The Delhi High Court has said that every defence contractor faces "innuendoes" of graft and it cannot be the basis for blacklisting a company.
The high court said defence contractors would face innuendoes or allegations of graft as "it is in the nature of the beast".
It was hearing the pleas of two defence contractors -- Singapore-based S T Kinetics (STK) and Swiss armament manufacturer Rheinmetall Air Defence (RAD) -- against their blacklisting by the Centre in connection with a 2009 Ordnance Factory Board bribery scandal.
"It is in the nature of the beast. If you live by selling guns, you will get fired upon. Surely we cannot blacklist people based on innuendoes," Justice Siddharth Mridul said.
STK and RAD moved the high court in 2012 against the 10-year ban on them on participating in any tender issued by the Ordnance Factory Board (OFB).
They were blacklisted two years after the arrest of OFB Director General Sudipta Ghosh for allegedly accepting bribes from potential vendors.
In its plea, the Singapore-based company has claimed that it was not named in the charge sheet and it has not been given the documents which form the basis for blacklisting it.
In July, the Centre had come out with its new policy -- Guidelines of the Ministry of Defence for Penalties in Business Dealings with Entities -- reducing the ban period to five years from 10 years earlier and STK moved a representation that its blacklisting be reconsidered according to the latest norms.
When the Centre did not respond, STK moved the court seeking a direction to the Defence Ministry to decide the representation.
The court had on September 6 directed the competent authority of the central government to decide the representation made by STK preferably within four weeks and place the official determination before it on the next date of hearing, November 12.
Since Rheinmetall had not made any such representation, no such order was passed in its petition which was also listed for hearing on November 12.
Before it was blacklisted, STK was in the running for contracts to supply light howitzers, small arms and all-terrain vehicles, while Rheinmetall was vying for air defence and land system deals.
In June 2010, the CBI had filed a charge sheet in a special court at Kolkata against Ghosh and 11 others for graft.
It was alleged that Ghosh had entered into conspiracy with the other accused with the object of demanding and obtaining illegal gratification for various supply orders placed by OFB and also in matters relating to transfer or posting of the officers of ordnance factories.
The charge sheet named Ghosh and his wife, Kajal Ghosh, the director of T S Kishan and Companies Private Ltd, Satish Mahajan, and Sunil Handa, manager of R K Machines Tools.
Three cases were also registered by CBI against Ghosh for possessing assets disproportionate to known sources of income.