As it braces for an opposition onslaught in Parliament next week, government today cracked the whip by moving to scrap the 12 helicopter deal with AgustaWestland and decided to send a CBI team to Italy to probe the charges that kickbacks to the tune of Rs 362 crore were paid to bag it.
The Defence Ministry also threatened to take other actions as per terms of the contract, an apparent reference to invoking a clause in the contract for recovery of money already paid in the Rs 3,600 crore deal. India has paid more than 30 per cent of the sum.
"The Defence Ministry issued a formal show cause notice to AgustaWestland seeking cancellation of the contract and taking other actions as per terms of the contract," Ministry spokesman Sitanshu Kar said.
The company was asked to explain the bribery allegations within seven days and reply why the contract of 2010 should not be cancelled.
The action came after the ministry received "some report" from Italy, sources said.
The External Affairs Ministry has also written to the Italian government, seeking information on the issue.
A CBI team is also being sent to Italy where the CEOs of AgustaWestland and its parent company Finmeccanica have been arrested on charges of bribery.
The Defence Ministry's notice comes a day after the ministry warned of legal action, including invoking integrity pact which provides for cancellation of the contract if bribes are paid and recovery of the money already paid.
After the arrest of Finmeccanica CEO Giuseppe Orsi in Milan on Tuesday, India had put on hold the receipt of the remaining helicopters as well as rest of the payment.
India has already received three and three more were to be delivered next month.
The government action came as it prepares for an onslaught in Parliament beginning on February 21, with parties like BJP and Samajwadi Party saying they would raise the issue and seek answers on the alleged scam.
The government yesterday asked Finmeccanica to state whether any money was illegally paid to any Indian entity or individual "which would be violative of the Integrity Pact or any other terms and conditions of the contract".
The Defence Ministry had said yesterday that the government is determined to take all possible legal and administrative action against the guilty parties and accordingly has ordered a thorough probe by CBI.
It noted that the contract with AgustaWestland carried an integrity pact that bars paying of bribes or involvement of middlemen, the Ministry warned of "strict action including cancellation of contract, recovery of payment, blacklisting and penal action can be taken against the vendors."
The Ministry said the contract signed with AgustaWestland includes "specific contractual provisions against bribery and the use of undue influence. Article 22 of the contract deals with penalty for use of undue influence. This clause entitles the Buyer to cancel the contract with the Seller and recover from him the amount of any loss arising from such cancellation."
"Article 23 of the contract entitles the Buyer to consider cancellation of the contract without any entitlement or compensation to the Seller who shall be liable to refund all payments made by the Buyer in terms of the contract along with interest," it said.