The Indian government has initiated actions to scrap its contract for AW101 helicopters with scandal-plagued Finmeccanica subsidiary AgustaWestland.

“We have issued a formal show-cause notice to AgustaWestland seeking cancellation of contract and taking other actions as per the terms of the contract and the integrity pact, signed in 2010,” an Indian defense ministry official says.

The move follows the Feb. 12 arrest in Italy of Finmeccanica Chairman and CEO Giuseppe Orsi by investigators looking into whether AgustaWestland paid kickbacks worth around €50 million ($67 million) to secure the sale of 12 AW101 VIP helicopters to the Indian air force in 2010, when Orsi was in charge of the AgustaWestland division.

India has already received three of the helicopters; the remaining nine are due to be delivered by this year.

According to the defense ministry official, 70% of the approximately $700 million due has been put on hold until the federal investigation report is final.

“With today’s show-cause notice, the . . . contract has been put on hold. The company has been asked to reply to the notice in seven days,” the official said Feb. 15.

The ministry has also referred the case to India’s Central Bureau of Investigation (CBI) for inquiry. A team of investigators is likely to visit Italy within a week to look nto allegations that a bribe was paid by Finmeccanica to middlemen to clinch the deal.

Asked when the CBI will file the report, Indian Defense Minister A.K. Antony says, “We cannot set a time line. But we asked the CBI for an early inquiry. We will wait at least for a preliminary report and act on that.”

Both the contract and integrity pact inked with AgustaWestland contain specific provisions under which strict action can be taken against the vendor, including the cancellation of the contract, recovery of payment, blacklisting and penal action.

Article 22 of the contract deals with a penalty for the use of undue influence. It entitles the buyer to cancel the contract and recover the amount of any resulting loss.

AW101 photo: AgustaWestland