The Indian Army yesterday scrapped a $600 million (£295 million) deal for 197 helicopters with Eurocopter, the world’s largest maker of civil and military helicopters, after complaints about the bidding process and allegations of illegal use of middlemen.

Government officials said that they would issue a new tender next year after ending exclusive talks with the subsidiary of EADS, the European defence and aerospace group. The decision is a blow to EADS, which is pushing the Airbus commercial jet in one of the world’s fastest-growing civil aviation markets and which plans to invest $2.5 billion in India over 15 years.

The move also denies Eurocopter, a supplier to the Indian Army, a chance to fulfill an order pipeline estimated at $2 billion. Nearly three quarters of the army’s helicopter fleet is Soviet-era and will need to be replaced over the longer term. The helicopter market in India is forecast to be worth $4 billion in the next few years.

In February, the Indian Army chose Eurocopter’s AS 550 C3 Fennec, rather than Bell Helicopter’s Bell 407, after trials in desert and high-altitude conditions.

Eurocopter was to have supplied 60 helicopters from plants in France and Germany over the next three years, with the balance manufactured by Hindustan Aeronautics, its Indian partner, in Bangalore. Indian generals had seemed impressed by the Fennec’s versatility for reconnaissance, electronic warfare and personnel evacuation. The deal was part of an army modernisation that has made India one of the biggest buyers of military equipment, with American and European defence companies vying for contracts.

Eurocopter’s contract was suspended in June after allegations that agents that it used had links to an army general. India prohibits middlemen in military deals.

Eurocopter has denied using middlemen to secure the light helicopter contract. The company said: “EADS and Eurocopter are keen on insisting that both companies fully comply with the very strict French and European regulations on these issues.”

It has been suggested by industry insiders that cancellation of the contract was more the result of lobbying by Eurocopter’s US rival, Bell. However, Sitanshu Kar, a defence ministry official, said: “I can categorically deny that. It was about technical specifications. During field trials there were certain things that were not fulfilled.”

Eurocopter said it would reapply for the contract depending on any fresh criteria from the Indian Army. EADS’s board is expected to meet today and may delay a decision on selling several Airbus plants.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive