What governs defence procurement in India?

Defence acquisition by the Ministry of Defence is conducted under a codified acquisition procedure which sets out categories of acquisition, eligibility conditions, indigenous content requirements, evaluation processes and contracting provisions. Separate provisions apply to revenue procurement. The procedure is revised periodically, and the version applicable to a particular procurement is that specified in the tender documentation.

What are defence offsets?

Offsets are obligations imposed on a foreign vendor in specified procurements to undertake or facilitate qualifying activity in India, such as sourcing from Indian entities, investment or transfer of technology, to a value determined as a proportion of the contract. The avenues through which offsets may be discharged, and the documentation required to establish discharge, are prescribed by the applicable policy.

Is an industrial licence required to manufacture defence items?

Manufacture of items specified in the applicable notifications requires an industrial licence under the framework governing industrial licensing, and licensing under arms legislation applies to specified categories of arms and ammunition. Whether a licence is required depends on the classification of the item proposed to be manufactured, which is assessed against the notified lists.

Can foreign companies invest in Indian defence manufacturing?

Foreign direct investment in the defence sector is permitted subject to sectoral conditions, with investment up to a specified proportion permitted under the automatic route and beyond that requiring government approval, subject to the conditions in force, including those relating to security. The applicable limits and conditions should be verified against the policy in force at the time of the investment.

What is the SCOMET list?

The control list applicable to special chemicals, organisms, materials, equipment and technologies specifies items whose export is restricted and requires authorisation under the foreign trade framework. Exporters are required to classify items against the list and, where an item is listed, to obtain authorisation before export, supported by end-use and end-user documentation.

Can a blacklisting or debarment decision be challenged?

Decisions suspending or debarring an entity from business dealings are administrative decisions and have been subjected to judicial review on grounds including absence of a show cause notice, denial of hearing, disproportionality of the period imposed and absence of reasons. Challenges are ordinarily brought in writ jurisdiction before a High Court.

What regulates drone operations in India?

Operation of unmanned aircraft is governed by rules made under the aviation legislation, which provide for registration of aircraft, certification of remote pilots, classification of airspace into zones, type certification of aircraft, and restrictions on operations. Requirements vary with the category and weight of the aircraft and with the nature of the operation proposed.

Are private entities permitted to undertake space activities in India?

Participation by private entities in space sector activity is permitted subject to authorisation by the designated authority and to the conditions applicable to the activity concerned, with policy in this area having been liberalised in recent years including in relation to foreign investment. The framework continues to develop, and the position should be verified against the policy and authorisation requirements in force.

Aerospace & Defence — Regulatory & Advisory

Aerospace and defence practice concerns the regulatory framework applicable to defence procurement and production, aviation operations, and the movement of controlled goods and technology. Sagar & Sagar Law Offices advises on defence acquisition and offset requirements, industrial licensing and foreign investment conditions applicable to the sector, export control authorisation, and civil aviation and unmanned aircraft regulation, and acts in contractual and administrative disputes involving public sector purchasers. Work in this practice is regulatory, contractual and advisory in nature.

Aerospace and defence in India is characterised by a public sector purchaser, a licensed manufacturing base, and controlled movement of goods and technology across borders. Each of these carries its own framework. Procurement follows a codified acquisition procedure with defined categories, indigenous content requirements and offset obligations. Manufacture of specified items requires industrial licensing. Export of controlled items requires authorisation under the foreign trade framework. Foreign participation is subject to sectoral investment conditions.

The practice at Sagar & Sagar Law Offices operates across the regulatory and contractual dimensions of this sector. Work includes advice on participation in defence procurement, structuring of joint ventures and technology arrangements with foreign partners, licensing and authorisation applications, compliance with offset and indigenisation requirements, and representation in disputes arising from contracts with public authorities, including challenges to tender decisions and to debarment.

Scope of work

Defence procurement and acquisition

Participation in acquisition by the armed forces and defence establishments.

Advice on the acquisition procedure applicable to a proposed procurement
Advice on acquisition categories and on the eligibility conditions attaching to each
Advice on indigenous content requirements and on their computation
Review of requests for information and requests for proposal
Advice on bid eligibility, consortium arrangements and lead bidder responsibilities
Preparation and review of bid documentation and undertakings
Advice on integrity pact obligations and on agent and representative restrictions
Advice on evaluation, negotiation and contract award processes
Review and negotiation of defence procurement contracts
Advice on performance obligations, delivery, acceptance and warranty provisions
Advice on liquidated damages, penalties and risk purchase provisions

Offsets and indigenisation

Obligations arising from and connected to procurement.

Advice on applicability of offset obligations to a procurement
Advice on eligible offset avenues and on the discharge of obligations
Review and negotiation of offset contracts and undertakings
Advice on offset banking and on transfer of offset credits
Advice on selection and engagement of Indian offset partners
Advice on documentation and reporting for discharge of offset obligations
Advice on consequences of failure to discharge offset obligations
Advice on indigenisation programmes and on domestic sourcing requirements

Licensing, approvals and foreign investment

Authorisations required to establish and operate in the sector.

Advice on industrial licensing requirements for manufacture of defence items
Applications for industrial licences and for amendments to them
Advice on licensing under arms legislation and the rules made under it
Advice on foreign direct investment conditions applicable to the defence sector
Advice on entry route, approval requirements and conditions attaching to foreign investment
Advice on security clearance requirements and on the process for obtaining them
Advice on registration and empanelment with defence procurement organisations
Advice on establishment of manufacturing operations, including approvals and land matters

Export controls and controlled technology

Movement of controlled goods, software and technology.

Advice on classification of items against the applicable control list
Applications for export authorisation for controlled items
Advice on end-use and end-user documentation requirements
Advice on obligations under legislation prohibiting unlawful activities in relation to weapons of mass destruction and their delivery systems
Advice on India's participation in multilateral export control arrangements and its consequences
Advice on re-export, retransfer and intangible technology transfer
Advice on internal compliance programmes for export control
Advice on responses to enquiries and investigations concerning controlled exports
Advice on import authorisation for controlled items

Industrial collaboration and technology arrangements

Arrangements between Indian and foreign participants.

Structuring of joint ventures in the defence and aerospace sector
Technology transfer and licensed production agreements
Advice on ownership and licensing of intellectual property in collaborative programmes
Teaming, consortium and subcontracting agreements
Supply chain and vendor agreements, including flow-down of prime contract obligations
Advice on confidentiality and security requirements in collaborative arrangements
Advice on maintenance, repair and overhaul arrangements
Advice on establishment of production and assembly facilities

Civil aviation regulation

Regulatory framework applicable to aviation operations and infrastructure.

Advice on the framework governing aircraft, aerodromes and air operations
Advice on approvals, permits and certification requirements applicable to operators
Advice on obligations relating to aviation security
Advice on airport concession, tariff determination and economic regulation
Advice on aircraft acquisition, leasing and financing arrangements
Advice on registration and deregistration of aircraft and on repossession
Advice on the framework implementing international conventions relating to interests in aircraft objects
Advice on maintenance, repair and overhaul operations and their regulatory requirements
Representation in regulatory proceedings and appeals

Unmanned aircraft and emerging aerospace

Newer areas within the sector's regulatory framework.

Advice on the regulatory framework applicable to unmanned aircraft systems
Advice on registration, pilot certification and airspace classification requirements
Advice on permissions for operations and on operational restrictions
Advice on manufacture, import and type certification of unmanned aircraft
Advice on the regulatory framework applicable to space activities and on authorisation requirements
Advice on participation by private entities in space sector activity
Advice on data, imagery and remote sensing regulation

Disputes involving public sector purchasers

Contentious work arising from contracts and administrative decisions.

Challenges to tender conditions, evaluation and award of contract
Writ proceedings against administrative decisions of procurement authorities
Challenges to blacklisting, debarment and suspension of business dealings
Disputes concerning performance, delay and termination of defence contracts
Claims relating to price variation, change in scope and change in law
Arbitration under contracts with public sector purchasers
Disputes concerning encashment of bank guarantees and performance securities
Advice and representation in enquiries and investigations concerning procurement

Forums and authorities

Ministry of Defence and its acquisition and production organisations
Department for Promotion of Industry and Internal Trade, in industrial licensing
Directorate General of Foreign Trade, in export authorisation
Directorate General of Civil Aviation
Bureau of Civil Aviation Security
Airports Economic Regulatory Authority
Authority responsible for authorisation of space sector activity
High Courts, in writ jurisdiction over administrative and procurement decisions
Arbitral tribunals constituted under public sector contracts
Commercial Courts and Commercial Divisions
Supreme Court of India

Who we act for

Indian manufacturers and suppliers in the defence and aerospace sector
Foreign original equipment manufacturers participating in Indian procurement
Joint ventures established for defence production
Indian offset partners and subcontractors
Micro, small and medium enterprises in the defence supply chain
Aviation operators, lessors and service providers
Maintenance, repair and overhaul operators
Unmanned aircraft manufacturers and operators
Entities in the private space sector
Investors in aerospace and defence businesses

How we approach this work

Regulatory position established before commercial commitment.

Licensing, investment conditions and export authorisation determine whether an arrangement is capable of performance. These are assessed before documentation is settled.

Prime contract obligations traced through the supply chain.

Offset, indigenous content and security obligations imposed on a prime contractor are frequently discharged through subcontractors. Flow-down of those obligations is drafted deliberately rather than by incorporation.

Administrative decisions treated as reviewable.

Tender decisions, debarment and suspension are administrative acts subject to standards of fairness and reasonableness, and are assessed on that basis rather than accepted as final.

Scope confined to regulatory and contractual matters.

The practice concerns licensing, contracting, compliance and dispute resolution. It does not extend to technical, operational or capability matters.

Frequently asked questions

What governs defence procurement in India?: Defence acquisition by the Ministry of Defence is conducted under a codified acquisition procedure which sets out categories of acquisition, eligibility conditions, indigenous content requirements, evaluation processes and contracting provisions. Separate provisions apply to revenue procurement. The procedure is revised periodically, and the version applicable to a particular procurement is that specified in the tender documentation.
What are defence offsets?: Offsets are obligations imposed on a foreign vendor in specified procurements to undertake or facilitate qualifying activity in India, such as sourcing from Indian entities, investment or transfer of technology, to a value determined as a proportion of the contract. The avenues through which offsets may be discharged, and the documentation required to establish discharge, are prescribed by the applicable policy.
Is an industrial licence required to manufacture defence items?: Manufacture of items specified in the applicable notifications requires an industrial licence under the framework governing industrial licensing, and licensing under arms legislation applies to specified categories of arms and ammunition. Whether a licence is required depends on the classification of the item proposed to be manufactured, which is assessed against the notified lists.
Can foreign companies invest in Indian defence manufacturing?: Foreign direct investment in the defence sector is permitted subject to sectoral conditions, with investment up to a specified proportion permitted under the automatic route and beyond that requiring government approval, subject to the conditions in force, including those relating to security. The applicable limits and conditions should be verified against the policy in force at the time of the investment.
What is the SCOMET list?: The control list applicable to special chemicals, organisms, materials, equipment and technologies specifies items whose export is restricted and requires authorisation under the foreign trade framework. Exporters are required to classify items against the list and, where an item is listed, to obtain authorisation before export, supported by end-use and end-user documentation.
Can a blacklisting or debarment decision be challenged?: Decisions suspending or debarring an entity from business dealings are administrative decisions and have been subjected to judicial review on grounds including absence of a show cause notice, denial of hearing, disproportionality of the period imposed and absence of reasons. Challenges are ordinarily brought in writ jurisdiction before a High Court.
What regulates drone operations in India?: Operation of unmanned aircraft is governed by rules made under the aviation legislation, which provide for registration of aircraft, certification of remote pilots, classification of airspace into zones, type certification of aircraft, and restrictions on operations. Requirements vary with the category and weight of the aircraft and with the nature of the operation proposed.
Are private entities permitted to undertake space activities in India?: Participation by private entities in space sector activity is permitted subject to authorisation by the designated authority and to the conditions applicable to the activity concerned, with policy in this area having been liberalised in recent years including in relation to foreign investment. The framework continues to develop, and the position should be verified against the policy and authorisation requirements in force.

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Overview