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New Delhi/Milan: India has decided to cancel a scandal-tainted chopper deal with Anglo-Italian firm AgustaWestland, prejudging the outcome of a meeting on Wednesday between company executives and defence ministry officials to discuss the contract, three sources said.

The decision draws a line under a dispute that has embarrassed a government heading into elections under a cloud of corruption scandals, and could re-open the contract to rivals, including United Technologies Corp’s Aircraft, EADS Eurocopter and Lockheed Martin.

Scrapping the €560 million deal to buy 12 helicopters for top politicians will not necessarily lead to New Delhi blacklisting the firm, sources have said, a move some officials fear would set back efforts to modernise the military.

However, it closes a chapter of the struggle by AgustaWestland, a division of Italian defence group Finmeccanica, to keep the contract alive.

AgustaWestland’s parent group, Italy’s Finmeccanica, said on Tuesday it has not been contacted by India’s defence ministry over the possible cancellation of a helicopter deal

“Referring to press reports related to the possible cancellation of the contract for the supply of 12 VVIP AW101 helicopters to India, Finmeccanica confirms that its subsidiary company, AgustaWestland, has received no such communication from India’s ministry of defence," Finmeccanica said in a statement.

The company said representatives of AgustaWestland confirmed a meeting with the Indian defence ministry remained scheduled for Wednesday.

AgustaWestland denied allegations it had violated the pre-contract integrity pact.

A senior defence ministry official said there was no hope that AgustaWestland officials could salvage the deal in the meeting scheduled for Wednesday.

“This is just a face-saving exercise by Agusta. But the government has already decided to cancel the deal because they have violated the integrity pact," said one of two sources in the ministry who declined to identified.

A spokesman for Finmeccanica declined to comment.

Under the defence procurement rules, the integrity pact prohibits paying or accepting bribes. The government can cancel a contract if the pact is violated, and the seller has to forfeit any security money it deposited as a bidder.

Last month, AgustaWestland called for arbitration in the dispute, but defence ministry sources say there is no case for this because the firm breached the integrity pact.

However, under the rules, it could still take the case to an Indian court.

The deal for the AW101 helicopters went off track in February after the then-chief executive of Finmeccanica was arrested by Italian police for allegedly paying bribes to secure the deal, prompting India to freeze payments to the company.

AgustaWestland said last month that suspension of payment was not provided for under the terms of the contract and that Indian authorities had not responded to its requests for bilateral discussions since April. Italy and India are separately investigating the allegations. AgustaWestland denies any wrongdoing. Reuters

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