* India recovers guarantees backing scrapped helicopter contract
* Order for 12 AgustaWestland choppers terminated after graft probe
* Dispute over high-profile deal may continue in India arbitration
By Danilo Masoni
MILAN, June 11 (Reuters) - India has cashed in 228 million euros ($310 million) in bank guarantees backing a scrapped helicopter deal with Finmeccanica, people familiar with the matter said, in a move that may prompt the Italian state-controlled defence group to cut its 2014 targets.
India terminated the high-profile contract in January citing a breach of integrity after allegations of bribery emerged in Italy against executives at Finmeccanica's helicopter unit AgustaWestland a year earlier.
The overall value of the multi-currency guarantee scheme with German lender Deutsche Bank, Italy's Intesa Sanpaolo and the State Bank of India was around 300 million euros.
India was able to cash in two small bank guarantees but an Italian judge later blocked efforts to recover the remaining 278 million euros. In May, an Italian court revoked the freeze on 228 million euros of that amount and India said it would take steps to recover the sum.
"The payment of the guarantees for 228 million euros has been executed," one of the sources told Reuters, noting that India was cleared to cash in only part of the money because three helicopters had already been delivered.
India, which was advised by Hogan Lovells lawyers in the case, said it had encashed the bank guarantee. "It was done about a week ago," a government official said, asking not be identified because of the sensitivity of the situation.
AgustaWestland, which was aided by Cleary Gottlieb Steen & Hamilton, and the banks declined to comment.
Finmeccanica has said its 2014 targets do not take into account any negative development on the deal. New CEO Mauro Moretti will have to deal with the unexpected cash outlay as he seeks to turn around the heavily indebted group.
Finmeccanica has guided for a net debt of around 4 billion euros at end 2014 while analysts see a slightly better showing of 3.8 billion euros, according to Eikon estimates.
AgustaWestland won the contested order in 2010 to supply twelve AW101 helicopters partly produced in Britain to India's Ministry of Defence, winning over rival Sikorsky, a unit of U.S. defence group United Technologies.
However, the corruption scandal that emerged from an Italian investigation into the deal has raised the spectre of a possible blacklisting of AgustaWestland from India, one of the world's fastest growing defence markets.
Finmeccanica has always denied wrongdoing and expressed confidence it will not be blacklisted from India.
The probe into allegations of bribery led to the arrest of former Finmeccanica Chairman and CEO Giuseppe Orsi and former AgustaWestland CEO Bruno Spagnolini in February 2013. The two are now being tried in the northern Italian town of Busto Arsizio on charges of international corruption they both deny.
While the criminal case could come to an end in the autumn, according to sources familiar with the matter, the dispute over the 560 million euro contract may end up in arbitration in India.
However, one of the people familiar with the matter said there was no assurance the arbitration would go ahead following the recent election victory by Hindu nationalist Narendra Modi. ($1 = 0.7345 Euros) (Additional reporting by Sanjeev Miglani in New Delhi and by Emilio Parodi; Editing by Toby Chopra)