Middlemen in Defence Procurements

By Maj Gen Mrinal Suman

Issue Vol 22.1 Jan - Mar 2007 | Date : 14 Jan , 2011

Salient Features of the Policy

Though the policy covers authorised representative, agent, sales consultant and adviser of foreign supplier, for the sake of brevity, this article collectively refers to them as agents.

The salient features of the above policy are as follows:-

After a thorough review, MoD felt that whereas agents do perform useful functions, their functioning needed stricter regulation to prevent them from influencing decision-makers.

An individual, a partnership, an association of persons, a limited company private or public can be appointed as agent, 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 a foreign supplier.
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.
A foreign firm wishing to appoint an Indian agent will formally inform MoD and furnish in full, the below stated information:-
Complete details of the business entity to be so engaged.
Previous professional background and details of the nature of business undertaken by the agent since establishment.
Agent’s permanent income-tax account number and details of bankers within and outside the country.
Attested photocopies of all agreements with the principal, including supplementary agreements and terms relating thereto.
The accreditation of an agent would be granted after approval at the level of Secretary of the Department or an Officer authorised by him. MoD reserves the right to inform the foreign supplier that the agent (either proposed or already registered) is not acceptable without assigning any reason. The said supplier will have to replace him.
A foreign supplier will be entitled to make only openly declared payments to his agent as per the contract terms. Nature of services to be rendered by an agent and the commission payable to him shall unambiguously be reflected in the contract. To ensure against foreign suppliers offering\making illegal payments, they shall be asked to furnish a legally effective undertaking which, if infringed, shall bind them to specified penalties.
In all purchases affected through agents, the scale of commission payable shall be as per the guidelines approved from time to time. These would be determined by MoD in consultation with MoD (Finance).

Though the policy was issued in 2001, not a single registration has taken place to date. The Defence Minister was candid enough to concede this year that no agent had come forward for registration and the scheme was a total non-starter.

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.
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 agent, they are not employing any one else to influence the process.
Agents shall not have any business contacts with anyone other than the authorised personnel of the establishment dealing with the equipment to be procured.