Italy judge rejects India's bid to recover AgustaWestland guarantees

Govt wanted to recover more than 278 million euros in bank guarantees

An Italian judge has rejected a request by India to recover more than 278 million euros in bank guarantees backing a scrapped helicopter deal with Finmeccanica, the Italian defence group said on Monday.

India cancelled the 560 million-euro order with Finmeccanica unit AgustaWestland for 12 top-end helicopters in January, citing a breach of integrity relating to alleged corruption.

The ruling by a Milan court in favour of AgustaWestland, which is represented by Cleary Gottlieb Steen & Hamilton, confirms a temporary freeze decided by the same court in January.

The New Delhi government can still appeal against it.

"The Milan court has confirmed the ruling made last January, prohibiting... the payment of collateral of more than 278 million euros deposited in relation to the contract," Finmeccanica said in a statement.

Sources had earlier informed Reuters of the court decision.

The overall value of the guarantee scheme with Deutsche Bank SpA, Deutsche Bank AG , Intesa Sanpaolo and the State Bank of India was around 300 million euros.

India managed to cash in two bank guarantees worth Rs 240 crore earlier this year.

Finmeccanica said the Milan court declared it had no jurisdiction over a 28 million euro warranty bond, part of the overall scheme, which it said had already been paid out by the State Bank of India and Deutsche Bank.

India froze payments for the contract after Finmeccanica's then Chairman Giuseppe Orsi was arrested in February last year for allegedly paying bribes to secure the deal, embarrassing the New Delhi government before parliamentary elections due by May.

Orsi and former AgustaWestland head Bruno Spagnolini, who have both denied allegations they paid bribes to middlemen to secure the deal, are being tried in the northern Italian city of Busto Arisizio.

The separate dispute over the contract, signed in 2010 by AgustaWestland International Ltd, the British unit of the helicopter company, will likely be a lengthy process.

New Delhi has agreed to AgustaWestland's calls for arbitration, which will take place in India and could take months or even years to complete.