Volkswagen has paid the Indian state of Andhra Pradesh around 2 million euros (£1.4m; $2.4m) in compensation for misdealings linked to the carmaker.
VW has postponed a decision to build a factory in Andhra Pradesh
VW said former senior executive Helmuth Schuster had "deceived" officials into paying funds into a company set up to promote a VW's interests in the state.
The German car giant said it had never held a stake in the firm, Vashishta Wahan, and had not agreed the transfer.
VW earlier postponed a decision to build a car plant in Andhra Pradesh.
Europe's biggest carmaker has been reeling from a bribery scandal, which has so far claimed the heads of several senior executives, including a close advisor to German Chancellor Gerhard Schroeder.
In a statement on Thursday, VW said: "Schuster acted without authorisation and deceived the state of Andhra Pradesh."
It said Mr Schuster, a former personnel chief at VW's Czech subsidiary Skoda, had arranged for officials in the southern state to transfer about 2 million euros into the separate firm.
VW added that it would "hold those responsible accountable for the financial damages that have arisen".
Mr Schuster quit amid allegations he took bribes from potential suppliers and set up companies to secure foreign contracts for VW.
The former Volkswagen executive is currently being investigated by German police and prosecutors.
India's Central Bureau of Investigation was last week called in to investigate allegations of bribery centring around the firm.
However, VW said it remained interested in fully entering the Indian market, where it currently has only limited operations linked to its Skoda brand.
VW personnel chief Peter Hartz stepped down earlier this month amid claims that union leaders at the firm were bribed with holidays and prostitutes.
Mr Hartz, who is closely associated with Chancellor Schroeder's efforts to reform the German economy, has denied any wrongdoing.
VW is partly owned by the state of Lower Saxony.