India's defence ministry has issued a final show-cause notice to helicopter maker AgustaWestland before cancelling the controversial Rs3,600 crore contract for 12 copters dedicated to the country's amorphous fleet of 'VVIPs'.
This leaves a bit of a headache for the Indian Air Force, which is responsible for flying VVIPs from place to place. Its current fleet of Russian-made Mi-8 copters are of 1970s vintage and will not be airworthy beyond next year.
AgustaWestland has been given three weeks to respond.
The move comes on the heels of AgustaWestland initiating arbitration proceedings against the defence ministry as it had not responded to the firm's requests for discussion on a 'scam' that came to light after an Italian investigation of Finmecccanica, a supplier of AgustaWestland copters.
India will invoke the integrity pact to scrap the deal, in which Finmeccanica allegedly paid middlemen more than Rs375 crore in kickbacks.
This will be the first instance of a contract being cancelled after deliveries had begun; and raises questions on the fate of three AW-101 copters already delivered and in use.
India has already paid more than Rs1,300 crore to Finmeccanica. The contract was suspended in February following the kickback scandal, involving former Indian Air Force chief S P Tyagi and several middlemen.
AgustaWestland was reportedly angling for defence contracts with India worth more than Rs 50,000 crore; but it will be forced to put these ambitions on the back burner.
The UK-based AgustaWestland has been given 21 days to respond to the notice, which accuses the company of violating a "pre-contract Integrity Pact".
The defence ministry has stated that because of the integrity pact, it can get back all the money paid by India for the deal.
The defence ministry notice comes days after Swiss resident Guido Ralph Haschke, an alleged middleman named by Italian investigators, was arrested on charges of bribery.
The Italian prosecutor who conducted the preliminary inquiry in the case has alleged that Finmeccanica had used middlemen to bribe Indian officials.