India is moving to cancel the purchase of a dozen helicopters from Italian aerospace and arms firm Finmeccanica following bribery allegations.
It has already frozen payments for the helicopters after Italian police arrested Giuseppe Orsi, the head of Finmeccanica.
Orsi, who has denied any wrongdoing, formally resigned on Friday.
Orsi, who is being held in jail but has not been charged, faces allegations of paying bribes to win a 560-million-euro contract for the helicopters to be used by senior Indian politicians.
The corruption crisis at helicopter maker AgustaWestland – which is a wholly-owned subsidiary of Finmeccanica – risks hurting the company’s business in other foreign markets.
The Indian government has been strongly criticised by its political opponents for a slow response to media reports that bribes had been paid.
The case is also making political waves in Italy just ahead of elections there as Finmeccanica is 30 percent owned by the Italian government.
All sides are trying to make political capital from the latest in a series of corruption cases to shake the Italian business world.
Former Prime Minister Silvio Berlusconi, who has fought a series of legal battles himself over his business empire and private life, has said that overzealous prosecutors risked harming Italian business.