For the first time in its history, India has imposed a penalty on a foreign defence vendor for breach of contract in the establishment of a plant for manufacturing bi-modular charges for the Indian Army's 155mm howitzers at Nalanda ordnance factory in Bihar.

An official said Monday that the defence ministry earned a cool Rs.227 crore as penalty from a bank guarantee provided by the Israeli Military Industries (IMI) that had signed the Rs.12 billion ($260 million) contract for setting up the factories in Nalanda.

The IMI was a couple of months ago banned from participating in any tender of the Ordnance Factory Board (OFB) following the Central Bureau of Investigation (CBI) recommending that it be blacklisted along with three other global and two Indian firms after their names figured in a graft case filed against former OFB director general Sudipto Ghosh in 2010.

Under the Nalanda factory contract, IMI had signed an 'integrity pact' under which it had promised not to indulge in any malpractice.

"This integrity pact had been breached and hence the defence ministry encashed the bank guarantee given by the IMI," the official said here.

This information was given by the OFB officials to Defence Minister A.K. Antony at a review meeting of their performance and functioning at the South Block here.

He was also informed that the OFB has now tied up with the Defence Research and Development Organisation (DRDO) for indigenising the bi-modular charges that have already undergone trials.

"Nalanda factory will become operational this year. A pilot batch of the bi-modular charges have already been assembled at the factory in association with the DRDO and will be offered to the army for trials shortly," the official said.

"The plant for bulk production will be set up by OFB itself through indigenous resources at a lesser cost," he added.

The meeting is part of a series of such review that Antony has been holding with officials of the ministry, three services, defence public sector undertakings and others.

The meetings have been taking place in the backdrop of army chief Gen. V.K. Singh alleging that a retired lieutenant general had offered him a Rs.14 crore bribe to clear an order for 600 military trucks.

Following the army chief's revelation, Antony ordered a CBI probe into the bribe offer.

In the wake of the CBI probe, Antony assured the OFB officials at the review meeting that "honest officers have nothing to fear" and that they will get the full support of the ministry.

Antony also asked the officials to complete implementation of the OFB's Rs.15,764-crore modernisation and capacity augmentation plan for the 12th five-year plan (2012-17), as against Rs.2,953 crore in 11th plan (2007-12), on time. He also asked them to meet targets on producing quality products for the armed forces.

At the meeting, the major projects sanctioned by the government in the recent past too were listed.

The government has given its nod for investment proposals for augmentation of capacity for T-90 tanks from 100 to 140 tanks amounting to Rs.971 crore, for large calibre weapons for Rs.378 crore, and spares for overhaul of T-72 and T-90 tanks at an expenditure of Rs.368 crore.

Source: Indo-Asia News Service