An IDC Analysis


New Delhi, 22 January 2002

The banning of Agents for Defence Contracts was ordained by late Shri S K Bhatnagar, then Defence Secretary, on instructions from the Prime Minister and Defence Minister late Rajiv Gandhi, in 1986 just before the Bofors Contract was signed. IDC has always maintained that this was detrimental, impractical and was not implementable and malpractices came into vogue with touts peddling defence wares. The Tehelka expose and many other cases, which the CBI has handled are ample testimony.

The GOI has revised the stance and made a broad based category where Agents are not encouraged if direct dealing can suffice, but permits Agents and puts very heavy onus on the Firm employing Agents to notify the GOI. In turn all contracts would be notified to the Department of Enforcement.

This will make life quite difficult for Agents as it takes many years before a contract can fructify. The manner in which the Agent will be compensated and the amount he can get remunerated is not clear. The level of commission is also fixed as per norms issued in 1989 for other GOI contracts.

Anyway AGENTS are now legal and IDC posts the notification of 2 November 2001, but does not hold itself liable for its veracity and requests serious firms to get the hard copy and all the Appendicies. 

IDC posts this as a service to the Nation and to educate foreign firms ahead of DEFEXPO 2002.


No. 3(2)/PO(Def)2001

Government of India


(Department of Defence)

Date: 2nd November, 01


1.1    Purchase of stores & equipments by Government Departments is governed by the provisions of the General Financial Rules (GFR) of the Government of India. The policy of Government has been that in the procurement of articles manufactured abroad, offers received through India based establishments would receive preference. Appendix VIII of the GFR and Para 96 & 97 of the Manual of Office Procedure for Supplies, Inspection and Disposal also refer to the same principle. On 31st January, 1989 the Ministry of Finance (Department of Expenditure) vide their Office Memorandum No. F. 23(1)E-II(A)/89 issued its letter on `Indian Agents of Foreign Suppliers – Policy’ in (Appendix–1). Based on this order the Ministry of Defence vide letter No.2250–A/JS(O)/89, dt. 17th April, 1989 issued guidelines on this subject. This order, under the umbrella of the instructions quoted above, seeks to reflect the changed policy of the government in the matter of its Policy on role of Authorized Representatives/Agents.

1.2    A comprehensive formulation of the role, if any, which Authorized Representatives/ Agents/or Sales Consultants or by whatever name called and employed by Foreign suppliers for the promotion of their product, may legitimately be expected to play, has been receiving the attention of Government for some time. The entire policy has been extensively reviewed recently with the objective of defining the scope, extent and the conditions within which such Authorized Representatives\Agents may be allowed to represent a foreign supplier or suppliers 

1.3    While it is not the policy of Government to encourage agents if the requisite supplies could be obtained and satisfactory after-sales service ensured, on reasonable terms, without their intercession, upon detailed examination the Ministry of Defence, concluded that there are advantages in involving Authorized representatives/Agents. Such an involvement of Authorized Representatives/Agents would enhance transparency levels, provide the Service HQs with additional information about latest advances in sophisticated combat and non-combat technology. Authorized Representatives/Agents would also be of assistance in trial evaluation of the systems, price negotiations, enhance the quality of after-sales service, resolving performance and warranty issues. Payments to Authorized Representatives/Agents would be covered under the Income Tax Act and attract Income Tax which would be deducted at source.

1.4    This revised order, therefore covers : the regulation of representational arrangements through a system of registration; categorical and open declaration by the foreign suppliers of the services to be rendered by their Authorized Representatives/Agents; and the remuneration payable to them by way of fees, Commission or any other method. 

1.5    As the aforesaid Circular of the Department of Expenditure states the general policy of the Government of India in the matter, and the instructions contained therein, are applicable to all `civil purchases’ of imported stores by all Government departments and public sector enterprises under the administrative control of different Departments/Ministries, thus, Ministry of Defence are required to issue ‘Supplementary Instructions in respect of defence purchases’.

1.6    In that context, the following paragraphs lay down instructions supplementary to those contained in Appendix-I. These instructions would apply to all the Departments including the Integrated HQs of the MoD, the three Services, the Coast Guard and all subordinate agencies under the administrative control of the Ministry of Defence.


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

2.2     Purchase of all imported stores shall be undertaken in conformity with the policy laid down in the Department of Expenditure Circular of 31st January, 1989(Appendix-I) and also subject to the additional clarifications in the ensuing sub-paragraph. 

2.3     Whenever representation of a foreign supplier by an Indian Authorized representative/ Agent is permissible, as per the afore-stated policy, 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. These Authorized representatives/Agents and the Foreign suppliers will have to fulfill the conditions stipulated below:

A Foreign firm wishing to appoint an Indian Authorized Representative/Agent will formally inform the Ministry of Defence and furnish in full, the below stated information:

(i)      (a) Details of the business entity to be so engaged as Agent etc; whether functioning as an individual, a partnership, a private limited company, etc; 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 etc.

(b) Previous professional background and suitable details of the nature of business undertaken by the Authorized Representative/Agent since establishment.

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

(d) Attested photocopies of all agreements with the Principal, including supplementary agreements, covering appointment as Authorized Representative/Agent, and terms relating thereto.

(ii)     (a) 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.
(b) The obligations of an Authorized Representative/Agent shall be spelt out in the accreditation letter to be issued.

(iii)    (a) 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, 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.

(b) 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. This clause will be formulated by the Department of Supply, in consultation with the Ministry of Law and forwarded to all concerned Departments thereafter for appropriate necessary action.(Para 5 (iv) of Appendix-I) 

(iv)    (a) 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).

(b) 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.(Para 5 (v) of Appendix - I) 

(v)     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. (Reference DGS & D form 237, a copy of which is at Appendix – II ) . 

(vi)    (a) 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. 

(b) The foreign supplier, whenever they change their Authorized Representative/Agent or employ another will provide detailed information regarding changes, if any in their arrangements with such representatives. 

(c) The foreign supplier, in case they are using any Authorized Representatives/Agents other than their regular employee, must provide an undertaking that no payment has been made by them in India or outside India to such persons except those which are included by them in the Form 16A under the Income Tax Act. 

(d) The Foreign suppliers/supplier will be clearly directed that the accreditation granted to his Authorized Representatives/Agents shall be valid subject entirely to the non-infringement by him as well as his Authorized Representatives/Agents, of the terms of accreditation. The Ministry of Defence reserves the right to inform the Foreign supplier that the Authorized Representative/Agent (either proposed or already registered) is not acceptable without assigning any reason. Such a communication may be sent to the Foreign supplier at any time and the said supplier will have to replace the said Authorized Representative/Agent.

(vii)   (a) The agent shall not have any business contacts with any other than the authorized personnel of the establishment dealing with the equipment to be procured;

(b) Correspondence will be exchanged with the agent, only by officers specially authorized for the purposes.

3. These instructions would only apply to future contracts.

4. In case of any doubt , necessary clarification may be sought from the Department of Defence. 

(Ranjit Issar).

Joint Secretary

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