The government has decided not to award new contracts to the seven defence firms named by the CBI in an FIR against former director-general of Ordnance Factory Board, Sudipto Ghosh in May 2009.
The firms will remain blacklisted until investigations are completed.
Existing contracts will also continue to be on hold, said a defence ministry official on Wednesday. In cases where deals have been concluded and executed, action would be taken against the firms as per provisions of the contract on the completion of the investigations, he said.
The defence ministry, which suspended business with these firms in June 2009, has taken this decision on the advice of the Central Vigilance Commission and the law ministry.
Ghosh had allegedly received kickbacks to favour these firms with lucrative deals.
The army was banking on one of the blacklisted firms, Singapore Technologies, for lightweight howitzers that can be swiftly deployed in the mountains for accurate artillery fire.
The firm had emerged as a strong contender for supplying its 155mm Pegasus lightweight howitzer to the army under a Rs 4,800-crore artillery upgrade plan. The firm was the sole bidder for an order of ultra-light howitzers after the other contender, BAE Systems, failed to respond to a global tender last year.
Army chief General Deepak Kapoor has said in the past that ban on defence suppliers could hit artillery modernisation.