The Defense Ministry has started the blacklisting process of AgustaWestland, a subsidiary of Italian conglomerate Finmeccanica, after the government canceled a contract with Agusta for 12 luxury AW-101 helicopters for VIPs in January.
The 12 three-engine aircraft were being supplied by AgustaWestland under a $733 million deal signed in February 2010 to replace Mil Mi-8 helicopters that are near the end of their technical life.
"The [blacklisting] proposal now is being vetted by the ministry's legal team," an unnamed senior Defense Ministry official told the Times of India.
"We will then seek the opinion of both the law ministry and the CBI [Central Bureau of Investigation] before taking the formal step," the official said. "There is no option but to proceed with the blacklisting of AgustaWestland because that is what law mandates."
The Times reported blacklisting AgustaWestland would take several weeks since the ministry must wait for the CBI report on evidence regarding kickbacks.
A ban could mean AgustaWestland -- but not other Finmeccanica companies -- is sidelined from bidding for any contracts for a decade.
A banned AgustaWestland would join 15 defense firms put on the "de-barred" list in the past two years, the Times reported.
Firms banned from doing business in the subcontinent for a decade include Singapore Technologies Kinetics, Israel Military Industries, Rheinmetall Air Defense (Zurich), BVT Poland and Corporation Defense Russia.
After allegations surrounding the helicopter contract surfaced in February 2012, India stopped payments to AgustaWestland, although three of the contracted 12 three-engine AW101 helicopters had been delivered.
A report published in August by the federal Comptroller and Auditor General criticized the Indian government for ignoring its own value-for-money defense procurement procedures in the protracted AgustaWestland deal.
Allegations have focused on decisions made by then-Indian Air Force Chief S.P. Tyagi.
In its report, the CAG questioned the decision by Tyagi to hold the air trials of the contract contenders abroad, The Economic Times reported in August.
The newspaper also reported the CBI is examining telephone transcripts said to contain several conversations related to alleged remittances made to cousins of Tyagi and other middlemen to clinch the deal.
The Times of India reported this week the CBI has started fresh questioning of Tyagi's cousins.
A defense ministry statement in January said the government had "terminated with immediate effect the agreement" with AgustaWestland International "on grounds of breach of a pre-contract integrity pact and the agreement by [AgustaWestland]."
Blacklisting AgustaWestland could cause problems for servicing the three AW-101 helicopters that were delivered before the deal was cancelled, The Times reported.