Why is an Indian-owned firm suing Estonia over botched arms deal for Ukraine?

An Indian firm has found itself at the heart of Estonia’s defence procurement scandal after Defence Minister Hanno Pevkur resigned following the collapse of a €70 million (over ₹768.50 crore) ammunition deal intended for Ukraine. The deal became a major procurement scandal, centring on Datasel SRL that reportedly had no prior record of selling artillery shells.

Pevkur, who had served as defence minister since 2022, announced his resignation on Wednesday, saying he was taking responsibility for the deal after a series of findings by Estonia's National Audit Office. "Estonian security is not a one-man project. It is our joint responsibility. That is why I must take political responsibility for the entire defence field today and pass on the baton of the minister of defence to the prime minister at a suitable time," Pevkur said in a social media post.

Estonia, a small nation of approximately 1.2 million people, is a member of both the EU and Nato and shares border with Russia. Moscow's war in Ukraine has heightened security concerns in the Baltic nation, where the conflict is viewed as a direct threat. The Estonian government has been one of Ukraine's staunchest supporters.

Details of the deal

The contracts were signed in 2024 between Estonia's Centre for Defence Investments and Datasel SRL, an Italy-registered company acquired by India's Neco Defence Munitions earlier that year. The agreement was to secure artillery shells for Ukraine at a time when Kyiv was struggling with severe ammunition shortages.

According to Estonian public broadcaster ERR, Eesti Ekspress and Postimees, Estonia used funds from the EU's European Peace Facility for the deal. The first contract was signed in August 2024, with an advance payment of around €15 million. A second deal followed in October, involving another advance of more than €10 million. By the year end, additional contracts had brought the total sum paid in advance to nearly €70 million. The ammunition was originally scheduled to arrive in Ukraine within months, but deliveries faced repeated delays due to what were described as production issues. When a shipment was finally received in 2025, Eesti Ekspress reported that it did not meet the quality standards.

Datasel’s version

Datasel says it delivered €59 million worth of munitions to the state before its contracts were terminated, Eesti Ekspress reported. The company is now suing Estonia, and the dispute has escalated to international arbitration.

"Datasel is the party that has suffered losses in connection with these supply contracts," the company told Eesti Ekspress. "The actions of the Estonian Center for Defense Investments, particularly the reasons given for the extraordinary termination of the contracts, are contradictory and illogical."

Datasel confirmed it had received €59 million in advance payments from the state’s Centre for Defence Investments (RKIK). "Datasel has supplied a significant quantity of goods and submitted invoices totalling €58 million," the company said. It acknowledged the delays but contested the allegations that the munitions were of poor quality.

"Eventually, Datasel was given to understand that the RKIK was unable to accept the remaining goods," the company added, asserting its continued willingness to complete the contract if RKIK meets its own obligations.

According to Eesti Ekspress, the RKIK terminated its contracts with the firm last autumn, demanding the return of the advance payments.

Estonia has since taken the matter to the European Arbitration and Mediation Centre in Strasbourg, France, which resolves commercial disputes, in an effort to recover the €70 million.

Pevkur's resignation also comes in the wake of criticism from Estonia's National Audit Office regarding the management of defence funds and military procurement. An audit released on August 28, reported by ERR, flagged issues with the use of funds and the accounting of assets within the defence ministry. Similar concerns had been raised previously.

The watchdog warned that if the EU funding cannot be recovered, Estonia might ultimately be forced to cover the €70 million from its own state budget.

The European Commission has also been in discussion with Estonian authorities about the disputed funds.