India bans Finmeccanica from bidding for contracts amid graft case

NEW DELHI, Aug 26 (Reuters) - India has banned Finmeccanica from future contracts, a defence ministry source said on Tuesday, as it presses on with an investigation into a scrapped helicopter contract with the Italian company.

In January, India cancelled a 560 million euro ($751 million) order with Finmeccanica (Other OTC: FINMF - news) 's AgustaWestland unit for 12 helicopters after Italian prosecutors alleged the defence group had paid bribes to Indian officials to win the contract.

"Where a tender process is yet to commence, a company under the Finmeccanica group of companies should not be given tender papers for purposes of bidding," a defence ministry source said.

The source asked not to be identified in line with defence ministry policy.

Finmeccanica has denied the allegation of wrongdoing and on Tuesday declined to comment on the decision to bar the firm for now from the Indian defence market, one of the world's fastest growing.

India will continue with contracts involving the Italian firm that are under execution, the source added. The government will also honour contracts that have been completed but require follow-through service, such as spares and upgrades, the source said.

The case involving the helicopters has embarrassed the Indian government and put AgustaWestland at risk of a blanket ban from the huge Indian market.

India, where a number of defence deals have been hit by corruption allegations over the past two decades, took delivery of three of the helicopters before the deal stalled. (Reporting by Nigam Prusty and Sanjeev Miglani, editing by Malini Menon and Louise Heavens)