Giuseppe Orsi, chief executive of the Italian aerospace and defence firm, Finmeccanica, has been arrested on corruption charges.
Giuseppe Orsi has been under investigation for embezzlement for several months. He has always denied any wrongdoing.
Prosecutors allege he profited illegally from the sale of 12 helicopters to India.
Shares in the company did not open for trade in Milan.
In a statement, Finmeccanica expressed solidarity with Giuseppe Orsi and said: “Finmeccanica confirms that management activity and the initiatives it has undertaken are continuing in an orderly fashion.”
Italy’s Prime Minister, Mario Monti, said in an interview with Italian television: “Magistrates will do their work. I’m sure they will do it thoroughly and in the best way possible.”
He added: “There is a problem with the governance of Finmeccanica at the moment and we will face up to it.”
Arrest warrants have been issued for two people living in Switzerland.
India’s foreign ministry said it had not been informed of the raid.
“We had asked the government of Italy through our mission in Rome for details of the investigation, but were told that it is a judicial process and the government of Italy is unable to share any information,” said foreign ministry spokesman Syed Akbaruddin.
“That remains the position even today.”
For Italy, it is the latest in a string of corporate scandals – including risky trades at the bank Monti Paschi di Siena and allegations of bribery at the oil services group Saipem.