AgustaWestland – the Anglo-Italian helicopter division of Italian defence group Finmeccanica – has suffered a major blow with the Indian government cancelling a 556 million euro order for a dozen helicopters.

That follows the arrest early last year of Finmeccanica’s former chief executive Giuseppe Orsi. He is currently on trial in Italy charged with fraud and corruption over alleged bribes to win the Indian contract. He denies any wrongdoing.

AgustaWestland insisted its “behaviour was ethically correct” and said it is cooperating with investigators in Italy and India.

This is the first cancellation of a major Indian defence deal, despite a number of previous corruption allegations.

The order was handled by India’s Defence Ministry, although the helicopters were due to be used to transport the country’s top politicians, including the president and the prime minister.

Three of the aircraft have already been delivered; their fate is uncertain.

The cancellation is a fresh setback for Finmeccanica. Delays in selling some of its money-losing assets have prompted credit rating agencies to downgrade the company to junk.