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With Parliament’s budget session less than a week away and an aggressive Opposition waiting to corner it over alleged kickbacks in the VVIP helicopter deal, the government made a pre-emptive strike on Friday by announcing the Rs. 3,760-crore contract with AgustaWestland would be cancelled.
A day after HT reported that a decision had been taken to freeze business with Italian defence group Finmeccanica, the defence ministry issued a showcause notice to its UK-based subsidiary AgustaWestland “seeking cancellation of the contract” — signed in February 2010 — and set a seven-day deadline for it to reply.
“The ministry has initiated action for cancellation of the contract,” a spokesperson said.
The decision is a big setback to the Indian Air Force because a fresh tender implies new choppers — to replace its Mi-8 fleet, first proposed way back in 1999 — will be inducted only by 2020.
It has severe implications for Finmeccanica too. India could ban the Italian conglomerate, currently angling for military contracts worth almost Rs. 44,000 crore, for at least five years.
This will be the first instance of a military contract being cancelled after deliveries had begun — putting a question mark on the fate of three choppers already paid for and parked in IAF hangars. These could be returned. Further payments were frozen on Wednesday.
India will invoke the integrity pact to scrap the deal.
Under this clause, standard in all contracts worth more than Rs. 100 crore, the bidder commits that bribes will not be offered to influence the deal. Any violation empowers the government to cancel the contract and recover money already paid along with interest.
Italian investigators have alleged Finmeccanica bribed former air chief SP Tyagi to change the tender requirements and paid middlemen more than Rs. 375 crore in kickbacks, and a CBI probe is underway. The integrity pact in this contract can be invoked till February 2015.
Senior UPA ministers have asserted the government is ready to debate the controversial deal in Parliament, which promises to see a stormy session.