Vamsi,
I have seen this problem in following case
Material A has Bom created with component B of item category of "N" (Non stock item). As component B is non stock item in BOM of A, when MRP is run - It generates a "Non stock"requisition with the Direct Procurement as shown in your example.
This problem can be resolved in 2 ways.
1. Cancel the original production order and Sale order completely.
2. Go to Production order Change and hit the components scnreen in Production order. Here remove the "Direct Procurement Indicator"
Hope this helps.
Regards,
Ram