The defence ministry has put on hold all existing and future deals with Rolls Royce pending a CBI probe ordered into allegations of bribery and engaging middlemen in contracts worth Rs 10,000 crore for supply of aircraft engines to state-owned HAL.
The Hindustan Aeronautics Limited has also been asked to take action to recover from the London-based Rolls Royce the money paid by it to its commission agents, highly-placed defence ministry officials said in New Delhi.
The decisions were taken even as Rolls Royce in a letter written to HAL in December last admitted it had employed a Singapore-based person identified as Ashok Patni and his firm Aashmore Private Limited as "commercial advisor" in India, providing sales and logistical support, local business support and "strategic advice."
The firm has informed HAL that it has paid commissions to Aashmore Private Limited for clinching clinch military deals and the amount ranged between 10 and 11.3 per cent, sources said. HAL and Aashmore Private Limited have transacted business worth over Rs 5,000 crore between 2007-2011, they said.
Contracts with Rolls Royce have been put on hold pending the CBI inquiry into the matter, defence ministry sources said.
The commissions paid by the firm are in violation of the procurement rules in India which prohibits hiring of middlemen or commission agents while transacting deals with the defence ministry.
After ordering a CBI probe into the matter, the ministry sought the view of the law ministry for moving towards blacklisting the British firm but the IAF was of the view that a delay in signing a maintenance contract with Rolls Royce will "impact the defence preparedness of the country."
The IAF had to sign an important contract with it for maintenance and overhaul of the six types of aircraft engines in the AJT Hawk, Jaguar, Avro, Kiran MkII and Sea Harrier military aircraft and Sea King helicopters.
India will also seek information from Britain where the Serious Fraud Office is investigating bribery charges against Rolls Royce in cases related to China and Indonesia, sources said.
The firm has also told HAL that it had severed ties with Aashmore and its owner in 2013.
The bribery allegations surfaced in the form of a letter received by HAL recently claiming that bribes were paid to officials in HAL and other departments concerned to bag contracts, the sources said.
An internal probe by the vigilance wing of HAL has prima facie established the charges, according to highly-placed MoD sources
Sources added that the CBI would be asked to investigate and establish any "criminality" in the payment of commissions by Rolls Royce to its agents.
The MoD has also decided to seek legal opinion from the law ministry before issuing any orders to the Britain-based firm.
Rolls Royce and HAL were supposed to finalise a contract for procurement of spares and maintenance of the Jaguar aircraft.
"Delay in finalising the contract will put our Jaguar aircraft fleet in jeopardy and impact the defence preparedness of the country," a senior IAF official told PTI.
The officer said the sentiments of the force have been conveyed to the MoD and it has been asked to resolve the issue on priority to protect the interests of the force.
The allegations against Rolls Royce surfaced when it replied to a query from HAL under its Integrity Pact initiative admitting that it had hired agents and commissions were paid to them, the sources said.
HAL immediately initiated an inquiry into the charges through its Chief Vigilance Officer.
After finding credence in the charges, Defence Minister AK Antony ordered a CBI probe to investigate the allegations of bribery and engagement of middlemen by the firm
Inquiries into defence deals have been ordered even if the complaints are received from anonymous sources to avoid questions over military purchases.
The defence minister took stern action against the charges of bribery made in the AgustaWestland chopper scam by cancelling the deal on January 1 this year after it was allegedly found that the firm had violated the pre-integrity pact of the Defence Ministry meant for ensuring probity in defence deals.
In his tenure of more than eight years, Defence Minister A K Antony has handed over around 100 cases of alleged corruption to the CBI for investigations.