CBI to investigate suspected Rolls-Royce kickbacks

NEW DELHI Mon Mar 3, 2014 7:13pm IST

1 of 2. A Rolls-Royce mascot known as 'Spirit of Ecstasy' stands above the brand's logo on the front of a Rolls-Royce Ghost in a showroom in Singapore October 8, 2013.

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NEW DELHI (Reuters) - The defence ministry said on Monday it had ordered an investigation into state-run Hindustan Aeronautics Ltd's (HAL) orders from Britain's Rolls-Royce Holdings (RR.L) worth at least $1.2 billion.

The Central Bureau of Investigation, the country's top crime-fighting agency, will look into more than 5 billion rupees in alleged kickbacks in a deal that was signed in 2011, a ministry official told Reuters.

Defence Minister AK Antony referred the case to investigators after being informed by HAL that Rolls-Royce had disclosed its use of outside consultants receiving a percentage commission, the official added.

Such arrangements could violate procurement rules, as they might be used to channel corrupt payments to secure lucrative government contracts.

Suspicions of corruption in India's state procurement programme have for years delayed the modernisation of the armed forces of the world's most populous nation that continue to rely on outdated Soviet-designed equipment.

The air force has been dogged by a series of crashes of its Russian-built MiG fighter jets, while an accident aboard a Soviet-made submarine that killed two officers last week led the navy's chief of staff to resign.

The Congress party-led government is keen to be seen as tough on graft before parliamentary elections due by May. The party, lagging in the polls, has faced rising public anger over a string of corruption scandals in its current term.

The probe into the HAL deal follows the arrest in Britain last month of Indian-born businessman Sudhir Choudhrie and his son in a bribery investigation by the Serious Fraud Office into Rolls-Royce's dealings in China and Indonesia.

Both men denied any wrongdoing and have been released on bail, their spokesman said last month.

VIGILANCE WING

While there was no indication that the latest probe was linked to the Choudhries, newspapers reported that HAL's "vigilance wing" had raised the alarm after learning that Rolls-Royce had hired outside consultants.

Indian newspapers reported on Monday that the deals in question were signed between 2007-11, a period when Rolls-Royce sold aero engines to power Hawk advanced jet trainers supplied to the Indian air force.

India has ordered a total of 123 twin-seater Hawks from BAE Systems (BAES.L) to date, with 24 to be supplied directly and the rest made under licence by HAL, according to the British defence and aerospace group.

The disclosure by Rolls-Royce was, however, related to a 2011 deal to sell gas turbines to HAL, defence industry sources later clarified.

The probe could deal another blow to Rolls-Royce, the world's second largest maker of aircraft engines behind General Electric (GE.N), which said in February that U.S. and European defence cuts mean that a decade of profit growth will come to an end this year.

Rolls-Royce has since outlined plans designed to maintain its dominance in large aircraft engines, showcasing two new models that could improve efficiency by up to 10 percent.

(Reporting by Sruthi Gottipati; Additional reporting by Nigam Prusty and Frank Jack Daniel in New Delhi and Paul Sandle in London; Editing by Douglas Busvine, Miral Fahmy and Louise Heavens)

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