As more high-profile names cropped up in connection with bribery allegations in the $750 million VVIP chopper deal, the Indian government on Friday put the contract with Italian firm Finmeccanica on hold and began the process to cancel it.
The Central Bureau of Investigation (CBI), which has been entrusted to probe the bribery allegations, is likely to send a team to Italy within a week to probe the alleged around 51 million euro crore kickbacks paid by Finmeccanica to clinch the deal.
In a three-para statement, the ministry of defence said it has "initiated action for cancellation of contract for procurement of 12 AW101 helicopters for the use of VVIPs".
It also issued a formal show cause notice to AgustaWestland, the subsidiary of Finmeccanica, seeking cancellation of contract and "taking other actions as per the terms of the contract and the Integrity Pact". The company has been given seven days to reply.
The action comes a day after the government warned Finmeccanica of legal action, including blacklisting, and asked whether any slush money had been paid to fix the deal that has led to a political uproar.
The defence procurement scam came to light when the Italian government arrested Finmeccanica CEO Giuseppe Orsi on Tuesday for allegedly paying bribes to clinch the chopper deal. The government launched a CBI probe into the bribery charges on Tuesday.
Clarifying its position, the government on Thursday had noted that the mandatory technical requirements of the chopper were changed in the tender during the Atal Bihari Vajpayee government in 2003, with the then national security adviser Brajesh Mishra playing a key role.
It had also noted that the changes in the tender were incorporated during March 2005 to September 2006 when Pranab Mukherjee was defence minister and SP Tyagi was the Air Chief. Mukherjee is now president of India and Tyagi is facing allegations that three of his kin took kickbacks to swing the deal.
The defence ministry has asked the external affairs ministry for more information from Rome on the AgustaWestland chopper deal, said a source.
In Rome, Italian Prime Minister Mario Monti has said his government would guarantee the "correct governance" of state-controlled defence firm Finmeccanica.
"The government was able to intervene with some measures to guarantee the correct governance of the company and the whole group," Monti said.
The Italian prime minister had earlier promised to do "whatever necessary to clean up" Finmeccanica. He also assured that the prosecution would do its duty in the case of Orsi.
"I am sure that the prosecution in this case will do its duty as in other similar cases," he told reporters.
India has inducted only three of the 12 AgustaWestland-101 helicopters till now, with the remaining nine slated for delivery later this year.
India so far reported to have paid a part of the total amount to AgustaWestland, the Britain-based subsidiary of Finmeccanica.
The government move can be seen in the light of the upcoming budget session of the parliament, beginning on February 21, which could see the government put in the dock over the bribery allegations.
Former Air Chief Tyagi and his three kin — Julie, Docsa and Sanjeev — have denied allegations of receiving kickbacks of around Rs72 lakh from middlemen.
The Italian probe report suggests that the former IAF chief had met the middlemen more than six to seven times and allegedly briefed them about the developments in the contract.
The Bharatiya Janata Party (BJP), which has compared the defence scam to Bofors, slammed the government for "unnecessarily" dragging the National Democratic Alliance into the chopper deal.
"First, they deny the existence of a scam; then they try to evade an answer. They try not to have an inquiry, their mission is to cover up and deflect attention to some other issue," BJP spokesperson Prakash Javadekar told reporters here.