Varun Resources Ltd, India’s largest owner of liquefied petroleum gas (LPG) carriers, has had to halt operations of its eight Indian-flagged LPG tankers at the behest of a consortium of 12 banks led by State Bank of India after defaulting on loans of about ₹2,000 crore, putting its future at stake. Compounding the issue, the ships in question have been ‘arrested’ by a fleet management company.

Varun Resources is facing bankruptcy proceedings under the Insolvency and Bankruptcy Code (IBC) after the National Company Law Tribunal (NCLT) ordered start of the corporate insolvency resolution process on a petition brought by Indian Bank, which is part of the lending consortium.

Simultaneously, on August 30, Fleet Management India Pvt Ltd, a fleet management firm, terminated a contract with Varun Resources for technical and crew management of the firm’s fleet and arrested the eight LPG ships under India’s Admiralty Law to recover dues worth about $4 million. Banks have challenged the arrest of the ships, arguing that it does not conform to NCLT processes.

Meanwhile, the crew aboard the LPG ships have filed a petition in the Mumbai High Court seeking to recover their outstanding salaries. Varun Resources is challenging the petition.

Yudhishthir Khatau, Chairman and Managing Director of Varun Resources, said the firm was weighed down by a crash in charter rates for LPG shipments by 60 per cent during 2016-17 from a year earlier, hurting the firm’s ability to service the loans from September 2016.

“We have put in a resolution plan and now it’s up to the bankers to decide whether they would like to take the resolution plan or not,” Khatau told BusinessLine.

“The banks were concerned about the possibility of arrest of the ships. Because, if there is any kind of maritime lien or claim on the ships, they can be arrested under Admiralty laws. This could jeopardise the security of the assets (ships). Hence, lenders have asked us not to trade the vessels,” he stated.

The halting of operations assumes significance in view of a 180-day moratorium on legal actions extended to stressed firms under NCLT. “The moratorium will not be respected by other jurisdictions. So, if the vessel is abroad, it can be arrested. When it is in India, it gets protection under NCLT. That’s why bankers said it is best to hold the vessels in India,” said Khatau.

Vessels trading stopped
Varun decided to stop trading the vessels from July 1 to check “worse repercussions” for state-run oil firms with whom they were deployed. Khatau said the contracts with oil firms “are still valid”.

Khatau termed Fleet Management’s decision to arrest the ships to recover dues of about $4 million as “very unfair” when the ships are worth at least $40 million.

Source: Hellenic Shipping News.