Johannesburg: Denel insists that the Indian ministry of defence has not officially informed it that its contract has been cancelled and some analysts believe the decision could yet be reversed.

The defence ministry had told Denel more than five months ago of its "intention to cancel" - that is, suspend - the contract, but this was pending the outcome of investigations, spokeswoman Priya Pillay said in a statement.

India's defence minister, Shri Pranab Mukherjee, told his country's parliament on July 28 he had cancelled Denel's contract to supply 400 Anti-Material Rifles (AMRs).

"Based on the information furnished by Denel, South Africa, there is prima facie evidence of violation of clauses relating to use of undue influence and agents/agency commission, as contained in the contracts of AMR," Mukherjee said.

The contract was reportedly worth about R24 million and has jeopardised other Denel contracts with India.

Pillay said Denel had not been in contact with the Indian defence ministry since July 28 to confirm Mukherjee's statement. It had not been able to contact the ministry since the story broke in the media yesterday because Denel chief executive officer Shaun Liebenberg, who was the only official in contact with the Indians, was out of the country.

The fate of other Denel contracts with India could not be established yesterday. Denel is involved in more lucrative contracts to supply ammunition, build an ammunition factory with India and supply G6 self-propelled howitzers.

The Indian government suspended all these contracts five months ago when it began its probe into the AMR contract.

In his statement to parliament, Mukherjee said: "A decision has been taken to initiate action to cancel all contracts entered into with Denel."

The AMR matter had been referred to India's Central Bureau of Investigations (CBI), Mukherjee said. The probe would include investigation of the "unknown public servants" involved in the Denel contract.

Official sources said the problem with the AMR contract was that Denel had allegedly used an agent, a company called Varas on the Isle of Man, to secure it without telling the Indian ministry of defence about this arrangement.

This violated Indian law and created suspicions of Denel having used "undue influence".

Military analysts said it had been reported that the Indian defence ministry had accused Varas of acquiring the minutes of a meeting of a pricing committee dealing with the AMR contract. But one analyst said this accusation was puzzling as Denel officials claimed they had served on the pricing committee with the Indian ministry and so did not need anyone else to provide them with the minutes.

Denel has firmly denied any wrongdoing.

"Denel has sought legal advice in South Africa and India throughout its business dealings in India and can confirm no laws were transgressed," Pillay said. "The company, in co-operation with the government and legal counsel, is working to determine how this very complex and sensitive issue can be resolved."

Several analysts have said the loss of the Indian business could be a fatal blow for Denel, which is struggling to stay in the black.

But Helmoed Romer-Heitman, South African correspondent for Jane's Defence Weekly, said he found it hard to believe India would cancel all contracts with Denel because of a relatively minor misdemeanour.

He said India placed great store by the India-Brazil-South Africa forum established to boost relations among the trio. Military co-operation was a major component of the forum and therefore not one that India would lightly discard.

With acknowledgements to Peter Fabricius and the Cape Times.