The group installed a new business ethics director on 1 March, a few weeks after Mr Monod was interviewed for four hours by Henri Blondet, a Lyons magistrate investigating corruption in Grenoble.
Marc-Michel Merlin, the chief executive of the Lyonnaise subsidiary Socit de Distribution des Eaux Intercommunales (SDEI), has alleged that Mr Monod was present at a lunch with the mayor of Grenoble at which the pact was agreed, according to Water Bulletin, a London-based utility trade magazine.
Mr Monod told reporters after his questioning that he had no knowledge of any pact. No charges have been laid against either him or the group.
Mr Merlin has been charged with misappropriation of corporate funds but is free on bail. Judge Blondet decided to keep the mayor, Alain Carignon - forced by the scandal to resign last year from his other post as national communications minister - behind bars, saying there was "serious, detailed and corroborated evidence" against him.
Mr Carignon has been charged with accepting gifts that helped to keep his financially troubled political newletters afloat. SDEI was granted the distribution contract for Grenoble in 1989. Lyonnaise denies any wrongdoing and says the scandal arose out of vague rules for political contributions prior to 1990. It also said it had decided to halt all political contributions last year, in advance of a new law prohibiting them that came into effect this year.
A spokesman for the company also suggested that the scandal might have arisen from events that took place before Lyonnaise bought SDEI, although he was unable to give a particular date.
Lyonnaise has fought vigorously to maintain its reputation, winning a token Fr1 from Thierry Jean-Pierre, a retired judge turned European MP who wrote that "80 per cent of political corruption in France is organised by two large industrial groups".The company was not named in his book.
It has also launched a professional code of ethics, which prohibits staff from agreeing to any direct or indirect request for illegal payments in return for contracts or orders.
The code also warns employees torefuse gifts.
The move came shortly after Michel Barnier, the French environment minister, recommended an end to the practice under which utilities gave commissions or set-up fees to local authorities.
These often gave the mayors an incentive to pick the highest rather than the lowest bidder.
Lyonnaise proposes to take over Northumbrian and merge it with North East Water. The bid is to be put before the Monopolies & Mergers Commission before it is priced.
Mike Taylor, Northumbrian's finance director, said: "The issue is how much they are prepared to pay to the shareholders."