The alleged scam in a Rs 3600 crore defence helicopter deal with an Italian firm on Tuesday took a new turn with its chief being arrested in Milan, prompting the government in India to order a CBI probe.
"Giuseppe Orsi, the head of Italian defence and aerospace giant Finmeccanica, was arrested on Monday in relation to a probe into international corruption. He is suspected of involvement in the payment of bribes regarding the sale to the Indian government of 12 helicopters produced by Finmeccanica's subsidiary AgustaWestland," Italian news agency Ansa said.
Prosecutors suspect that around 50 million euros (Rs 362 crore approximately), about 10 per cent of the deal were ploughed back into kickbacks to ensure AgustaWestland won the contract, the agency reported.
In February 2010, India had inked the deal to acquire the 12 three-engine AW-101 helicopters from AgustaWestland for IAF's elite Communication Squadron, which ferries around the President, PM and other VVIPs.
Soon after the news of arrest reached in New Delhi on Tuesday, defence minister AK Antony ordered a CBI probe into the deal.
The ministry said it had sought information from governments of Italy and UK but "no specific inputs" were received substantiating the allegations.
"Since no specific input has been received from the two governments, the ministry of defence has decided to refer the case to CBI for inquiry," defence ministry spokesman said.
The Italian firm had pipped American Sikorsky to bag the crore deal, which was cleared by the Cabinet Committee on Security despite initial objections from the finance ministry.
The deal has been under the scanner for more than a year now after Italian media reports suggested the arrest of two alleged middlemen in Europe for paying bribes to secure it.
The first three of the 12 AgustaWestland VVIP choppers have already arrived in India and the rest are expected to be supplied to the IAF by the middle of next year.
After the arrest, the Italian firm said in a statement that "Finmeccanica expresses support for its Chairman and CEO, with the hope that clarity is established quickly, whilst reaffirming its confidence in the Judges."
It added, "With reference to the precautionary measures issued today towards the Chairman and CEO of Finmeccanica and the CEO of the controlled Company AgustaWestland, Finmeccanica confirms that operating activities and ongoing projects of the Company will continue as usual."
The CEO, who had known he was under investigation over the case for months, denied any wrongdoing before his arrest and said he would only resign his post if asked to do so by the Italian government, ANSA news agency reported.
Police searched Orsi's home and the defence contractor's offices in Milan on Tuesday, it said.
The company is approximately 30 per cent owned by the Italian state.
Despite initial objections by the finance ministry, the CCS had cleared the deal in 2010.
Antony had then said, "IAF and SPG repeatedly told us the helicopters were required because of the changing security scenario... the finance ministry also agreed later. The CCS then took a considered decision."
As per earlier media reports, "slush money" allegedly generated by Finmeccanica through arms contracts was used to bribe Italian political parties. The Indian VVIP helicopter deal has also come in for some mention in the reports.
After the allegations came to light, India had sought reports from the Italian investigators about their probe in the issue but no specific details were provided to it.
In Parliament, defence minister AK Antony had said that if any wrongdoing is found in the case, "suitable penalty measures" will be taken by the Ministry.
Antony had said the defence ministry was pursuing the matter and committed to take suitable penalty measures in event of allegations being substantiated.
"However, in absence of any specific information in this regard, government has not ordered any formal inquiry into the case so far," he said.
Govt owes an explanation: BJP
The BJP on Tuesday said it has been raising the financial irregularities in the VVIP helicopter deal with an Italian company for the past one year and insisted that the Congress-led UPA government give an explanation about the reported anomalies.
"Action has been taken in Italy on the VVIP helicopter scam. The CEO of the company has been arrested. But no action has been taken here. The country which would have benefited from the deal has taken action while the country which lost money has not done anything," BJP spokesperson Prakash Javadekar told reporters.
Javadekar maintained that the government owes an explanation on the matter.