India's Ministry of Defence has started action to cancel its $750m (£483.6m) contract with Italian defence group Finmeccanica to buy 12 helicopters following bribery allegations, putting British jobs at risk.
India has frozen payments for the AgustaWestland helicopters pending an inquiry, after Italian police arrested the head of Finmeccanica, Giuseppe Orsi, over allegations he paid bribes to intermediaries to win the Indian contract when he was head of the Somerset operation.
Mr Orsi, who has denied any wrongdoing, formally resigned on Friday.
"[The Ministry of Defence] today issued a formal show cause notice to the AgustaWestland of UK seeking cancellation of contract and taking other actions as per the terms of the contract and the Integrity Pact," an Indian ministry spokesman said in a statement.
"The operation of the contract has been put on hold. The company has been asked to reply to the notice in seven days."
Italian authorities are reported to suspect that the alleged bribes were paid to ensure AgustaWestland won the helicopter contract. A deal was signed in 2010.
On Wednesday, India froze payments to AgustaWestland helicopters pending an inquiry.
The 12 aircraft on order are being built at AgustaWestland’s Yeovil base in Somerset, and this confirmation that it is seeking to cancel its orders could threaten jobs at the site.
On Wednesday, AgustaWestland said in a statement that it was progressing with the order as planned, adding that it had already delivered the first three helicopters to the Indian Air Force, with the remaining due for delivery within 2013.
AgustaWestland UK is Yeovil’s major employer, with 3,200 permanent staff and a further 1,500 sub-contractors.
Cancellation of the deal would be a major blow to the company which has been pinning its ambitions on overseas sales as it loses business from the shrinking defence budget at home.
In the 1980s a previous Congress government, led by then-prime minister Rajiv Gandhi, collapsed over charges of kickbacks paid to Indian officials by the Swedish group Bofors to clinch a $1.3bn artillery deal
India has since banned middlemen in defence deals following that scandal.
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