NEW DELHI (AP) India on Wednesday cancelled a 560 million euro ($670 million) contract for 12 helicopters after Italian defense giant Finmeccanica was accused of bribing Indian contacts to secure the deal.
The agreement was terminated because an integrity pact was breached by Finmeccanica's helicopter arm, AgustaWestland International Ltd., Defense Ministry spokesman Sitanshu Kar said in a statement.
The cancellation came after a meeting between Defense Minister A.K.Antony and Prime Minister Manmohan Singh, the Press Trust of India reported.
Former Finmeccanica head Giuseppe Orsi is on trial in Italy on fraud and corruption charges for his alleged role in bribery to secure the contract. He denies any wrongdoing. Bruno Spagnolini, the former chief executive of AgustaWestland, is also on trial.
Former Indian air force chief S.P. Tyagi is one of several people facing charges in India.
India has received three helicopters and stopped the delivery of the remaining nine AW1010 helicopters.
India has named a judge to handle arbitration since AgustaWestland wants that process to determine if it violated the integrity pact and if India's cancellation of the deal is valid, Kar said.
Operationally, the scrapping of the deal would make little or no difference to the Indian air force as the helicopter fleet was to be used for transporting top politicians, said Rahul Bedi, an analyst for the independent Jane's Information Group.
"However, internationally the credibility of India an as importer of weapons and defense systems is likely to be adversely affected," Bedi said.
In March, India's Central Bureau of Investigation filed charges under corruption prevention laws against Tyagi, three of his cousins and officials of four defense companies after an investigation revealed that huge bribes were paid to steer the contract to AgustaWestland.
The CBI said evidence it gathered from the men and from documents it obtained from Italy and India's defense ministry indicated that alterations were made in the helicopter specifications to favor AgustaWestland.
India has become the world's biggest arms and defense equipment buyer in recent years and is expected to spend $80 billion over the next 10 years to upgrade its military.
However, arms deals in India have often been mired in controversy, with allegations that companies have paid millions of dollars in kickbacks to Indian officials.
In the 1980s, then-Prime Minister Rajiv Gandhi's government collapsed over charges that Swedish gun manufacturer Bofors AB paid bribes to supply Howitzer field guns to the Indian army.
Following the Bofors scandal, India banned middlemen in all defense deals.
This story has been automatically published from the Associated Press wire which uses US spellings