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{{Short description|1995 financial scandal in India}}
{{Use British English|date=January 2014}}
{{Use dmy dates|date=April 2026}}
A financial scandal related to a hydroelectric infrastructure contract between the [[Government of Kerala]] and the Canadian company [[SNC-Lavalin]] in 1995 resulted in an alleged net loss to the Indian [[exchequer]] of {{currency|374.5|INR}} [[crore]].<ref name=thehindu1>{{cite news |url=http://www.thehindu.com/todays-paper/tp-national/tp-kerala/cag-finds-lapses-in-deal-with-lavalin/article3178064.ece |title=CAG finds lapses in deal with Lavalin |work= The Hindu | location=Chennai, India |date=14 February 2006}}</ref><ref name="indianexpress1">{{cite web|url=http://archive.indianexpress.com/news/cbi-to-grill-pinarayi-in-lavalin-case/274446/|title=CBI to grill Pinarayi in Lavalin case|work=The Indian Express}}</ref>

The contract outlined the renovation and modernization of the hydroelectric power stations at [[Pallivasal]], Sengulam, and Panniar that were originally installed between 1940 and 1964 in the [[Idukki district]] of [[Kerala]], India.<ref name=indianexpress0>{{cite web |url=http://www.indianexpress.com/news/snc-lavalin-case-the-scam-and-the-probe-so-far/421657/0 |title=SNC Lavalin case: The scam and the probe so far |work=Indian Express|date=10 February 2009 }}</ref>

Several politicians were involved and eventually charged in the case, including present chief minister [[Pinarayi Vijayan]],<ref name=timesofindia1>{{cite news |url=http://articles.timesofindia.indiatimes.com/2009-01-22/india/28020924_1_panniyar-snc-lavlin-cbi-probe |archive-url=https://web.archive.org/web/20131105105312/http://articles.timesofindia.indiatimes.com/2009-01-22/india/28020924_1_panniyar-snc-lavlin-cbi-probe |url-status=dead |archive-date=5 November 2013 |work=[[The Times of India]] |title=Pinaryai Vijayan's may figure in SNC-Lavlin scam | date=22 January 2009}}</ref> the first ever corruption-related prosecution of a Politburo member of the [[Communist Party of India (Marxist)]].<ref name=indianexpress2>{{cite web| url=http://www.indianexpress.com/news/cbi-set-to-prosecute-cpm-kerala-boss-party-in-a-fix/414003/ |title=CBI set to prosecute CPM Kerala boss, party in a fix |work=Indian Express|date=22 January 2009 }}</ref> However, on 5 November 2013, Pinarayi Vijayan and 6 other accused were temporarily cleared of charges by a [[Central Bureau of Investigation]] (CBI) Special Court because "the CBI could not prove any of its charges".<ref>{{cite news| url=http://www.thehindu.com/news/national/kerala/relief-for-pinarayi-vijayan-in-lavalin-case/article5316714.ece | location=Chennai, India | work=The Hindu | first=C. Gouridasan | last=Nair | title=Pinarayi cleared of charges in Lavalin case | date=5 November 2013}}</ref> The CBI then went on with an appeal in [[Kerala High Court]]. On 23 August 2017, the Kerala High Court ruled on the case, and Pinarayi Vijayan was acquitted again.<ref>{{Cite news|url=http://www.thehindu.com/news/national/kerala/kerala-hc-upholds-discharge-of-pinarayi-vijayan-in-lavalin-case/article19545182.ece|title=Kerala HC upholds discharge of Pinarayi Vijayan in SNC-Lavalin corruption case|work=The Hindu|access-date=2017-08-23|language=en}}</ref><ref>{{Cite news|url=http://indianexpress.com/article/india/pinarayi-vijayan-lavalin-case-kerala-high-court-cbi/|title=Kerala CM Pinarayi Vijayan acquitted in SNC-Lavalin case, HC says CBI has no evidence against him|date=2017-08-23|work=The Indian Express|access-date=2017-08-23|language=en-US}}</ref> As of July 2020, CBI's petition against acquittal of Pinarayi Vijayan is pending in the [[Supreme Court of India]].

== History ==

In 1992, the [[Central Electricity Authority (India)|Central Electricity Authority]] (CEA) of India rejected a proposal of [[Kerala State Electricity Board]] (KSEB) to renovate the three hydro-electric power projects at [[Pallivasal]], Sengulam and Panniar. Instead, the CEA recommended a capacity upgradation of the generators in these three power projects, after they found that these projects were in good condition.<ref name=indianexpress0/> The KSEB disregarded this recommendation and went forward with the decision to renovate these projects.

===Initial negotiations===
The initial negotiations with the Canadian company [[SNC-Lavalin]] – a company which had been present in the state's power sector for several decades – began during the tenure of United Democratic Front government,<ref name=indianexpress2/> under the leadership of the then power minister [[C. V. Padmarajan]]<ref name=thehindu2>{{cite news |url=http://www.hindu.com/2006/02/15/stories/2006021512360100.htm |archive-url=https://web.archive.org/web/20071020040054/http://hindu.com/2006/02/15/stories/2006021512360100.htm |url-status=dead |archive-date=20 October 2007 |title=Ready to face any inquiry into SNC Lavalin deal, says CPI(M) | location=Chennai, India |work=[[The Hindu]] |date=15 February 2006}}</ref> and later, the Kerala State Electricity Board (KSEB) signed a [[memorandum of understanding]] (MoU) with SNC-Lavalin on 10 August 1995, when [[G. Karthikeyan]] of the [[Indian National Congress|Congress Party]] was the power minister, after the resignation of C.V. Padmarajan. Under the provisions of the MoU, the funds for the renovation were to be arranged by SNC-Lavalin from the [[Export Development Canada]] (EDC), Canada, and the [[Canadian International Development Agency]] (CIDA). Later, it was also found out in a probe by CBI, that G. Karthikeyan also wanted a quid-pro-quo assistance from the Canadian government for the setting up a hospital for granting a project for refurbishment of Pallivasal, Shengulam and Panniyar Hydro electric stations in Kerala, after the revelation of a letter by G Karthikeyan to the then vice-president of Lavalin business operations, [[Klaus Triendl]], who is also an accused in the Lavalin scandal.<ref name=indiatoday1>{{cite web |url=https://www.indiatoday.in/latest-headlines/story/exclusive-former-kerala-minister-sought-lavalin-favour-51855-2009-07-09 |title=Exclusive: Former Kerala minister sougthe first Politburo member in the CPI(M) history to be prosecuted in a corruption case.ht Lavalin favour |date=10 July 2009 |publisher=India Today}}</ref> It was only in September 1995, that the KSEB undertook a feasibility study on the proposal, by a retired Chief Engineer of the KSEB, who later became a consultant to SNC-Lavalin.<ref name=thehindu1/>

===Consultant's report===
Based on the consultant's report and further discussions, the KSEB under the leadership of G. Karthikeyan, signed the contracts with SNC-Lavalin to provide technical services for management, engineering, procurement and construction supervision on 24 February 1996, to ensure completion of the projects within three years. The consultancy agreement did actually include the rates for various equipments to be purchased as part of the project. Consultancy agreements were converted into fixed price contracts for the supply of machinery and technical services as part of the renovation at a cost of 67.94 million [[Canadian dollar]]s (Rs 1690.3 million). The final follow-up agreement with SNC-Lavalin regarding the renovation of PSP project was signed by [[Pinarayi Vijayan]] of [[Left Democratic Front (Kerala)|Left Democratic Front]] – after they took office winning the majority in legislative assembly in 1996 – in February 1997.<ref name=thehindu2/> Technically, the Left Democratic Front (Kerala) led government could not retreat from the agreements, even if they wanted to,<ref name=thehindu2/> according to the provisions of the MoU which was already signed by their predecessors, that is the ministers of United Democratic Front government.

===Contract signed===
After the final contract was signed, the entrusted the [[National Hydroelectric Power Corporation Limited]] (NHEPCL) a study to justify the prices quoted by Lavalin, and they concluded in that study that in view of the grant to the proposed Malabar Cancer Centre (MCC), the purchase of Canadian equipment and accessories could be considered favorably.<ref name=indianexpress0/>

===Comptroller and Auditor General findings===
The [[Comptroller and Auditor General of India|Comptroller and Auditor General (CAG)]] found that Lavalin was only a consultant intermediary and not the [[original equipment manufacturer]] and that the supply of goods and services was made by other firms at a much higher cost leading to excess expenditure. According to the CAG, the absence of due professional care in negotiating the foreign loan proved to be detrimental to the financial interests of the Board. The Board also could not ensure the quality of renovation work in the absence of [[technology transfer]] and training of its engineers. Owing to various technical defects in the equipment, the generation of power could not be maintained even at the pre-renovation level and the Board had to spend on repairs.

According to the CAG, failure to exclude the fee for technical consultancy from fixed price contracts resulted in an avoidable payment of Rs 203.1 million, and failure to negotiate and exclude the exposure fee from the loan agreement resulted in avoidable payment of Rs 94.8 million and future liability of Rs 22.1 million. In the opinion of the CAG, there was also an avoidable payment of Rs 12.0 million as commitment fee despite there being committed but unavailed advance.

The CAG found that the Government did not receive Rs 893.2 million out of the grant of Rs 983.0 million that was promised for the [[Malabar Cancer Centre]] as the MoU was not renewed in time during the tenure of United Democratic Front when [[Kadavoor Sivadasan]] was the minister in charge of power.<ref name=thehindu3>{{cite news |url=http://www.hindu.com/2009/02/20/stories/2009022056020400.htm |archive-url=https://web.archive.org/web/20140223012802/http://www.hindu.com/2009/02/20/stories/2009022056020400.htm |url-status=dead |archive-date=23 February 2014 |title=Kadavoor Sivadasan owes an explanation: Pinarayi | location=Chennai, India |work=[[The Hindu]] |date=20 February 2009}}</ref>

===Inquiry===
On 16 January 2007,{{Citation needed|date=October 2011}} [[Kerala High Court]] ordered a [[Central Bureau of Investigation|CBI]] enquiry into the scandal.<ref name=timesofindia7345>{{cite news |url=https://timesofindia.indiatimes.com/india/CPMs-Kerala-secy-under-CBI-scanner/articleshow/1233179.cms |archive-url=https://archive.today/20130126105422/http://articles.timesofindia.indiatimes.com/2007-01-17/india/27881998_1_cbi-lavlin-probe |url-status=live |archive-date=26 January 2013 |work=[[The Times of India]] |title=Times of India - CPM's Kerala secy under CBI scanner | date=17 January 2007}}</ref>

On 18 February 2008, the CBI informed the High court of Kerala that the investigation was progressing and said that former Electricity Ministers [[Pinarayi Vijayan]] and G. Karthikeyan would be examined at the appropriate time.<ref>{{cite news |url=http://www.hindu.com/2008/02/19/stories/2008021952870400.htm |archive-url=https://web.archive.org/web/20080922053730/http://www.hindu.com/2008/02/19/stories/2008021952870400.htm |url-status=dead |archive-date=22 September 2008 |title=Lavalin case probe progressing: CBI | location=Chennai, India |work=[[The Hindu]] |date=19 February 2008}}</ref>

On 21 January 2009, the CBI filed a progress report on the investigation in the Kerala High Court. Pinarayi Vijayan had been named as the 9th accused in the case.<ref name=timesofindia5>{{cite news |url=http://economictimes.indiatimes.com/News/PoliticsNation/CBI_finds_Pinarayi_guilty_in_Lavalin_scam_moralistic_CPM_yet_to_act/articleshow/4014521.cms| title=CBI finds Pinarayi guilty in Lavalin scam, moralistic CPM yet to act | work=The Times of India | date=22 January 2009}}</ref><ref name=indianexpress6>{{cite web |url=http://www.indianexpress.com/news/cbi-seeks-nod-to-prosecute-cpms-kerala-unit-chief/413768/|title=CBI seeks nod to prosecute CPM's Kerala unit chief|date=22 January 2009 }}</ref>

===Sanctions===
On 2 February 2009, the CBI wrote a letter to the Governor of Kerala, seeking sanction for the prosecution of Pinarayi Vijayan under section 197 of the CrPC,<ref name="deccanherald0">{{cite news |url=http://www.deccanherald.com/content/22582/tv-talk.html| title=SNC Lavalin case: SC issues notices to CBI, Kerala govt | work=Deccan Herald}}</ref> who later referred it to the cabinet .

On 6 May 2009, the Cabinet opined that it was not necessary to grant permission to prosecute Pinarayi Vijayan.<ref name="deccanherald0"/>

On 31 August 2011, the [[Supreme Court of India]] issued notices to the Government of Kerala and the CBI, on a petition filed by Pinarayi Vjayan, challenging the then Kerala Governor, R.S. Gavai's nod to prosecute the former, over-riding the decision of the council of ministers, after he wrongly assumed that he had jurisdiction and power to grant sanction on his own. The proceedings against Pinarayi Vijayan initiated in the special court was stayed by this order.<ref name="deccanherald0"/>

On a petition seeking discharge from the case before the CBI Special Court Thiruvananthapuram, Pinarayi Vijayan and the other accused were discharged from the case on 5 November 2013. The court said that the CBI had failed to prove the charges of conspiracy and cheating against the seven petitioners who had sought the discharge and that it had no hesitation in holding that the allegations against them were "groundless". The prosecution had failed to establish any dishonest and fraudulent intention, abuse of official position, or element of cheating, which the accused were charged with, Special Judge R. Raghu said in a much-awaited judgment.

The Special Court judge said that the prosecution had not made case that any of the accused gained undue pecuniary advantage by awarding the contract to SNC-Lavalin. It had, on the other hand, attempted to pose two "contradictory and mutually destructive" allegations: one, that the act of awarding the contract to the company was "dishonest" and "fraudulent"; and two, that the consideration for awarding the contract was the offer of a grant to establish the cancer hospital, which was, in fact, a laudable objective involving the public interest. The court said the only question that remained for consideration in the case was whether there was any "administrative failure or blunder" that took place "without understanding the ramifications of the offer of grant" from various Canadian agencies in return for the award of the supply contract to SNC-Lavalin.<ref>{{cite web | url=http://english.manoramaonline.com/news/kerala/2017/08/23/cm-pinarayi-kerala-hc-verdict-snc-lavalin-case.html | title=Home }}</ref>

===Appeal===
An Appeal Petition has been filed by journalist T. P. Nandakumar in [[Kerala High Court]] against the exoneration of Vijayan by the CBI court.<ref>{{cite web|title=Another Judge refuses to hear SNC Lavalin Scandal|url=http://news.biharprabha.com/2014/01/another-judge-refuses-to-hear-snc-lavalin-scandal/|work=IANS|publisher=Biharprabha News|accessdate=29 January 2017}}</ref>

==See also==
*[[SNC-Lavalin affair]], a political scandal in Canada involving the same company

==References==
{{reflist|30em}}

[[Category:Political corruption in India]]
[[Category:Political history of Kerala]]
[[Category:Crime in Kerala]]
[[Category:1990s in Kerala]]
[[Category:AtkinsRéalis]]
[[Category:Corruption in Kerala]]
[[Category:1995 in India]]

SNC-Lavalin Kerala hydroelectric scandal - Revision history

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