CAG pulls up Defence Ministry, BEL for deal with blacklisted firm

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New Delhi: Pulling up the Defence Ministry and its PSU Bharat Electronics Limited (BEL), the CAG on Thursday said they had entered into an "inappropriate" agreement with a Zurich-based firm with whom India had already frozen its ties leading to blockade of funds to the tune of Rs 502 crore.
In its report tabled in Parliament, the Comptroller and Auditor General also termed as "inappropriate" the actions of a Joint Secretary to let BEL enter into the contract with the firm, Rheinmetall Air Defence, in 2010 even after it was named in a CBI report for paying kickbacks in the Ordnance Factory scam and was facing prospect of being blacklisted.
Rheinmetall was eventually blacklisted for 10 years by the Defence Ministry in April 2012 after the final CBI report in the case.
"BEL entered into a contract for procurement with Rheinmetall Air Defence, Zurich, despite the fact that CBI was investigating the firm's deals for alleged corrupt practices in earlier contracts which had a risk of the firm being blacklisted," the report said.
"The signing of a contract with a firm whose credibility was under examination for alleged corrupt practices and placing purchase orders committing heavy liability was hasty and without adequate assessment of associated risks. This resulted in blocking of company funds of Rs 502 crore for an indefinite period," it said.
The report said the Joint Secretary (Electronic System) had told BEL that it was not legally valid to blacklist a company in anticipation of actual blacklisting and advised the PSU to take a decision as appropriate.
The communication was sent by him on September 2010, over a year after the Defence Ministry froze all its business with Rheinmetall in May 2009 after it was named by the CBI report.