India said Thursday it has suspended payments to an Italian company pending the outcome of an inquiry into whether a $748 million helicopter contract was won through kickbacks.
The government has "put on hold all further payments" to Finmeccanica's AgustaWestland helicopter unit until the inquiry by the Central Bureau of Investigation (CBI) is completed, a defence ministry statement said.
The CBI investigation into alleged bribery of Indian government officials by Finmeccanica was announced on Tuesday after the head of the Italian aerospace giant was arrested in Rome.
Italian media reports said the company's chairman and chief executive Giuseppe Orsi has been detained as part of an investigation into alleged bribes paid to Indian government officials.
Italian prosecutors suspect that kickbacks worth around 10 percent of the Italian deal were paid to Indian officials to ensure AgustaWestland helicopter won the contract.
India also said it had asked AgustaWestland to indicate "specifically if any financial transaction has taken place with any Indian individual or entity" which would violate an "integrity pact" it signed with the firm.
The government said it would take strict action including "the cancellation of the contract, recovery of payment, blacklisting and penal action" if the probe finds that any clause in the integrity pact with AgustaWestland was broken.
Under the terms of the 2010 agreement, 12 helicopters were to be delivered to India by 2014. India has already received three of these for use by its top politicians.
The Congress-led government, which has been lambasted by the opposition for not acting sooner over the allegations, on Thursday put out a 35-point statement rejecting allegations it had been lax.
"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 said in the statement.
In the 1980s, a previous Congress government, led by then-prime minister Rajiv Gandhi, collapsed over charges of kickbacks paid to Indian officials by the Swedish group Bofors to clinch a $1.3-billion artillery deal.
The chopper deal was cleared by Indian Prime Minister Manmohan Singh, whose government has been buffeted by a series of corruption scandals that analysts say could affect the party's electoral chances in 2014 polls.