A clutch of 12 banks led by State Bank of India has decided to liquidate Varun Resources Ltd – once India’s biggest liquefied petroleum gas (LPG) ship owner — to recover dues worth some 2,000 crore, after rejecting a resolution plan submitted by a third party.
The lenders’ decision of March 8 means that eight LPG carriers of Varun Resources will be sold either through the NCLT process or will have to be auctioned through the Admiralty law process, because the ships have been “arrested” by the Admiralty court at the behest of the crew and the ships’ then manager – Fleet Ship Management Inc — to recover their dues.
On March 19, the Bombay High Court said that it would decide by mid-April as to whether the ships will be sold under the Admiralty law jurisdiction or under NCLT jurisdiction.
The lone resolution plan, submitted by Dubai-based Navis Midstream LLC, was rejected by the lenders.
“Banks had completed due-diligence on the resolution plan; the forensic audit was clear. Yet, they took a decision to liquidate the company nine months after it was admitted to NCLT on June 14, 2017,” a person with knowledge of the lenders’ decision, said. “Now, what will happen is that the company will shut down,” he added.
The developments surrounding Varun Resources are unique in the tempestuous tenure of the NCLT, which was set up to oversee the Insolvency and Bankruptcy Code (IBC) to fix India’s mounting bad-loan problem.
Jurisdiction issue: Just as NCLT proceedings involving the bidding/resolution plans of steel and cement firms have seen many twists and turns, Varun Resources’ case has been hit by a jurisdiction issue. The company was in the IBC process when the ship “arrests” took place under Admiralty law. “Therefore, the question is how is an arrest possible when the company is under NCLT. According to the IBC, no jurisdiction can encumber an asset during the 180-day moratorium on legal actions extended to stressed firms under NCLT. Should the NCLT jurisdiction prevail or the Admiralty law jurisdiction prevail in such a case?” asked an industry official tracking NCLT cases.
Varun Resources’ eight LPG carriers were chartered to IOCL, HPCL and BPCL when the company was admitted to the IBC process.
Since then, the charter contracts have been terminated and the ships have stopped trading. The crew has not been paid for nine months.