Seek legal advice on paying Russian firm: CAG to MoD after loss of millions

The CAG also said there was an inordinate delay in the indigenous development of unmanned aerial vehicles by the DRDO

The Comptroller and Auditor General (CAG) said the Defence Ministry should seek legal advice in a matter related to payment to a Russian missile firm that led to liquidated damage worth several millions of dollars.   

The Ministry of Defence (MoD) had signed a contract with a Russian firm for supply of missiles in November 2012 at a cost of $232,570,000. 

Payment up to 85 per cent -- $197,684,500 -- had to be made to the firm through an irrevocable revolving Letter of Credit (LC). This was to be opened for an initial amount of $59,305,350. 

In case of delay in the opening of LC, the ministry had to pay liquidated damages (LD) at the rate of 0.07 per cent to the firm for each day of delay.  

The ministry opened the LC after a delay of 81 days and calculated LD of $9,884,225 payable to the supplier based on the entire amount of LC payment, that is $197,684,500, and not on the initial amount of LC, which was $59,305,350, that would have resulted in LD payable as $2,956,267.5 only.  

"The MoD should obtain legal opinion on the amount to be reckoned for calculation of LD and raise a supplementary claim on the supplier, if need be, as the difference at the prevailing exchange rate ($1 = Rs 66.72) is Rs 461.6 million (Rs 46.16 crore)," the report said.  

The CAG also pointed to the delay in Dhanush guns.

The Ordnance Factory Board (OFB), in 2011, undertook the development of electronically upgraded 155mm/45 Calibre Gun System "Dhanush" based on the Transfer of Technology (ToT) obtained in 1986 from the foreign firm while procuring 155 mm/39 calibre guns.

"The development undertaken by OFB was yet to clear the user trials completely, resulting in the continued deficiency of modern artillery gun in the Army," the CAG said. 

The CAG also said there was an "inordinate delay" in the indigenous development of Unmanned Aerial Vehicles (UAVs) by the DRDO. 

It added that despite incurring an expenditure of Rs 797.5 million (Rs 79.75 crore) in the procurement of four UAVs through Limited Series Production, the UAVs developed by the DRDO failed to meet the user's requirements.

"Further, in another case, delay in development of Medium Altitude Long Endurance UAV system adversely affected the aerial surveillance capability of the Indian Army," it added.