee on Security (CCS) were as follows:

1. Procurement of 24 BAE Hawk 115Y AJT in flyaway condition with spares, ground support equipment and training aids, along with materials for 12 aircraft to be manufactured by HAL at a cost of GBP 734.21 million, equivalent to Rs 5,653.44 crore.

2. Procurement of 42 aircraft to be license manufactured by HAL at an additional cost not exceeding GBP 308.247 million, equivalent to Rs 1,944 crore.

3. Payment of GBP 7.5 million approx. to Rolls Royce as Manufacturer’s License Fee for manufacture of engines.

4 Similar penalty clauses were also incorporated in the related contracts.

5. In January 2008, HAL sent a letter to the Ministry of Defence (MoD) requesting approval to enter into an agreement for the license manufacturing of 57 additional Hawk aircraft. As a result, an agreement was signed on July 23, 2010 between MoD and HAL for the license manufacturing and supply of these 57 Hawk aircraft, valued at Rs 9,502.68 crore, with 40 aircraft designated for the Indian Air Force and 17 for the Indian Navy.

6. In 2010, HAL issued a Purchase Order to BAE/Rolls Royce, which included a clause prohibiting the use of agents or third parties and requiring a direct deal between HAL and BAE/Rolls Royce. The contract specified that no commission should be paid, and if any commission was discovered to have been paid, HAL had the right to terminate the contract and recover the amount paid as commission or fees.

7. As part of the agreement, HAL and Rolls Royce signed an Integrity Pact on July 27, 2010, which prohibited the payment of commissions or fees to any agent, middlemen, or buyer’s employee involved in the bidding process. Breaching the Integrity Pact allowed HAL to cancel the contract, recover all payments with interest, and encash the supplier’s Bank Guarantee/Warranty Bond, with a validity of five years until July 27, 2015 or until the contract’s conclusion.

8. Media reports in 2012 exposed corruption allegations against Rolls Royce, leading to an investigation by the Serious Fraud Office in London. Rolls Royce admitted to corrupt payments in transactions with several countries, including India, resulting in a Deferred Prosecution Agreement and a subsequent Crown Court judgment in 2017 revealing concealed involvement of intermediaries in India’s defence business and possible routing of funds to public servants.

9. The Statement of Fact (SOF) referred to in the Crown Court Judgment dated January 17, 2017 revealed that Rolls Royce paid 1.85 million pound to Intermediary-4 to recover a seized list of intermediaries by the Income Tax Department during the survey of Rolls Royce India, New Delhi in 2006. This payment was made to prevent the list from reaching the Ministry of Defence (MoD), avoid contract termination, and evade a CBI investigation against Rolls Royce.

10. Rolls Royce is alleged to have made corrupt payments to public servants in India, including tax officials, to prevent investigation into its tax affairs and the use of advisors, with an amount of GBP 1.85 million paid to intermediaries through Commercial Contractual Agreements (CCAs).

11. Russian Anre companies allegedly paid GBP 100 million to a Swiss bank account associated with Sudhir Choudhrie’s company, Portsmouth, for defence deals with Russia, including the purchase of MIG fighter aircraft, with Choudhrie and his father being accused of working as unregistered Indian agents for Rolls Royce/BAES and influencing Indian public servants to secure the contract for Hawk aircraft.

12. The actions of Tim Jones, Sudhir Choudhrie, Bhanu Choudhrie, Rolls Royce India Pvt. Ltd., Rolls Royce plc, British Aerospace Systems, and others potentially constitute offences punishable under sections 120-B, 420, and 201 of the Indian Penal Code, as well as sections 8, 9, 13(2), and 131(d) of the Prevention of Corruption Act.

Based on these findings, the CBI has now lodged a case and have started probing the matter.

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