The Telegraph
Since 1st March, 1999
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Denel, Kargil deals under probe
- Freeze on transactions with South African firm casts cloud on Hawk

New Delhi, April 22: The Centre today asked the CBI to probe if middlemen were involved in deals struck with South Africa's Denel even as its freeze of transactions with the armaments manufacturer threatened to jeopardise one of the biggest military contracts, the Rs 8,000-crore Hawk deal with British Aerospace.

The CBI was requested to launch a preliminary investigation two days ago into the deals struck during former defence minister George Fernandes's tenure in the wake of the Kargil war of 1999.

The agency wrote back to the government yesterday and asked for directives on the specific charges to be probed. Defence minister Pranab Mukherjee is asking the CBI to launch a probe at two levels, a top defence ministry source said.

On the transactions (with Denel and others) in the wake of the Kargil war, the CBI will be referred to the reports of the comptroller and auditor general and the Central Vigilance Commission because the investigation is a 'post-mortem'. The discrepancies pointed out in the reports of the two watchdogs will form the basis of its probe that will seek to establish whether or not there was a 'criminal breach of trust', the source said.

At the second level, the CBI will be asked specifically to inquire into whether middlemen were involved in securing for Denel the Rs 300-crore contract for anti-materiel guns, the source added.

The ministry had concluded after scrutinising the files related to the deal that the two sides had agreed agents would not be involved in the transaction.

In investigations in South Africa, Denel is suspected of having utilised the services of a British firm, Varas Associates, registered in the Isle of Man that was paid a commission of 12.75 per cent on all deals it secured.

Varas is suspected of having influenced the Indian defence establishment and procured a copy of the minutes of the price negotiation committee before the anti-materiel guns were contracted.

The defence minister's order also 'freezes' all current transactions with Denel. The 'freeze' will last the duration of the probe and the government for the moment is not scrapping contracts or ordering a re-tendering, the source said.

The 'freeze' on deals with Denel not only means that the Rs 9000 to Rs 12,000-crore three-step Indian artillery contracts will be put on the backburner but it also puts a question mark on contract for 66 Hawk advanced jet trainers with Bae systems. The cabinet committee on security cleared the deal in September 2003 and it was contracted in April 2004.

In one of the sub-contracts following the deal, Denel was given orders worth about $2 million to supply aircraft tooling components for the co-production of 42 Hawk trainers in Hindustan Aeronautics Limited, Bangalore. The tooling components are to be exported to India for the assembly of the Hawks.

In Bangalore today, British high commissioner Michael Arthur said the Hawk programme would not be affected in the wake of the controversy over Denel, PTI reported.

He said a similar controversy had erupted three years ago but was cleared. 'You should ask the British Aerospace.'

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