India has warned that it will cancel a contract to buy helicopters from AgustaWestland and impose penalty measures if allegations of irregularities in the deal are proven, although it still has not launched a formal investigation into the matter.

The deal to buy 12 AW101 helicopters, mainly to be used by the Indian president, prime minister and other top government functionaries, has been under a microscope after the arrest of a few individuals in Italy for allegedly paying bribes to Indian officials.

When India signed the 35.46 billion rupee ($720 million) contract with AgustaWestland in February 2010, the contract contained a standard clause relating to penalties for use of undue influence.

“Provisions are in place to check the role of middlemen and ensure [the] highest degree of probity, public accountability and transparency in defense acquisition cases. Any breach of these provisions entitles the defense ministry to cancel the contract and all of any other contracts with the company and recover the amount of any loss arising from such cancellations,” Defense Minister A.K. Antony says.

The helo deliveries are scheduled between January-July 2013, Antony says. The AW101 was selected over Sikorsky’s S-92 Super Hawk.

Reports of alleged kickbacks to Indian officials came to the attention of Indian authorities following media reports alleging unethical dealings by the Finmeccanica subsidiary, and a probe into the Indian contract by Italian prosecutors.

India has also been asking the Italian government to investigate the alleged irregularities.

“The ministry of defense is constantly pursuing the matter and is committed to take suitable penalty measures in the event of allegations being substantiated. However, in the absence of any specific information in this regard, [the] government has not ordered any formal inquiry into the case so far,” Antony said in a statement to parliament Nov. 26.

The Indian embassy in Rome has taken up the matter with the Naples prosecutor’s office, but “no feedback has been received so far in this regard,” the minister says.

The minister says that a response received from Finmeccanica on its internal audit was “inconclusive and does not bring out any concrete fact to draw a conclusion.”

In October, the Italian defense firm, however, denied the allegations.

The AW101s are supposed to replace India’s aging fleet of Russian-made Mi-8 helicopters.

AW101 photo: AgustaWestland