Nilesh Patel, the Rs 900 cr NSEL defaulter

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Nilesh Patel (centre) being produced at the Killa Court in Mumbai

Nilesh Patel, managing director of NK Proteins Limited (NKPL), who was arrested in connection with the alleged fraud case of National Spot Exchange Ltd (NSEL) was sent to police custody till October 28 today by a local court in Mumbai. Patel was arrested on October 22 by the Economic Offences Wing (EOW), Mumbai.

Patel is a first generation entrepreneur who build his business in oil seeds extraction over past two decades by effectively using his personal and political connections.

His firm is the biggest defaulter among the 24 borrowers of National Spot Exchange Ltd (NSEL). NKPL, a firm incorporated in March 1992 by Patel, had a net outstanding liability of Rs 969.89 crore, of which as of October 15, 2013, it had cleared dues of Rs 7.10 crore.

An avid trader himself, Patel is well averse with the tricks of the oil extraction business. The politically connected businessman from Kadi block in Mehsana district had incorporated the company along with his brother Nimish Patel, who also happens to the chairman and managing director of NK Industries Ltd.

He also happens to be the son-in-law of of Shankarlal Guru, who resigned as the chairman of NSEL after the payment crisis in the exchange surfaced. Patel with over two decades of experience in oilseeds business is very good at reading the tone of the commodities market. Today, his Tirupati brand is a market leader in cottonseed oil segment with 40% market share in Gujarat.

In spite of this successful retail business, traders claim, Patel has been accused in the past for defaulting on payments to traders, farmers and even banks. One of the Ahmedabad-based public sector banker said that it had availed of loans from a consortium of banks in the mid 1990s and defaulted. "It was in 1995-96 when we dealt with the company last to settle our receivables from the company. Since then, our bank does not make any transaction with them," says one of the public sector bankers. Even seed suppliers in the past have accused the Patel and his company for being habitual defaulters.

Market participants even allege that several traders and seed suppliers from Sumerpur in Rajasthan had to either close down or change their businesses due to non-recovery of payments from NKPL.

Former MD&CEO of NSEL Anjani Sinha, in his affidavit before a court has stated that Patel came up with the concept of T+3 and T+36 contracts in castor seed. “By end of December 2011, it was known to us that he (Patel) was not having stock to back the exposure. Still, we allowed him to continue because of the fear of widespread default, if we chose not to allow him to roll over,” stated Sinha, who has also been arrested in connection with NSEL scam.

Sinha further stated that N K Proteins  had assured the exchange that its joint venture with the Adani Group, higher cash credit limit with banks and buyers’ credit would enable it to liquidate Rs 200 crore of positions.

In August ICRA downgraded NKPL's long-term and short-term rating in wake of the company being declared defaulter by NSEL. "With its liquidity weakening, the company has not yet disclosed how they plan to pay the outstanding with NSEL," an analyst tracking the company said. He further explained that NKPL has limited financial flexibility in terms of availing working capital facilities from banks due to weak financial position of its group company NK Industries Limited (NKIL), which is now under BIFR. ICRA revised the long-term rating of NKPLto B- from BB+. It has also revised the short-term rating of the company to A4 from A4+.

Patel's NK Group and Adani Gorup’s agro trading arm, Adani Wilmar Ltd had formed a 50:50 joint venture called AWN Agro Pvt Ltd, which became the largest castor oil exporting entity in India. But the association could not last longer as the same was reportedly called off in February this year after a two-year association. However, Patel had assured NSEL liquidity based on his JV with Adani Group.

Patel is also MD of BSE-listed NK Industries Ltd, whose shares are suspended from trading, and which has a market cap of Rs 20 crore.