Initiating punitive action, government on Monday put on hold all existing and future deals with Rolls Royce pending a probe by the Central Bureau of Investigation (CBI) into bribery allegations and decided to recover money paid as commission by London-based company.
India will also seek information from Britain where the Serious Fraud Office is investigating bribery charges against Rolls Royce in cases related to China and Indonesia.
Defence Ministry sources said contracts with Rolls Royce have been put on hold pending the CBI investigation ordered by Defence Minister A K Antony into allegations that bribes were paid in deals worth Rs 10,000 crore for supply of aircraft engines to the state-owned Hindustan Aeronautics Limited.
Rolls Royce has supplied engines for six types of aircraft-- AJT Hawk, Jaguar, Avro, Kiran MK-II and Sea Harrier and Sea King Helicopters -- and IAF was to sign a contract with it for maintenance and overhaul of these.
The HAL has also been asked to take action to recover from the London-based Rolls Royce the money paid by it to its commission agents, highly-placed Defence Ministry officials said.
The firm has informed HAL that it has paid commissions to Aashmore Private Limited for clinching military deals and the amount ranged between 10 and 11.3 per cent, sources said.
HAL and Rolls Royce have transacted business worth over Rs 5,000 crore between 2007-2011, they said.
In the first reaction by the company to the allegations, Rolls Royce spokesman said, "We will cooperate fully with the regulatory authorities and have repeatedly made clear that we will not tolerate misconduct of any sort."
After ordering a CBI probe into the matter, the Defence Ministry sought the view of the Law Ministry for moving towards blacklisting the British firm but the IAF was of the view that a delay in signing a maintenance contract with Rolls Royce will "impact the defence preparedness of the country."
Rolls Royce, in a letter written to HAL in December last, had said that it had employed a Singapore-based person identified as Ashok Patni and his firm Aashmore Private Limited as "commercial advisor" in India, providing sales and logistical support, local business support and "strategic advice."
The firm has also told HAL that it had severed ties with Aashmore and its owner in 2013.
The commissions paid by the firm are in violation of the procurement rules in India which prohibits hiring of middlemen or commission agents while transacting deals with the Defence Ministry.
The bribery allegations surfaced in the form of a letter received by HAL recently claiming that bribes were paid to officials in HAL and other departments concerned to bag contracts, the sources said.
An internal probe by the vigilance wing of HAL has prima facie established the charges, according to highly-placed Defence Ministry sources.