By Brenda Goh
LONDON (Reuters) - An Indian-born donor to one of Britain's ruling political parties and his son were arrested earlier this week as part of a Serious Fraud Office (SFO) investigation into Rolls-Royce's dealings in Asia.
A spokesman for Sudhir Choudhrie, who holds British citizenship, and his son Bhanu confirmed a report of their arrest by the SFO in the Financial Times.
Both men have denied any wrongdoing and have been released on bail, their spokesman said on Friday.
The SFO said on Wednesday it had arrested two men in connection with one of its investigations, but did not disclose their identities.
A source told Reuters at the time that the SFO arrests were connected to the investigation into Rolls-Royce.
The SFO investigation comes at a tough time for Rolls-Royce, the world's second-largest maker of aircraft engines behind General Electric.
Its shares suffered their biggest one-day plunge for more than 13 years on Thursday after the company said defense cuts in the U.S. and Europe would halt its decade-long run of profit growth this year.
The aerospace and defense group said in December that the SFO had launched an investigation into concerns about possible bribery and corruption in China and Indonesia.
The Choudhrie family founded C&C Alpha Group, a London-based firm that invests in healthcare and hospitality, according to the company's website. Bhanu Choudhrie is the firm's executive director.
Since 2010, C&C Alpha has donated almost 500,000 pounds ($831,800) to the Liberal Democrats, junior partners to the Conservatives in Britain's ruling coalition. Sudhir Choudhrie has donated a further 155,000 pounds to the party since 2006, according to Britain's Electoral Commission.
"The allegations made against Bhanu and Sudhir Choudrie are strongly denied. Full cooperation is being given to the authorities," their spokesman said.
The SFO, Rolls-Royce and the Liberal Democrats declined to comment.
In December 2012, Rolls-Royce gave information to the SFO relating to alleged bribery and corruption involving intermediaries in overseas markets and said it could face prosecution.
($1 = 0.6011 British pounds)
(Editing by Erica Billingham)