In a setback to the United States multinational Monsanto and its Indian associates, the Delhi High Court has held that state laws will prevail over private contracts in determining the fees that can be charged for patented traits incorporated in cottonseed through genetic modification.

It has revoked the termination of the sub-license agreements of Hyderabad-based Nuziveedu Seeds, Prabhat Agri-Biotech and Pravardhan Seeds. The Nuziveedu group was the biggest franchise of Mahyco Monsanto Biotech Limited (MMBL), an associate company of Monsanto in India.

The agreement was terminated in November 2015 after the Nuziveedu group refused to pay trait fee arrears of Rs 160 crore sought by MMBL for a part of Kharif 2014 and whole of Kharif 2015 on the sale of its patented cottonseed under the trade mark Bollgard I and Bollgard II.

According to the agreement, MMBL's franchisees are supposed to pay Rs 163.28 as fees for Monsanto's patented insecticidal trait which is toxic to bollworms, a destructive cotton pest. The trait is derived from the Bt soil bacterium. The fee was payable on cottonseed packets of 450 gram with a maximum retail price (MRP) of up to Rs 930-1,000. For higher MRP the trait fee payable was Rs 163.28 plus 16.66 percent of the difference between the prevailing MRP and Rs 930-1000.

Nuziveedu Seeds contented that it was liable to pay trait fees as prescribed by law, namely, Rs 90 per packet for seeds sold in Andhra Pradesh and Maharashtra in 2010; Rs 90 and Rs 20 per packet for cottonseed sold in Andhra and Maharashtra respectively during 2011 and 2014; and Rs 90, Rs 20 and Rs 50 per packet for cottonseed sold in Andhra, Maharashtra and Telangana respectively in 2015. In December 2015, the central government brought Bt cottonseed under price control nationally, in place of state price orders, and fixed the trait value at Rs 49 for Kharif 2016.

The fee prescribed is substantially lower than that which MMBL wanted. It will have to refund about Rs 500 crore in excess trait fees paid by the Nuziveedu group, including interest, Murali Krishna, its company secretary and legal head said.

The court held the termination of sub-license agreement as “illegal” and “arbitrary.” It said MMBL’s insistence that Nuziveedu group companies adhere to trait fee obligations under its 2004 contract was “not lawful.” The agreement was extended in mid-2015 for five years. It is extendable after 2020 by another two years.

The Nuziveedu group will pay the trait fee as prescribed by the government and in case Monsanto and its associates do not accept it, the amount will be deposited with the court. Nuziveedu group will also submit quarterly statements of month-wise sales of Bollgard I and Bollgard II.

MMBL was of the opinion that while the government could fix the retail price of Bt cottonseed, it could not fix the trait value which was subject to private contracts.

The Delhi High Court order will have a chilling effect on patent holding agri-biotech companies as they will not have the freedom to price their intellectual properties. MMBL, for instance, had last year withdrawn its application for approval of the sale of Bt cottonseed with patented herbicide tolerance trait in addition to insecticidal traits that are currently available to farmers.

This, following a government notification in May 2016 revoking through the Essential Commodities Act, patents for Bt cottonseed traits granted under the Indian Patent Act. The notification was soon withdrawn, but it has created uncertainty.

The Nuziveedu group says seed traits cannot be subject to patents and should be governed by a law that upholds breeders rights.