Foreign arms vendors contest MoD’s unexplained blacklists

Sudipta Ghosh, whose arrest by the CBI soon after he retired as the Ordnance Factory Board chief, led to the unexplained blacklisting of multiple arms vendors

By Ajai Shukla
Business Standard, 26th Mar 12

For years, eagerness to enter India’s massive arms bazaar has led the world’s biggest and most influential arms companies to meekly accept diktats from New Delhi that no other buyer imposes. Overseas vendors spend fortunes on developing India-specific weaponry and on “no cost, no commitment trials” in the hope of a lucrative order. But the defence ministry (MoD) now faces a rebellion after blacklisting four international arms companies early this month, apparently on the mere suspicion of wrongdoing.

In a sharply worded statement on Friday, Swiss arms giant Rheinmetall Air Defence (or RAD) says it “objects to the decision of the Indian Ministry of Defence announced on 5 March 2012 to exclude it from doing business with India’s Ordnance Factory Board (OFB). This decision was based on allegations against RAD which the company categorically rejects as false and as entirely without merit.”

Criticising MoD high-handedness, the company notes, “The Indian authorities have yet to inform RAD of the details of these allegations. Transparency with regard to investigations would enable RAD to put forward conclusive evidence that will refute all claims made against it.”

Another vendor, Singapore Technologies Kinetics (ST Kinetics), has already dragged the MoD to court. In three petitions, filed in the Delhi High Court last March, the company protested “the arbitrary suspension of ST Kinetic’s defence business activities.”

Now the Swiss company could go to court too. RAD has told Business Standard that, “Rheinmetall Air Defence is contemplating all options, including legal, to defend its reputation and prove these allegations false.”

The ongoing controversy over blacklisting stems from the arrest, on 19th May 09, of the former Ordnance Factory Board (OFB) chief, Sudipta Ghosh, who was being watched by the Central Bureau of Intelligence (CBI) on suspicion of accepting bribes from potential vendors. After the CBI arrested Ghosh, Defence Minister AK Antony announced through the media that seven arms vendors were blacklisted until further notice. These were ST Kinetics; Israel Military Industries Ltd (IMI); Media Architects Pvt Ltd, Singapore; BVT, Poland; and three medium-sized Indian companies. Rheinmetall was not on that list.

To date none of the companies that Antony publicly named have been told the charges against them, nor has any CBI charge sheet been filed. On 28th July 2010 Antony told parliament that charge sheets have been filed against Sudipta Ghosh; and against two Indian companies, TS Kisan & Co; and RK Machine Tools Ltd.

The foreign vendors emphasise that they have cooperated closely with the CBI in attempting to clear their names. According to STK, “we had even offered on several occasions to open our account books for inspection by the Indian authorities, but these offers were never taken up by them.” Similarly, RAD tells Business Standard that it has provided “comprehensive documentation in exchanges with Indian authorities.”

With only silence from the MoD, and Antony’s ban blocking them from the Indian market, ST Kinetics approached the Delhi High Court last year, seeking clarification on why they had been blacklisted. Court records indicate that, despite repeated opportunities given by the court, the MoD failed to provide an explanation. A public statement from ST Kinetics says, “the MoD repeatedly (told the court) that ST Kinetics is not blacklisted and that the ‘putting on hold’ of ST Kinetics’ defence business activities is but an interim arrangement only.”

With the court set to deliver final orders on 21st Mar, the MoD hurriedly announced a blacklist on 5th Mar. This debarred six firms --- ST Kinetics; IMI; RAD; Corporation Defence, Russia (CDR); and two Indian companies, TS Kisan & Co; and RK Machine Tools Ltd --- from doing business dealings with the OFB for ten years.

According to the MoD: “The firms were recommended for blacklisting by the CBI on the basis of evidence collected against them…. The decision to debar was taken today after taking into consideration their replies (to the MoD’s show cause notices).”

It remains unclear why this blacklist differs from the one Antony announced to the press after Ghosh’s arrest in May 09. The blacklist is also significantly different from the one Antony gave parliament on 28th Jul 10, naming seven foreign companies that the CBI had recommended for blacklisting. Besides ST Kinetics, IMI, RAD and CDR, that list included South African company, Denel; Israeli company, Soltam; and Varas Associates, from the Isle of Man.

ST Kinetics seems likely to file a fresh case against the MoD. While disposing of ST Kinetics’ earlier petitions, which the MoD had scuttled by announcing a blacklist, the Delhi High Court had directed that ST Kinetics had the liberty to file a fresh petition. The company has stated that, “ST Kinetics intends to vigorously take appropriate actions (sic) to clear its name and defend its reputation.”

Says procurement analyst Major General Mrinal Suman: “The flimsiness of the MoD’s case is evident. Instead of the vendors being charged and prosecuted in court, they are taking the MoD to court. How can the MoD impose bans without due process? They must explain to the accused the charges against them; there are hard-won corporate reputations at stake here. And each time a ban is imposed, one or more procurement programmes get derailed.”

ST Kinetics plans to participate in the MoD’s Rs 8,000 crore tender for 155 mm, 52 calibre towed artillery guns; and in another Rs 3,000 crore tender for 140 ultra-light 155 mm, 39 calibre howitzers for the Indian Army. The company is also a strong contender for supplying the Ministry of Home Affairs with 43,318 close quarter battle (CQB) carbines, with day and night sights, as well as even larger MoD tenders for modern carbines.