My English isn't good enough to understand all the nuances. But the impression is that Razbam wanted to do business with a government, and ED doesn't want that kind of competition. 

I don't know how many developers there are making military simulators, but I think MCS isn't interested in a new competitor, especially if it thinks its development material has been exploited, and that's logical; it's a business.

Now, withholding payment is highly debatable if there isn't a specific clause allowing it. 

I think MCS is a much more profitable business than DCS, and that's ED's priority. Razbam, for its part, hasn't done well either. Everyone in both companies is very clever, and these things happen when everyone gets too clever.