New Delhi, October 23
The Ministry of Defence (MoD) has issued a show-cause notice to AgustaWestland, a subsidiary of Italian major Finmeccanica, seeking the cancellation of the contract for the purchase of 12 helicopters at a cost of Rs 3,500 crore.

The notice was issued on October 21 and the company has been given three weeks to respond. “Documents available with the MoD had lead to the show-cause notice,” official sources said.

The MoD has cited the ‘pre-contract integrity pact’ in issuing the notice. The pact says that no bribes had been paid to win the contract while Italian prosecutors have claimed in the court to have traced payments of Rs 350 crore made as kickbacks to Indian as well as Europeans. Among those facing charges is former IAF Air Chief Marshall SP Tyagi (retd).

The first cancellation notice was issued on February 15 and it had come just three days after Giuseppe Orsi, CEO, Finmeccanica was arrested in Italy. The notice was based on media reports and reports from the Indian Embassy in Rome. The notice issued now is final and is based on documents the CBI has collected from Italian prosecutors and provided to the MoD, officials explained. The payments to the company were put on hold in February. AgustaWestland had issued a press statement on October 4, saying it would invoke the arbitration clause.

If the contract is cancelled, India can recover the entire cost and damages from AgustaWestland and could also ban its operations in the country. Under provisions of the contract and the integrity pact, India can cancel the contract and recover the money. AgustaWestland did not declare its agents and is under contract to have not paid any amount to any individual or firm for securing the deal.

The cancellation could also mean the helicopter-maker will not be entitled to compensation and will be liable to refund payments made by India in terms of the contract with interest. The MoD will also forfeit the bank guarantee running into millions of Euros. So far, the MoD has reportedly paid about Rs 1,000 crore to AgustaWestland for the delivery of the first three helicopters.