Denel Land Systems is competing for the Pakistan Army wheeled self-propelled 155 mm howitzer

Off the hook after it waived off almost $ 100 million in arbitration proceedings; Orders admit company was banned in 2005 solely based on newspaper reports in SA

by Manu Pubby

Arms manufacturer Denel has been taken off an Indian defence ministry blacklist after the South African company signed a settlement agreement that waived off almost $ 100 million that it would have been entitled to following arbitration proceedings.

The final settlement agreement was signed on July 19, days ahead of a BRICS summit in Johannesburg that will be attended by Prime Minister Narendra Modi, and details how the company was put on the blacklist in 2005, on the basis of two newspaper reports in South Africa. Charges of corruption in the news reports could not be validated during a subsequent CBI inquiry, leading it to file a closure case in 2014.

Formal orders to take Denel off the blacklist were issued on Wednesday, bringing an end to a 13 year exile for the company from the world’s largest market for military imports. While it was cleared of all charges in 2014, it was unable to restart work in the lucrative arms market as legal proceedings were on for several past deals where India had frozen or encashed its bank guarantees. 

After the suspension of operations, all ongoing contracts with Indian defence ministry entities had been cancelled, leading to litigation and arbitration that went on for years. ET has learnt that the company has agreed to forfeit almost $ 100 million for the right to come back to the Indian market and a removal from the official blacklist.

The South African entity, which also has joint ventures with debarred firm Rheinmetall, has been keen for a return to the Indian market after the Modi government opened doors for partnerships with private sector companies for major manufacturing projects. Several rounds of meetings have been held with the private sector over the past two years, including companies that have recently entered the defence market. The company is particularly suited for upcoming orders for ammunition supplies to the armed forces in which Indian companies have to create new facilities.

The company’s troubles in India started in 2005, after the defence ministry put all contracts with it on hold. Investigations probed two contracts that the firm had signed in India, a Rs 78 crore deal for procurement of 400 anti material rifles and a Rs 66 crore transfer of technology contract with the Ordnance Factory Board but failed to find any proof of corruption.