(MENAFN - AFP) India has moved to cancel a contract with Anglo-Italian firm AgustaWestland for the purchase of luxury helicopters for VIPs following a corruption scandal, a defence ministry source said Wednesday.
"The defence ministry has issued a final show cause notice to AgustaWestland," the top ministry source told AFP.
"They have been given 21 days to respond," the source said of the notice informing the company of the intended cancellation.
AgustaWestland confirmed receiving the notice from the Indian defence ministry.
"It (the notice) will be reviewed and the company will respond appropriately," it said in an email to AFP.
India suspended the 556 million euro (753 million) deal earlier this year after Italian investigators began looking into allegations that AgustaWestland paid bribes to win the contract.
The Italian boss of AgustaWestland's parent company Finmeccanica was arrested in February over the case -- touching off a firestorm in India, where the Congress-led government has been battling a string of graft scandals ahead of elections next year.
India signed the deal in 2010 for 12 helicopters from AgustaWestland, which beat competition from American and Russian rivals.
India's auditor general said in an August report the defence ministry "deviated from procurement procedure and tender on several instances in the deal", including altitude requirements.
The purchase also came under scrutiny from Italian investigators probing allegations the Italian group had broken the law by paying bribes to foreign officials.
The company denies any wrongdoing.
Indian Defence Minister A.K. Antony suspended payments to the company and threatened punitive action if any wrongdoing was uncovered.
While India has already received three of the helicopters, Antony halted delivery of the remaining nine.
AgustaWestland said earlier this month that it was seeking arbitration to settle the row over the helicopters, which were intended for use by dignitaries such as the president and prime minister.
The notice Wednesday asked AgustaWestland to explain why action should not be taken against them for "violating the terms of an integrity pact" that was signed prior to the deal, the source said.
Italian prosecutors suspect kickbacks worth around 10 percent of the deal -- 50 million euros -- were paid to Indian officials, according to Italian media reports.
Indian detectives raided former air force chief S.P. Tyagi's home as part of the probe into the allegations of bribery. Tyagi has denied any wrongdoing.
Cash was allegedly handed to Tyagi's cousin, with more money funnelled via a web of middlemen and companies in London, Switzerland, Tunisia and Mauritius.
Any cancellation of the order is expected to hit AgustaWestland, which has a factory in southwest England, hard. The issue was discussed by British Prime Minister David Cameron during his trip to India in February.