Exclusive: Conflict of Interest in MoD Over Rafale Offsets?

noun [C or U]: Conflict of Interest

  • “a conflict between the private interests and the official responsibilities of a person in a position of trust” [Merriam-Webster Dictionary]
  • “when an individual or a corporation (either private or governmental) is in a position to exploit his or their own professional or official capacity in some way for personal or corporate benefit.” [OECD]

On 9 June 2016, Prashant Narain Sukul was appointed as Additional Controller General of Defence Accounts (Addl CGDA). The appointment didn’t make news, quite understandably, since it relates to a fairly obscure position in the Ministry of Defence (MoD) that involves auditing and making payments for defence contracts.

When Prashant’s wife Madhulika Sukul was appointed to head the office as CGDA from 1 February 2018, this was also routine enough. They had both served in the Indian Defence Accounts Service since 1982, including postings in junior positions in the CGDA.

So there was no reason to bring to light the fact that the wife-husband duo now occupied the two most senior positions in that office. Prashant’s specific portfolio covering the Air Force raised no eyebrows since he had worked with the Civil Aviation department and the Air Force previously. Madhulika Sukul’s appointment as Financial Adviser (Defence Services) with effect from 31 August 2018, raised no concerns either.

But in the midst of all these routine Defence Ministry appointments, something else also flew under the radar – which perhaps should not have.

Over a decade ago, Prashant’s brother, Shantanu Sukul, had retired from the Navy and become a defence sector lobbyist, who happens to have been working for Anil Ambani’s Reliance defence group since 2015.

Exclusive: Conflict of Interest in MoD Over Rafale Offsets?

An investigation by The Quint and Brut India has discovered that the relationship between these two senior Defence Ministry officials, and a consultant/employee of Reliance’s defence companies, has given rise to a startling potential conflict of interest, particularly in relation to the offset contracts under the Rafale deal.

This claim has been contested by Prashant Sukul (the full text of his response has been included at the end of this article), according to whom, actions were recently taken which prevented such a conflict of interest from arising, and that there is no possibility for this conflict of interest becoming an issue in the future. However, even after factoring these arguments in, several questions remain.

Why Was There Potential for a Conflict of Interest to Arise out of This Relationship?

The CGDA and Financial Adviser (Defence Services)

Prashant and Madhulika Sukul hold senior positions in the office of the CGDA, and the CGDA heads the Defence Accounts Department (DAD). The DAD is responsible for audit, payment and accounting of all charges relating to the Armed Forces.

The DAD is under the administrative control of the Financial Adviser (Defence Services), which is an extremely important position which combines finance-related work with involvement in achieving a ministry’s goals and objectives. As mentioned earlier, Madhulika Sukul is not only the CGDA, but has also been appointed as Financial Adviser (Defence Services).

Anil Ambani’s Reliance Defence Companies

The potential for conflict of interest from the positions held by the wife-husband duo has arisen because of Shantanu Sukul’s ties to Reliance. Anil Ambani’s Reliance defence companies were mostly incorporated or acquired in early 2015, and have since sought to get involved in government defence contracts.

The most prominent example is of course the Rafale deal, where Reliance is attempting to secure contracts to fulfil the offset obligations under the deal. To this end, Reliance Aerostructure Limited has already formed a joint venture with Dassault called Dassault Reliance Aerospace Limited.

Shantanu Sukul and Reliance

Shantanu Sukul retired from the Navy as a Commander in 2006 and has worked in the Indian private defence sector since then, mostly with companies associated with Gujarati entrepreneur Nikhil Gandhi. In these roles, he has liaised with the Defence Ministry and helped these companies secure government contracts. In 2015, he was General Manager Naval Systems at Pipavav Defence and Offshore Engineering Company Ltd, which was acquired by Reliance.

According to Shantanu’s own LinkedIn profile (as of the time of the publication of this article), Shantanu Sukul continues to be a consultant for the same company, which has now been renamed Reliance Naval & Engineering Limited. Sources indicate that Shantanu Sukul also works for the broader Reliance defence group as a whole. This is perhaps why an older version of his LinkedIn profile used to indicate that he was employed as ‘DGM, Reliance Defence Ltd’.

Exclusive: Conflict of Interest in MoD Over Rafale Offsets?

Reliance Defence Ltd is one of the key holding companies in the Reliance defence group, owning a number of other companies including Reliance Aerostructure Limited – which, as we’ve mentioned, formed the joint venture with Dassault to secure offset contracts under the Rafale deal.

Interestingly, Shantanu Sukul appears to have removed all references to this position at Reliance Defence Ltd from his LinkedIn profile (including that he ever worked there).

UPDATE: In his responses to our questions, Shantanu Sukul has confirmed that he worked for Reliance Naval & Engineering Limited and Reliance Defence Limited (see the responses at the end of the piece, in particular his responses to questions 1-3) though he claims to have retired from them all in September 2018.

He has claimed that his son created his LinkedIn profile and so he is not aware of what it says, which appears to be his attempt to counter the fact that his own profile indicated he was still employed by Reliance till this morning. He has finally amended his profile to say that he worked at Reliance Naval till September 2018. We will update this further if we receive documentary evidence of his resignation.

Is This Sufficient to Allege a Potential Conflict of Interest?

On a very cursory level, the mere fact that Madhulika and Prashant Sukul hold offices in the government, and Shantanu Sukul works for a company/group that is attempting to work with the government (and on contracts related to government), could be said to imply a potential conflict of interest.

This view could be supported by Rule 4(2)(ii) of the Central Civil Service (Conduct) Rules 1964, under which a bureaucrat is required to inform the government whenever a member of their family accepts employment at any company or firm. This obligation applies regardless of which department the bureaucrat works in, and doesn’t even require the company or firm to have anything to do with the government.

Such an interpretation would have required Prashant and Madhulika Sukul to disclose that Shantanu Sukul had joined Reliance (and even his previous employers for that matter) regardless of their own roles at the exact time. It is understandable, however, that such an interpretation is not necessarily accepted by everyone.

In his response, Prashant Sukul has indicated that they did not inform the government of the jobs taken up over the years by Shantanu Sukul. He notes that over the course of his and Madhulika’s careers, their roles never had any connection to his work, and so no question of disclosing a conflict of interest arose.

What is interesting is that in his response, he notes that there was no question of Madhulika having to disclose anything about Shantanu “until February 2018”, as till then, her work had nothing to do with Rafale or Reliance. In February 2018, Madhulika was appointed as CGDA, and since the Rafale deal involves public money and expenditure for the Armed Forces, she could very well have been involved in aspects of it – a possibility even his own response appears to acknowledge.

Despite this, he notes that Madhulika only made an intimation of a conflict of interest in September 2018, after she had been appointed as Financial Adviser (Defence Services). Madhulika Sukul has not responded to the questions we have sent her, so it is not clear why no disclosure was made between February and September 2018.

In our questions to Prashant, we had specifically asked if he had made any disclosures about his brother but he has rejected the need for this, despite his appointment to the CGDA in June 2016. According to him, in his post as Addl CGDA he does not have anything to do with the Rafale deal or Reliance.

Does the Office of the CGDA Have Anything to do With the Rafale deal or Reliance?

The reason why any of this needs to be reported, however, is because the CGDA does have something to do with the Rafale deal – more specifically, the offset obligations under the deal.

As is known, the manufacturers of the Rafale aircraft and its components have to plough back half of the price of the deal into offset contracts to be performed in India. This is meant to be an alternative to having technology transfers, or making (some) aircraft in India as the original 126 MMRCA deal had intended.

As part of this trade-off, even though these offset contracts will be entered into by private parties, the government has to scrutinise the contracts to see if they’re genuine, and if there is anything irregular about them.

And this is where the CGDA comes in, according to the government’s own response to the Supreme Court. Para 8 of the response on the offset contract process says:

“Post contract, the vendor submits six monthly offset reports and necessary supporting documents to the DOMW. These offset discharge reports are then  independently audited by the Controller General of Defence Accounts (CGDA) to ascertain veracity of the transactions vis-à-vis offset contract. Based on the audit report submitted by the CGDA, offset credits are granted or penalties if applicable are levied.”

What this means is that not only will the CGDA audit all the transactions under the offset contracts, but their reports will also decide penalties or credits for the companies, whether Reliance or its competitors.

What Does This Mean for Madhulika and Prashant Sukul?

Madhulika Sukul’s position as CGDA would mean that when these offset contracts need to be assessed next year, she would need to sign off on the audit reports. Even if she is no longer CGDA at the time, as Financial Adviser (Defence Services), the CGDA is under her administrative control.

Prashant Sukul’s post as Additional CGDA makes him the next most senior officer in the team. Furthermore, his job description on the CGDA’s own website includes “All Matters relating to Air Force/DOA/OF/DRDO/CSD/SFC”. Since he is to deal with matters relating to the Air Force, it is difficult to see how he would not have something to do with audit process.

Since Reliance will be party to some of these offset contracts at least, and are bidding with their partners to secure work, this could mean a potential violation of Rule 4(3) of the Central Civil Service (Conduct) Rules 1964, which says:

“No Government servant shall in the discharge of his official duties deal with any matter or give or sanction any contract to any company or firm … if any member of his family is employed in that company or firm … or if he or any member of his family is interested in such matter or contract in any other manner and the Government servant shall refer every such matter or contract to his official superior and the matter or contract shall thereafter be disposed of according to the instructions of the authority to whom the reference is made.”

This means that not only would Madhulika and Prashant have to inform the authorities about the potential conflict of interest, but steps will also have to be taken to deal by the government to deal with the matters/contracts.

It needs to be emphasised that we are not alleging that any wrongdoing has already been committed by Prashant Sukul or Madhulika Sukul, or to imply that they will necessarily compromise the audit reports when the offset contracts start coming in next year. However, the potential conflict of interest that exists at this point itself – their presence in the CGDA could influence the award of offset contracts as well – and the potential impact this could have next year when the audits begin, cannot be ignored.

In his response, Prashant Sukul has noted that Madhulika Sukul recused herself from all Reliance matters on 19 September 2018, to avoid any conflicts of interest between her and Shantanu, who was still working for Reliance at the time. Since he has not provided us with a copy of the documents and Madhulika Sukul has not responded to us, we cannot verify this information at this point, and so we cannot rule out the possibility that she could play a role in the offset audit process. Also note that she would need to have recused herself from all the audits, not just the ones for Reliance, since they could benefit from how other companies will be audited too.

Prashant Sukul also claims that Shantanu Sukul recently resigned from Reliance, and that the resignation was accepted on 30 September 2018. As mentioned earlier, Shantanu has claimed that he has resigned from any positions he held at Reliance companies. We have sent questions to Reliance to confirm this was the case and will update this story when we receive documentary evidence that demonstrates the same.

If Shantanu Sukul continues to work with Reliance, however, the potential for the conflict of interest will still exist, provided Madhulika and Prashant Sukul retain positions in the CGDA, and/or in Madhulika’s case, she continues to be the Financial Adviser (Defence Services). If they continue in their positions, then appropriate measures will need to be taken to ensure they have nothing to do with the Rafale offset audit process, and recuse themselves from any matter in which Reliance has an interest.

This could be quite difficult to do, since Reliance is not only attempting to involve itself in the Rafale deal offsets, but many other projects with the government.

The Lessons to be Learned

Presuming everything argued by Prashant Sukul and now Shantanu Sukul in their responses is indeed true, this whole situation nevertheless demonstrates some serious problems with the appointments of positions like Madhulika Sukul’s and Prashant Sukul’s, and the system of disclosure of conflicts of interest.

We should definitely not have to be in a position where a potential conflict has been created and post-facto, we have to go through several steps to unravel it: Madhulika’s recusal, Shantanu’s resignation, a government action plan to mitigate the effects, etc.

After all, Shantanu Sukul’s involvement with Reliance was public information well before both Prashant and Madhulika Sukul were appointed to the CGDA (and continued till long after their appointments), and should ideally have been disclosed to the government by the couple at the time. Why are our rules for bureaucrats not clear enough to require this?

The Centre was also well aware of the offset audit process for the Rafale deal before those appointments, which means the Appointments Committee of the Cabinet (which comprises the Prime Minister) should have decided against appointing these two particular officials to the CGDA if it had all the information. If they didn’t, this makes our appointments process inefficient.

In the event the government had all these facts in hand and still decided to appoint the Sukuls, we also need to know whether any steps had been put in place to ensure that the potential conflict of interest didn’t become a problem. In particular, there should have been a clear directive that they could not get involved in the audit process.

It would also be interesting to know if the French government and Dassault were at any point of time aware about this potential conflict of interest, given fairly strict European laws on such issues. Dassault in particular could have had cause for concern under the OECD Anti-Bribery Convention, depending on how the offsets audit in particular could have played out.

We reached out to the Ministry of Defence, Madhulika Sukul, Prashant Sukul, Shantanu Sukul and Reliance for responses to the questions raised by this story, more than 24 hours before its publication. We received responses from Prashant Sukul and Shantanu Sukul which have been reproduced in their entirety below. We have received no responses from the others till now, and will update the story with their responses as and when we receive them.

Prashant Sukul’s Response

I have gone through the contents of your questionnaire. Do note that in most of the period from 2006 onwards, I have been solely in the civil aviation sector in various appointments and was India’s representative to ICAO in Montreal Canada. I only rejoined the defence sector on my return in 2016. My wife has mostly been in the Finance Ministry from 1995 -2014 and then was on 2 years study leave. After this she was posted in the consumer affairs ministry until February 2018. So there can be no question of any disclosure relating to conflict of interest until then because none of these assignments has anything to do with Rafale or Reliance.

I am still Addl CGDA and have nothing to do with Rafale/Reliance in my present job. My wife who is now FA defence services, upon joining in Sep 2018 had intimated the conflict of interest in that job to the government on the 19th Sep 2018. In that intimation she has recused herself from all dealings with Reliance because by then Shantanu Sukul has not yet resigned from his position. Shantanu resignation was accepted on the 30th Sep 2018.

Although Shantanu has resigned his position from Reliance, my wife continues to recuse herself from all Reliance matters until today.

I, thus, do not see any necessity for your story even if it presents these facts. It will still damage our reputation and we will have to take legal recourse in that event. It sensationalises an occurrence that did never take place. As regards Mr Sule we are completely unaware of the position.

Shantanu Sukul’s Formal Response

Please find below my response in-line:

  • Are you currently working as or have you ever worked as a consultant for Reliance Naval and Engineering Limited? - Currently not working, resigned since September 2018
  • Are you currently working as or have you ever worked as a consultant or employee for Reliance Defence Limited? If you are no longer working for them, please indicate when you stopped working for them.- refer to point 1
  • Are you currently working as or have you ever worked as a consultant or employee for any other company within Reliance defence group or any other company whose ultimate holding company is Reliance Infrastructure Limited or Reliance Defence Limited? - no (your question is repeated, please refer to point 1)
  • Why did you remove all references to a position at "Reliance Defence Ltd" from an earlier version of your LinkedIn profile? - My son made my LinkedIn profile, I'm clearly not tech savvy unlike you youngsters
  • Has your brother Prashant Narain Sukul ever filed a disclosure in respect of your employment with the Union of India/ the relevant authority under Rule 4(3) of the Central Civil Service (Conduct) Rules 1964 or any other relevant service rules or provision of law? - not my responsibility to know this, but I'm sure he has done it
  • Has your brother's wife Madhulika Sukul ever filed a disclosure in respect of your employment with the Union of India/ the relevant authority under Rule 4(3) of the Central Civil Service (Conduct) Rules 1964 or any other relevant service rules or provision of law? - not my responsibility to know this, but I'm sure she has done it

I was in the Indian Navy and handled only shipbuilding cases. I had nothing to do with aircraft acquisitions ever. This fact should have been confirmed by you prior to going to print. You should have called me on phone to verify these details rather than resorting to guesswork. What was the tearing hurry to print this, without adequate information. Please note that I hardly check my emails, hence 24 hrs is inadequate and a 50+ like me needs a week's notice.

I've given you all my replies now so how can you state that I refused to answer your queries?

Please remove the article from your page and offer an apology to me and my family. Please let me reiterate that I'd like to end this controversy without any legal action from my side.

(This story has been published as part of an investigation by The Quint and Brut India)