INDIA
DEFENCE CONSULTANTS
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ANALYSIS OF
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DEFENCE AGENTS ARE NOW LEGAL –– THE NOTIFICATION An IDC Analysis
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New
Delhi, 22 January 2002 The banning of Agents for Defence Contracts was ordained by late Shri S K Bhatnagar, then Defence Secretary, on instructions from the Prime Minister and Defence Minister late Rajiv Gandhi, in 1986 just before the Bofors Contract was signed. IDC has always maintained that this was detrimental, impractical and was not implementable and malpractices came into vogue with touts peddling defence wares. The Tehelka expose and many other cases, which the CBI has handled are ample testimony. The GOI has revised the stance
and made a broad based category where Agents are not encouraged if direct
dealing can suffice, but permits Agents and puts very heavy onus on the
Firm employing Agents to notify the GOI. In turn all contracts would be
notified to the Department of Enforcement. This will make life quite
difficult for Agents as it takes many years before a contract can
fructify. The manner in which the Agent will be compensated and the amount
he can get remunerated is not clear. The level of commission is also fixed
as per norms issued in 1989 for other GOI contracts. Anyway AGENTS are now legal and IDC posts the notification of 2 November 2001, but does not hold itself liable for its veracity and requests serious firms to get the hard copy and all the Appendicies. IDC posts this as a service to
the Nation and to educate foreign firms ahead of DEFEXPO 2002. INSTRUCTIONS
ISSUED BY THE GOI FOR APPOINTMENT No.
3(2)/PO(Def)2001 Government of India MINISTRY OF DEFENCE (Department of Defence) Date: 2nd November, 01 INTRODUCTORY 1.1
Purchase of stores & equipments by Government Departments is
governed by the provisions of the General Financial Rules (GFR) of the
Government of India. The policy of Government has been that in the
procurement of articles manufactured abroad, offers received through India
based establishments would receive preference. Appendix VIII of the GFR
and Para 96 & 97 of the Manual of Office Procedure for Supplies,
Inspection and Disposal also refer to the same principle. On 31st January,
1989 the Ministry of Finance (Department of Expenditure) vide their Office
Memorandum No. F. 23(1)E-II(A)/89 issued its letter on `Indian Agents of
Foreign Suppliers – Policy’ in (Appendix–1). Based on this order the
Ministry of Defence vide letter No.2250–A/JS(O)/89, dt. 17th April, 1989
issued guidelines on this subject. This order, under the umbrella of the
instructions quoted above, seeks to reflect the changed policy of the
government in the matter of its Policy on role of Authorized
Representatives/Agents. 1.2
A comprehensive formulation of the role, if any, which Authorized
Representatives/ Agents/or Sales Consultants or by whatever name called
and employed by Foreign suppliers for the promotion of their product, may
legitimately be expected to play, has been receiving the attention of
Government for some time. The entire policy has been extensively reviewed
recently with the objective of defining the scope, extent and the
conditions within which such Authorized Representatives\Agents may be
allowed to represent a foreign supplier or suppliers 1.3
While it is not the policy of Government to encourage agents if the
requisite supplies could be obtained and satisfactory after-sales service
ensured, on reasonable terms, without their intercession, upon detailed
examination the Ministry of Defence, concluded that there are advantages
in involving Authorized representatives/Agents. Such an involvement of
Authorized Representatives/Agents would enhance transparency levels,
provide the Service HQs with additional information about latest advances
in sophisticated combat and non-combat technology. Authorized
Representatives/Agents would also be of assistance in trial evaluation of
the systems, price negotiations, enhance the quality of after-sales
service, resolving performance and warranty issues. Payments to Authorized
Representatives/Agents would be covered under the Income Tax Act and
attract Income Tax which would be deducted at source. 1.4
This revised order, therefore covers : the regulation of
representational arrangements through a system of registration;
categorical and open declaration by the foreign suppliers of the services
to be rendered by their Authorized Representatives/Agents; and the
remuneration payable to them by way of fees, Commission or any other
method. 1.5
As the aforesaid Circular of the Department of Expenditure states
the general policy of the Government of India in the matter, and the
instructions contained therein, are applicable to all `civil purchases’
of imported stores by all Government departments and public sector
enterprises under the administrative control of different
Departments/Ministries, thus, Ministry of Defence are required to issue
‘Supplementary Instructions in respect of defence purchases’. 1.6
In that context, the following paragraphs lay down instructions
supplementary to those contained in Appendix-I. These instructions would
apply to all the Departments including the Integrated HQs of the MoD, the
three Services, the Coast Guard and all subordinate agencies under the
administrative control of the Ministry of Defence. REGULATORY
PROVISIONS IN RESPECT OF INDIAN AUTHORIZED REPRESENTATIVES/AGENTS WHERE
PERMISSIBLE 2.1
An individual, a partnership, an association of persons, a limited
company private or public can be appointed as Authorized
Representative/Agent/Sales Consultant/Adviser of a Foreign
supplier/suppliers, who is either paid a retainer or is reimbursed his
expenses or paid commissions or a combination of either, on completion of
a specified obligation, by the Original Equipment Manufacturer. 2.2
Purchase of all imported stores shall be undertaken in conformity
with the policy laid down in the Department of Expenditure Circular of
31st January, 1989(Appendix-I) and also subject to the additional
clarifications in the ensuing sub-paragraph. 2.3
Whenever representation of a foreign supplier by an Indian
Authorized representative/ Agent is permissible, as per the afore-stated
policy, it will be an open and declared representation, along with a
simultaneous commitment about observance of prescribed guidelines, norms
by the foreign firm as well as its agent. These Authorized
representatives/Agents and the Foreign suppliers will have to fulfill the
conditions stipulated below: A
Foreign firm wishing to appoint an Indian Authorized Representative/Agent
will formally inform the Ministry of Defence and furnish in full, the
below stated information: (i)
(a) Details of the business entity to be so engaged as Agent etc;
whether functioning as an individual, a partnership, a private limited
company, etc; since when established; registered address, names and
addresses of Directors, Chief Executive and executives of the company,
specifically indicating those who are retired civilian or Defence Service
Officers; principal place of business; whether the company has any
partner/ agency/office abroad; if so, full details thereof etc. (b)
Previous professional background and suitable details of the nature of
business undertaken by the Authorized Representative/Agent since
establishment. (c)
The Authorized Representative/Agent must be an income tax payee; have a
permanent income-tax account number; disclose name and address of bankers
within and outside the country etc. (d)
Attested photocopies of all agreements with the Principal, including
supplementary agreements, covering appointment as Authorized
Representative/Agent, and terms relating thereto. (ii)
(a) The accreditation of an Authorized Representative/Agent would
be granted after approval at the level of Secretary of the Department or
an Officer authorized by him. (iii)
(a) To ensure against foreign suppliers offering/making illegal
payments, of any kind, directly or indirectly, for the purposes of winning
a Contract, they shall be asked, before the appointment of an Authorized
Representative/Agent, to furnish a legally effective undertaking which, if
infringed, shall bind them to specified penalties. A foreign supplier will
be entitled to make only openly declared payments, in Indian rupees, of
the agreed fee/commission, to his duly Authorized Representative/Agent,
for rendering specifically defined obligations recorded in the Contract. (b)
As part of the standardized clause, a suitable clause for enforcement of
the disclosure provision should be incorporated to provide in the contract
that in the event of any breach or default on the part of the supplier to
disclose the agency arrangements in India, there would be a penalty of
banning business dealings with the Government or damages or payment of a
named sum. This clause will be formulated by the Department of Supply, in
consultation with the Ministry of Law and forwarded to all concerned
Departments thereafter for appropriate necessary action.(Para 5 (iv) of
Appendix-I) (iv)
(a) In all purchases effected through the Authorized
Representative/Agent the scale of commissions payable shall be as per the
guidelines approved from time to time. These would be determined by MoD in
consultation with MoD (Finance). (b)
All particulars relating to agency commission should be reported to the
Enforcement Directorate. The Enforcement Directorate will send this
information also to CBDT, CBEC and RBI to prevent leakage of foreign
exchange and tax evasion on agency commission.(Para 5 (v) of Appendix - I) (v)
The nature of services to be rendered by an Authorized
Representative/Agent and the commission payable to him shall unambiguously
be reflected in the contract. For this purpose, the model contractual
clauses applied by the Department of Supply may be adopted with suitable
modifications, whenever found necessary. (Reference DGS & D form 237,
a copy of which is at Appendix – II ) . (vi)
(a) All foreign suppliers along with their response to the Request
For Proposal should provide an undertaking signed by their Chief
Executive, that except for the Authorized Representative/Agent, they are
not employing any other middleman, sales consultant or Adviser to
influence the outcome of the contract through any means. (b)
The foreign supplier, whenever they change their Authorized
Representative/Agent or employ another will provide detailed information
regarding changes, if any in their arrangements with such representatives. (c)
The foreign supplier, in case they are using any Authorized
Representatives/Agents other than their regular employee, must provide an
undertaking that no payment has been made by them in India or outside
India to such persons except those which are included by them in the Form
16A under the Income Tax Act. (d)
The Foreign suppliers/supplier will be clearly directed that the
accreditation granted to his Authorized Representatives/Agents shall be
valid subject entirely to the non-infringement by him as well as his
Authorized Representatives/Agents, of the terms of accreditation. The
Ministry of Defence reserves the right to inform the Foreign supplier that
the Authorized Representative/Agent (either proposed or already
registered) is not acceptable without assigning any reason. Such a
communication may be sent to the Foreign supplier at any time and the said
supplier will have to replace the said Authorized Representative/Agent. (vii) (a) The agent shall not have any business contacts with
any other than the authorized personnel of the establishment dealing with
the equipment to be procured; (b)
Correspondence will be exchanged with the agent, only by officers
specially authorized for the purposes. 3.
These instructions would only apply to future contracts. 4. In case of any doubt , necessary clarification may be sought from the Department of Defence. (Ranjit
Issar). Joint
Secretary |