Where the lines between members, clients blur

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All those mentioned in the list of defaulters to National Spot Exchange Ltd (NSEL) with addresses in Andhra Pradesh are either producers, or connected to producers, or importers of sugar, steel ingots, chrome and coal. However, none of them was ready to explain why they ended up as defaulters if the money was paid only in exchange of goods. "At one level, the investors were funding these producers not knowing the fact that they did not have actual stocks as shown in the warehouse receipts," said Satish Kantheti of Zen Securities Ltd.

It is difficult to separate NSEL members from clients, as often they are the same or are present on various boards. The Andhra list includes five members and 14 clients (some names are repeated with different addresses and promoted by the same set of people), with a total pay-in obligation of Rs 484 crore. As on August 28, the net dues of these entities stood at Rs 432 crore. The transactions of three were seemingly at a scale much higher than what they were capable of as producers, in terms of size.

Aastha Minmet India Pvt Ltd
People associated with Aastha Minmet, headquartered in Mumbai, were involved in transactions amounting to total dues of Rs 244,5 crore. A call to a person named Bharat Kumar at Kallur industrial area in Kurnool district helped independently establish the company's link to Andhra Pradesh, where it had bought a steel mill (headed by Bharat Kumar) with a capacity of 100-115 tonnes a day from Balaji Steels in 2010.

In March this year, the firm had issued a red herring prospectus to raise about Rs 42 crore. According to the prospectus, the company's revenues dramatically rose to Rs 696.14 crore in the six months ended September 2012 from merely Rs 166 crore in the year ended March 2012. Two transactions, involving the names of Aastha Alloy Corp Pvt Ltd and Aastha Minmet India Ltd, with addresses in the Kallur plant, alone stood at Rs 192 crore.

The transactions of five clients, including the two firms with Kallur address, were handled by a company called Juggernaut Projects Ltd, incorporated in April this year, with a Mumbai address. Scrutiny revealed Minmet India chief executive Bethamcharla Venkata Hari Prasad is on the board of Juggernaut, too.

All efforts to contact Prasad failed. His assistant at Minmet's office in the Indiabulls Finance Center at Senapati Bapat Marg promised to inform Prasad about the clarification on the NSEL default. The company's chairman and managing director, Mohit Aggarwal, was unavailable.

Metkore Alloys & Sri Vasavi Industries
The two companies, which together owe Rs 130 crore to NSEL, share more than a member-client relationship, evident from their premises -- plot no. 18 in Sagar Society Colony, on the way to Jubilee Hills here. There are no boards suggesting it is the registered office of Metkore Alloys, a listed company, and Sri Vasavi Industries, suspended from trading by Sebi in 2011.

Grandhi Eswar Rao, promoter of Vasavi Industries, is a brother of Grandhi Mallikarjuna Rao, chairman of the GMR Group. Boorugu Prashanth, managing director of Metkore Alloys and Industries Ltd is the son-in-law of Eswar Rao. Metkore acquired Vasavi's chrome plant in the GMR family's home district of Srikakulam.

In 2008, Metkore had acquired GMR Ferro Alloys and Industries. "We have no idea of the trading business involving NSEL by either Metkore or Vasavi. Both the promoters stay in Bangalore where the corporate offices of both the companies are located," said G Ramjee, a former bank employee who now works as deputy general manager (administration) at Sri Vasavi Industries. After repeated calls to the offices of both the companies in Bangalore, a couple of assistants stated the bosses weren't in town.

NCS Sugars Ltd
Someone visiting the office of this company, located on the fourth floor at Deccan Towers, may think it is engaged in high-security operations, and not sugar crushing. Chairman and Managing Director Narayanam Nageshwar Rao's personal assistant came out to speak to this reporter. "Sir said he would call you on your mobile number," the assistant said. However, no such call was made. NCS Sugars has a sugar mill in Vizianagaram district, with a crushing capacity of 6,000 tonnes a day.

In 2002, Nageshwar Rao, a politically well-connected person, incorporated his company and bought state-owned Nizam Sugar Factory a year later. The company, along with its subsidiary Sai Smhita Storage Pvt Ltd, was named by NSEL for defaulting on the exchange for about Rs 65.22 crore. In February this year, the company was in the news for allegedly availing of bank loans in the name of farmers, without their knowledge.