The Ordnance Factory Board Scam


Contents
top

Introduction
contents

The Ordnance Factories are India's network of 41 government-managed military-sector manufactories, nearly half of which predate the country’s independence in 1947. In May 2009, the recently retired director-general of the Ordnance Factories, Sudipta (or Sudipto) Ghosh, was arrested on suspicions of receiving bribes in connection with several procurement programs. A decade later, the case has yet to proceed to trial; nonetheless, as a direct consequence of the investigation the Ministry of Defence blacklisted four foreign arms vendors: Israel Military Industries (IMI), ST Kinetics (a subsidiary of Singapore Technologies Engineering), Rheinmetall Air Defence (RAD), and Corporation Zashchita (“Corporation Defense”) of Russia. Several Indian vendors were also implicated in the case and blacklisted. The most prominent procurement program set back by the corrupt activities was a contract awarded in March 2009 to IMI to build a factory for producing artillery charges, worth INR 11.75 billion or approximately USD 229 million (at March 2009 average exchange rates). Subsequent investigations found that Ghosh had approved a 20% down-payment to IMI without the proper approval, and that IMI had employed a local agent, Pradeep Rana, to help secure the deal. It remains unknown, however, whether the Central Bureau of Investigation has tied Ghosh’s suspiciously large bank savings to payments from Rana and his employers.


Case details
contents
Seller country: Israel, Russia, Switzerland, Singapore, India
Seller company: Israel Military Industries, ST Kinetics, Rheinmetall Air Defence, Corporation Zashchita ( "Corporation Defence"), T.S. Kishan and Co. Pte. Ltd., R.K. Machines Tools Ltd.
Buyer country: India
Buyer company: The Ordnance Factory
Goods category: Small Arms & Light Weapons, Shells, Missile Systems, Armoured Vehicles
Equipment sold: Bi-Modular Charge System (artillery charge) production factory (IMI); SAR-21 license-produced close quarter battle carbines (ST Kinetics); Various unidentified contracts (other firms).
Deal value: USD 250 million (artillery charge factory); INR 7.2 billion (USD 146 million, February 2009 exchange rates) (carbine production).
Sum involved in corruption: INR 73.1 million (USD 1.43 million, March 2009 rates)
Start year: 2009
Outcome status: Legal Investigation Ongoing

Dramatis Personae
contents
  • Sudipta (or Sudipto) Ghosh – former director-general of the Indian Ordnance Factories; suspected of taking bribes in exchange for contracts. Charged with corruption and for possessing assets disproportionate with known sources of income.

  • Pradeep Rana - businessman; suspected agent for IMI and associate of the arms broker Sudhir Choudhrie. Charged in connection with the Ordnance Factories case.

  • Ashish Bose – Ghosh’s brother-in-law; suspected middleman and money-launderer. Charged in connection with the Ordnance Factories case.

  • Ramesh Nambiar – general manager at Air India; suspected of money-laundering and acting as a middleman. Charged in connection with the Ordnance Factories case.

  • Mohinder Singh Sahni (or Sawhney) - head of the Mokul Group of companies; suspected agent for Rheinmetall Air Defense and Corporation Zashchita, as well as the South African firm Denel on a 2005 arms deal. Charged in connection with the Ordnance Factories case.

  • J.K. Thapar - director at T.S. Kishan and Co. Pte. Ltd.; suspected of giving bribes worth INR 3,000,000 to Ghosh. Charged with bribery in the Ordnance Factories case.

  • Satish Mahajan and Sunil Handa - executives at R.K. Machines Tools Ltd.; suspected of giving bribes worth INR 250,000 to Ghosh. Charged with bribery in the Ordnance Factories case.


Summary of Corruption Allegations
contents

Sudipta Ghosh, the former director general of the Ordnance Factories, is suspected of taking bribes in connection with a large number of contracts. The precise allegations against Ghosh and his co-conspirators are contained in court filings, notably a First Information Report of 2009 and a chargesheet of June 2010 filed by the Central Bureau of Investigation (CBI), the details of which have been withheld. Press reporting on the filings suggest that Ghosh and his co-accused wife, Kajal Ghosh, benefitted from kickbacks associated with arms deals. The scope of the bribes is unknown; up to INR 60 million in cash, jewelry, and bank deposits were found at their properties during a CBI raid in 2009, although only INR 14.1 million were seized by the CBI. Another INR 11.4 million was seized from co-conspirators. The CBI also believes it has found a Singaporean bank account in Ghosh's name holding another INR 47.6 million. Pradeep Rana and Mohinder Singh Sahni have been identified as local agents for IMI, RAD, and Corporation Zashchita. Ashish Bose, who is Ghosh's brother-in-law, and Ramesh Nambiar are suspected of being middlemen or money-launderers in the conspiracy.


Timeline
contents
  • 2005

    Rheinmetall Air Defence (RAD), formerly known as Oerlikon Contraves and purchased by Rheinmetall in 1999, was negotiating with the Ordnance Factories to sell the Skyshield 35 air defense gun system and other anti-air missile systems between 2005 and 2007.

  • 2008

    Corporation Zashchita, named in Indian documents as "Corporation Defence" and identified as Zashchita by Indian officials, held contracts to supply armoured passenger vehicles to the Indian Ministry of Defence between 2008 and 2012.

  • Mar 2009

    Israel Military Industries (IMI) signed a contract - the most prominent procurement program set back by the corrupt activities - to build a factory for producing artillery charges


Investigation Outcomes
contents
  • May 2009

    Recently retired director-general of the Ordnance Factories, Sudipta (or Sudipto) Ghosh, was arrested on suspicions of receiving bribes in connection with several procurement programs

  • Jun 2009

    The Ministry of Defense froze contracts with seven firms named in the Central Bureau of Investigation (CBI) investigation.

  • Jun 2012

    Verma and his wife were charged for a range of offenses, but were acquitted on the grounds that the emails failed procedural evidentiary standards and that the CBI should have charged the co-conspirator, a C. Edmonds Allen, based in New York, if they believed a case existed.

  • 2013

    IMI lost a case before the Delhi High Court challenging its blacklisting.

  • 2014

    Ghosh was denied the right to travel abroad while the investigation was ongoing.

  • 2018

    Tax case against Ghosh and his wife - which they won - mentioned that a CBI case remains ongoing.


References
contents
  • “Graft gun on arms boss,” The Telegraph (Kolkata) (online), May 20, 2009, https://www.telegraphindia.com/states/west-bengal/graft-gun-on-arms-boss/cid/1265603.

  • Sachin Parashar, “Former DG of Ordnance had links with defence dealers,” The Times of India (online), May 21, 2009, https://timesofindia.indiatimes.com/india/Former-DG-of-Ordnance-had-links-with-defence-dealers/articleshow/4561591.cms.

  • Rajat Pandit, “Antony says no one found guilty in ordnance scam will be spared,” The Times of India, June 7, 2009, https://timesofindia.indiatimes.com/india/Antony-says-no-one-found-guilty-in-ordnance-scam-will-be-spared/articleshow/4628684.cms.

  • Sandeep Unnithan, “Factories of Graft,” India Today (online), June 18, 2009, https://www.indiatoday.in/magazine/nation/story/20090629-factories-of-graft-740065-2009-06-18.

  • Neeraj Chauhan, “Accused get bail as CBI misses deadline,” The Indian Express (online), July 20, 2009, http://archive.indianexpress.com/news/accused-get-bail-as-cbi-misses-deadline/491544/.

  • “CBI files chargesheet against ex-OFB chief for graft,” Press Trust of India, June 30, 2010, https://www.thehindu.com/news/national/CBI-files-chargesheet-against-ex-OFB-chief-for-graft/article16273164.ece.

  • Saurabh Joshi, “Six arms firms proposed for MoD blacklist,” Stratpost (webite), July 28, 2010, https://www.stratpost.com/six-arms-firms-proposed-for-mod-blacklist/.

  • “Audit Report on Procurement of Stores and Machinery in Ordnance Factories,” Report No. 15 of 2010-2011, Comptroller and Auditor General of India, July 2010, https://www.cag.gov.in/sites/default/files/audit_report_files/Union_Performance_Defence_Procurement_Stores_and_Machinery_15_2010.pdf.

  • Rahul Tripathi, “ED to attach top Air India man’s properties,” The Indian Express (online), Feb. 6, 2012, http://archive.indianexpress.com/news/ed-to-attach-top-air-india-man-s-properties/908327/.

  • ‘Six Defence Firms Banned from Indian Ordnance Factory Deals,’ Indo Asian News Service, Mar. 5, 2012, https://www.yahoo.com/news/Six-defence-firms-banned-ians-3306542115.html.

  • “MoD Debars Six Firms from Business Dealings for Ten Years,” Press Release, Ministry of Defence, Government of India, Mar. 5, 2012, http://pib.nic.in/newsite/PrintRelease.aspx?relid=80699.

  • Tamir Eshel, “India Bans six Companies from MOD Contracts,” Defense Update (website), Mar. 6, 2012, https://defense-update.com/20120306_india-bans-six-companies-from-mod-contracts.html.

  • “India Blacklists Russian Defense Company,” RIA Novosti (online), Mar. 7, 2012, https://sputniknews.com/world/20120307171845080/.

  • “India fines IMI $70m for alleged bribery,” Globes (online), Apr. 17, 2012, https://en.globes.co.il/en/article-1000741803.

  • “Chopper scam: Spotlight on Tyagis for allegedly acting as middlemen,” The Economic Times (online), Feb. 15, 2013, https://economictimes.indiatimes.com/news/politics-and-nation/chopper-scam-spotlight-on-tyagis-for-allegedly-acting-as-middlemen/articleshow/18508065.cms.

  • “Zashchita Company Ruined Supply of Armored UAZ Vehicles to India,” Komsomolskaya Pravda, March 22, 2013, p.7, translation from Nexis.

  • Sergei Mashkin, “Interior Ministry Gave Up Low-Quality Zashchita,” Kommersant, March 20, 2013, p. 4, translation from Nexis.

  • “Israel Military Industries Ltd. vs Union Of India & Anr., Judgment,” Delhi High Court, May 29, 2013, https://indiankanoon.org/doc/198154534/.

  • Saurabh Joshi, “Israel Military Industries loses Indian blacklist challenge,” StratPost (website), June 5, 2013, https://www.stratpost.com/israel-military-industries-loses-indian-blacklist-challenge/.

  • “Central Bureau of Investigation, Anti Corruption Branch, Kolkata vs Sudipta Ghosh, Judgment,” Calcutta High Court (Appellate Side), Mar. 20, 2014, https://indiankanoon.org/doc/93194262/.

  • N.C. Bipindra, “Modi Eases Graft-Linked Curbs to Spur Arms Deals in India,” Bloomberg, Sep. 16, 2014, https://www.bloomberg.com/news/articles/2014-09-15/modi-eases-graft-linked-curbs-to-spur-arms-deals-in-india.

  • “Report: IMI Returns to India,” Israel Defense (online), Nov. 19, 2014, https://www.israeldefense.co.il/en/content/report-imi-returns-india.

  • “Rekha Nambiar vs Central Bureau of Investigation, Judgment,” Delhi High Court, Nov. 4, 2015, https://indiankanoon.org/doc/139098785/.

  • P.R. Ramesh, “Indian Arms Dealers: The Defence Dynasty,” OPEN Magazine (online), May 13, 2016, http://www.openthemagazine.com/article/india/indian-arms-dealers-the-defence-dynasty.

  • Saurabh Joshi, “Rheinmetall still blacklisted after corruption acquittal,” StratPost (website), May 7, 2017, https://www.stratpost.com/rheinmetall-still-blacklisted-after-corruption-acquittal/.

  • “Sri Sudipta Ghosh Vs DCIT, Judgment,” Income Tax Appellate Tribunal Kolkata, Jan. 31, 2018, https://taxguru.in/income-tax/addition-u-s-69-cannot-be-made-for-investment-out-of-salary-received-in-cash.html.

  • Manu Pubby, “Fresh evidence of graft found against Rheinmetall, middleman allegedly hired to secure contract,” The Economic Times (online), July 12, 2018, https://economictimes.indiatimes.com/news/defence/fresh-evidence-to-support-rheinmetalls-contract-with-arms-dealer-to-sell-air-defence-guns-found/articleshow/57583079.cms.

  • “‘Innuendoes’ against defence contractors can’t be basis to blacklist them: HC,” Press Trust of India, Sep. 9, 2018, https://economictimes.indiatimes.com/news/defence/innuendoes-against-defence-contractors-cant-be-basis-to-blacklist-them-hc/articleshow/65741876.cms.

  • Dipu Rai, “DNA Investiates: Tender for Bofors ammunition plant was allegedly rigged,” DNA (online), Nov. 16, 2018, https://www.dnaindia.com/india/report-dna-investigates-tender-for-bofors-ammunition-plant-was-allegedly-rigged-2686197.