India has reacted to the scandal surrounding its purchase of 12 VVIP-roled AgustaWestland AW101 helicopters with the apparent cancellation of the €556 million ($776 million) deal.

In a statement posted late on 1 January on the Indian ministry of defence website, it says it has "terminated with immediate effect the agreement that was signed with AgustaWestland on 8 February 2010 for the supply of 12 VVIP/VIP helicopters on grounds of breach of the pre-contract integrity pact”.

Although the Anglo-Italian manufacturer had been pressing for arbitration talks to resolve the stalled deal, New Delhi has seemingly rejected this.

“Based on the opinion received earlier from the attorney general of India, it has been the view of the government that integrity-related issues are not subject to arbitration,” it says.

Nonetheless, there appears to be some ambiguity about its position until the country's attorney general offers a fresh opinion. "However, [AgustaWestland] has since pressed for arbitration and appointed an arbitrator from its side. In view of this [the ministry of defence] sought afresh the opinion of the attorney general. With a view to safeguard the interests of the Government, [it has] nominated Mr Justice BP Jeevan Reddy as its arbitrator."

For its part, AgustaWestland says it is yet to be informed of the cancellation by the Indian defence ministry. "The company is therefore unable to comment beyond reiterating the denial of allegations of wrongdoing and the continued intention to robustly defend the company's reputation," it says.

In October 2013, AgustaWestland received a final show cause notice from New Delhi, seeking an explanation as to why the acquisition should not be cancelled as a result of its “violating the terms of the pre-integrity pact".

A total of €51 million is alleged to have been paid as kickbacks by AgustaWestland to secure the order, an accusation strenuously denied by the company.

In August last year, India’s comptroller and auditor general stated that the “entire process of acquisition posed serious questions on accountability and lack of transparency in the finalisation of contract, which need to be addressed”.

The fate of the three helicopters that have already been delivered to the Indian air force remains uncertain. The Indian air force's Air HQ Communication Squadron operates three AW101s along with a fleet of eight Mil Mi-8s. The latter aircraft were acquired in 1988 and will come to the end of their operational lives this year.