November 03, 2001

'33'

REGULATORY MECHANISM FOR DEFENCE AGENTS

   The Government has issued instructions regarding regulatory provisions in respect of Indian Authorized Representatives and Agents where permissible in Defence purchases.

    An individual, a partnership, an association of persons, a limited company, private or public, can be appointed 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.

    It may be recalled that the Government had decided to lift the ban on employment of Agents in Defence purchases recently.

Whenever representation of a foreign supplier by an Indian Authorized Representative, Agent is permissible, the Authorized Representatives, Agents and the Foreign suppliers will have to fulfil certain stipulated conditions.

    A Foreign firm wishing to appoint an Indian Authorized Representative \ Agent will formally inform the Ministry of Defence and furnish in full details of the business entity to be so engaged as Agent, whether functioning as an individual, a partnership, a private limited company, 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.

    It is required to give previous professional background and suitable details of the nature of business undertaken by the Authorized Representative\Agent since establishment.

    The Authorized Representative\Agent must be an income tax payee; must have a permanent income-tax account number; disclose name and address of the bankers within and outside the country.

    The Agent has to provide attested photocopies of all agreements with the Principal, including supplementary agreements, covering appointment as Authorized Representative\Agent, and terms relating thereto.

    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.

    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).

    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.

    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.

    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 upon, 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.

    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.

    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.