Hawk aircraft deal | CBI books Rolls Royce and others on graft charge

A Crown Court judgment of 2017 revealed concealment of the role of intermediaries in the defence business in India between 2005 and 2009 despite an ‘Integrity Pact’ prohibition on employing intermediaries

May 29, 2023 01:44 pm | Updated 10:12 pm IST - New Delhi

A Rolls-Royce logo is seen at the company’s aerospace engineering and development site in Bristol, Britain. File

A Rolls-Royce logo is seen at the company’s aerospace engineering and development site in Bristol, Britain. File | Photo Credit: Reuters

The Central Bureau of Investigation (CBI) has registered a case against the United Kingdom-based British Aerospace Systems, Rolls Royce Plc, its then director Tim Johns, two alleged middlemen, Sudhir Choudhrie and his son Bhanu Choudhrie, and unknown Indian public servants, for alleged corruption during 2003-2012 in the procurement of Hawk aircraft.

The agency had initiated an inquiry on December 15, 2016 against Rolls Royce plc, Mr. Sudhir Choudhrie, unknown officials of the Defence Ministry and others. It allegedly revealed that unknown officials conspired with Mr. Jones and others to cheat the Government of India in connection with the aircraft supply by Rolls Royce and its associate group companies, including Rolls Royce Turbomeca Limited, the First Information Report (FIR) said.

The suspect public servants approved and procured 24 Hawk 115 Advance Jet Trainer aircraft for GBP 734.21 million, besides permitting licensed manufacturing of 42 additional aircraft by Hindustan Aeronautics Limited (HAL) against the materials supplied by the manufacturer for an additional amount of GBP 308.247 million, and payment of GBP 7.50 million towards the manufacturer’s licence fee.

This was done allegedly in lieu of bribes, commissions and kickbacks paid by the manufacturer and its officers to the intermediaries, in violation of the terms and conditions of the contracts in question. The inquiry revealed that in 2008-10, the accused persons also approved licensed manufacturing of 57 more Hawk aircraft by the HAL for ₹9,502.68 crore under a separate agreement with BAE Systems (Operations) Limited, a BAES Group entity.

It is alleged that the Income Tax Department had seized vital documents related to the suspect transactions with intermediaries/middlemen from premises of Rolls Royce India Limited during a survey in 2006-07. However, the accused persons caused disappearance/removal/destruction of the papers to evade investigation by the Indian agencies into the alleged bungling in the deal.

In a statement the company said that it is “continuing to assist the Indian authorities.”

“The allegations being investigated by the CBI were disclosed in the Deferred Prosecution Agreement agreed with the UK’s Serious Fraud office in 2017. Rolls-Royce today is a fundamentally different business. We will not tolerate business misconduct of any sort and are committed to maintaining high ethical standards. India remains an important market for Rolls-Royce and we have a valued ecosystem of skilled people and partners in the country,” Rolls Royce Plc said.

As it turned down, the Cabinet Committee on Security (CCS) of the Defence Ministry had on September 3, 2003 approved procurement of 66 Hawk 115 aircraft and the signing of an inter-government agreement between India and the U.K. for long-term product support. The Memorandum of Understanding was signed on March 19, 2004. Shortly thereafter, two contracts dated March 26, 2004 for direct supply of 24 Hawk aircraft and transfer of technology for 42 others to be manufactured by HAL were signed. They prohibited use of undue influence and middlemen/agents.

In January 2008, the HAL requested the Defence Ministry for an approval to enter into an agreement for licensed manufacturing of 57 additional Hawk aircraft. An agreement dated July 23, 2010 was signed for the same. HAL placed an order on Rolls Royce/BAE Systems in 2010, which also contained a clause prohibiting use of any agent or third party. The aircraft were delivered to the Indian Air Force between March 2013 and July 2016.

Meanwhile, in 2012, media reports alleging corruption in the operation of Rolls Royce’s civil business surfaced, which led to a probe by the Serious Fraud Office (SFO), London. A statement of fact was prepared by Rolls Royce wherein it disclosed its corrupt payments related to the transactions with countries like Indonesia, Thailand, China, Malaysia and India. A deferred prosecution agreement was reached between the company and the SFO.

On that agreement, the Crown Court delivered a judgment dated July 17, 2017, which revealed concealment of the role of intermediaries in the defence business in India between 2005 and 2009 despite the “Integrity Pact” prohibition on employing intermediaries. The court order mentioned the payment of GBP 1 million by Rolls Royce to an intermediary for increase of licence fee from GBP 4 to 7.50 million. The statement of fact mentioned that GBP 1.85 million was paid to the same person to retrieve the list of intermediaries seized by the Income Tax Department on January 9, 2006, prevent termination of the contracts and a CBI probe. I-T officials were bribed, it is suspected.

Besides, it is alleged that GBP 100 million was transferred by Russian arms companies into a Swiss bank account no.120467 of Portsmouth, a company associated with Mr. Sudhir Choudhrie, with regard to defence deals with Russia for the purchase of MiG fighter aircraft. From this amount, the firms in the name of the Choudhrie family — Belinea Services Limited, Cottage Consultant Limited and Carter Consultants Inc — received GBP 39.20 million, GBP 32.8 million, and GBP 23 million, respectively, in 2007-2008, the FIR said.

(With inputs from Lalatendu Mishra)

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