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The defence ministry has scrapped the Rs 2,700 crore deal for acquiring two minesweeper vehicles from a South Korean firm after it was found that there were violations of tender conditions as agents were in the play.
The ministry has terminated the tender for the Mine Countermeasure Vessels and has written a letter to South Korean firm Kangnam Shipyard.
Official sources said Defence Minister Manohar Parrikar signed the recommendation for terminating the tender prior to his departure to Goa on Wednesday.
The recommendation had been made during the tenure of Arun Jaitley who was in charge of defence portfolio till early this month.
The deal had been stuck for long because of allegations of involvement of middlemen and the new government had sought an opinion from Attorney General Mukul Rohatgi.
The attorney general in his opinion last month said tender conditions have been violated, the sources said.
India's defence procurement procedure does not allow agents in deals and the government has already encashed Rs 3 crore bank guarantee furnished by Kangnam.
Vendors have to sign a pre-contract integrity pact stating that there will be no middlemen involved.
As per the deal, the South Korean firm was to build two ships while the remaining six were to be manufactured by Goa Shipyard Limited under the transfer of technology pact.
The deal with Kangnam was for about Rs 2700 crore while the entire project would have cost over Rs 7,000 crore.
Sources said the Defence Acquisition Council, which will meet on Saturday, will decide the next course of action.
The sources said GSL could be asked to build eight such specialised vessels with foreign collaboration through a fresh tender in which Kangnam could also participate as the firm has not been banned.
The South Korean firm was shortlisted during UPA tenure as it had quoted the cheapest of the total of three firms that had bid for the proposal floated in 2008.
The Navy wants eight 800-tonne vessels with composite anti-magnetic hulls that can clear sea mines during war.
The Narendra Modi government had, in August this year, scrapped a seven-year-old global tender worth thousands of crores of Rupees for the acquisition of 197 helicopters for the Army and IAF after the acquisition process was mired in allegations of corruption.