Defense Minister A.K. Antony said in both Houses of Parliament -- the lower Lok Sabha and the upper Rajya Sabha -- the Special Technical Oversight Committee looked into the deal and complaints received from "different quarters and one competing vendor."
"The STOC has opined that the procurement has been progressed in accordance with procedures laid down, in keeping with the provisions of the RfP (request for proposal) and defense procurement procedure in a transparent and fair manner," Antony said.
"Government has not taken a final decision on the procurement."
At stake is a deal for 98 torpedoes of which the tender winner would build 20 and the rest would be produced under license in India by state-owned Bharat Dynamics.
Technology transfer under the contract is expected to allow maintenance and overhaul of the torpedoes.
The defense minister's announcement leaves the way open for a win by Finmeccanica subsidiary WASS, whose Black Shark torpedo is the front runner, a report by Defense News said.
A report by Aviation Week said the Black Shark torpedoes can be launched from submarines or ships and have a range of 30 miles. The Indian navy will use the Black Sharks in its six Scorpene submarines and for the six conventional submarines that will be built under India's Project 75I.
The torpedoes also will be used aboard India's future six nuclear missile submarines.
The first of the nuclear subs -- the 6,000-ton INS Arihant -- is being built by Ship Building Center in Visakhapatnam, a port city on the southeast coast of India.
WASS -- Whitehead Alenia Sistemi Subacquei -- wouldn't comment on the issue, Defense News said.
But Atlas Elektronik of German, which in 2010 alleged the procurement process wasn't transparent, said it accepted the STOC and Ministry of Defense's decision and will move on, Defense News said.
Defense News reported that an unnamed Ministry of Defense official had said Atlas was concerned that some user requirements, especially integration of the torpedo with the Scorpene submarine, were tailor-made for Finmeccanica WASS.
The new Scorpenes submarines, costing around $5 billion, are being built under license from the French contractor DCNS by India's state-run Mazagon Dock company. WASS is building the torpedo launching tubes.
Atlas Elektronik spokesman Jens Kruger said "the whole thing is no longer an issue for us" and Atlas will continue with its close partnership with India, Defense News said.
"We founded the subsidiary Atlas Elektronik India this March," Kruger said.
"Full of confidence, we believe in a close and good cooperation with India."