NEW DELHI (Reuters) - A top Indian cotton-growing state has told two local companies that seeds they sold to farmers may have contained traces of an unapproved GM strain from Monsanto, according to government notices seen by Reuters that warn of action against the firms.

FILE PHOTO: A Monsanto logo is pictured in the company headquarters in Morges, Switzerland, May 25, 2016. REUTERS/Denis Balibouse/File Photo

U.S. agrochemicals company Monsanto Co told Reuters late last year that local seed companies have attempted to “incorporate unauthorized and unapproved herbicide-tolerant technologies into their seeds” for profit, leading to the proliferation of illegal seeds, according its own internal investigation and that by the southern state of Andhra Pradesh.

Indian seed firms deny this. The authorities say they are still investigating how the strain has seeped into Indian agriculture.

The southern state of Andhra Pradesh last year launched an investigation after finding nearly 15 percent of its cotton acreage was planted with an unapproved variety of genetically modified seeds developed by Monsanto, which dominates India’s cotton seed market.

A panel of officials inspected some seed production plots and commercial cotton fields and collected “leaf samples” that tested positive for the Monsanto’s Roundup Ready Flex (RRF) strain, which is engineered to tolerate common weedkillers.

Farmers told the officials the seeds that produced the positive tests were from brands marketed by Kaveri Seed Co Ltd and Nuziveedu Seeds Ltd (NSL), according to “show cause” notices sent to the Indian companies on Jan. 29 by the office of the state’s commissioner of agriculture.

The notices, which were reviewed by Reuters, do not refer to any other evidence linking the seeds to the two companies. Both companies deny any wrongdoing.

Using unapproved GM strains is illegal and the state earlier said criminal charges can be brought against those found guilty under India’s Environment Protection Act.

“Any Genetically Modified Crop in India should be released for commercial crop use only after approval of Genetic Engineering Approval Committee (GEAC),” the notices read, referring to a committee of experts under the federal environment ministry.

They asked the companies to explain within five days why their cotton seed licenses “should not be suspended/cancelled”.

Contacted by Reuters, Kaveri Seed and NSL said the seeds were not sold through their dealers or distributors. The state authorities should not have issued the notices without further supporting evidence, they said.

NSL later said a court in the southern city of Hyderabad had stayed, or suspended, the notice on Wednesday. Reuters could not immediately confirm that with the court. An official in the state agriculture commissioner’s office, which sent the notice, said it was not aware of any case filed by NSL.

Spokesmen for the Andhra Pradesh government and the federal environment ministry in New Delhi declined to comment on the investigation or the companies’ responses.

India approved the first GM cotton seed trait in 2003 and an upgraded variety in 2006, helping transform the country into the world’s top producer and second-largest exporter of the fiber.

But India has not approved any other GM crops on concerns over their safety, and large foreign companies have been increasingly unhappy at what they say is the infringement of their intellectual property by widespread planting of unapproved seeds. (reut.rs/2BVrQsC)

Authorities in the southwestern state of Maharashtra are also investigating illegal cotton planting.

Monsanto said using its unapproved technology in seeds could leave Indian farmers “vulnerable to exploitation by opportunistic companies”, because they could lose their crops if found to have knowingly planted such seeds.

“We appreciate the efforts being taken by the authorities to curb the sale of illegal and unapproved seeds,” said a Monsanto India spokesman. “We will continue to extend our cooperation in the investigation and efforts to halt the sale of such unapproved products.”

Monsanto pulled an application seeking approval in India for the RRF variety in 2016 following a dispute over how much the company should charge in royalties to license its technology to local firms. (reut.rs/2jbDq80)

FINDINGS DISPUTED

Kaveri Seed and NSL are among India’s top 10 seed companies, according to market estimates, and both had agreements with Monsanto to license its GM cotton technology.

NSL said the Andhra Pradesh investigating committee should not have issued the “show cause” notice - an official demand that the company explain its actions - based solely on what farmers had told them.

“Under the law, the samples have to be drawn in our presence and after ascertaining the source of the seeds purchased by the farmer,” NSL company secretary Narne Murali Krishna said in an emailed statement. “The farmer might have grown a crop from anybody’s seeds.”

NSL said Monsanto and its Indian partner had failed to prevent the spread of seeds used in its trial. Monsanto denied that and said it fully complied with Indian regulations.

NSL had replied to the notice and was confident that it would, as a result, be withdrawn by the state’s agriculture department, Krishna said, declining to share the content of the company’s reply.

None of the seed samples collected from NSL warehouses and distributors by government officials tested positive for the herbicide-tolerant traits of Monsanto’s strain, he said. Government officials declined to comment on the matter.

Kaveri Seed has also replied to the show cause notice, said G. V. Bhaskar Rao, its chairman and managing director.

“Sending notices based on the statements made by a few farmers is unprofessional,” Rao told Reuters. “We are not at all producing anything which has any trace of RRF and authorities are always welcome to come and check samples at our seed production centers.”

A senior Andhra Pradesh official, who did not wish to be identified because he was not authorized to speak to the media, said interviewing farmers was the only way the committee could trace the source of illegal seeds.

“Since planting is over and we can now only collect leaf samples, we will have to rely on farmers to trace the origin of seeds,” he said.

Monsanto, which is being bought by Germany’s Bayer for $66 billion, has been at loggerheads with local seed firms, including NSL, and India’s government over how much it can charge for its GM cotton seeds, costing it tens of millions of dollars in lost revenue a year.