With Varun Shipping failing to give a satisfactory reply to the show-cause notice, the maritime regulator may suspend the company’s Documents of Compliance — the licence — to operate its ships.

The Mumbai-based company, India’s largest LPG fleet operator, was served a 15-day notice by the Directorate-General of Shipping last month, warning that it would withdraw its Documents of Compliance (DoC) if Varun fails to honour its financial commitments, including payment of wages to seafarers.

DoC is issued to a shipping line by the maritime administration of the country where its ships are registered after ensuring the safety conditions. Ships cannot operate without the DoC and suspension of it will also lead to cancellation of ships’ insurance cover.

In its reply, Varun Shipping headed by Yudhishthir Khatau, is understood to have sought more time and the Government’s support to tide over its financial crisis.

The company has promised to honour all financial commitments by next April, said an official.

“We are not convinced by their (company’s) explanations and promises. They have been making similar promises for more than a year now, he said.

“We may proceed to suspend their DoC,” he added.

However, it is leant that a decision to suspend the company’s DoC will be taken only after obtaining the Shipping Ministry’s nod as it may paint a negative picture of the country’s shipping industry.

Varun Shipping, a listed company, has not paid wages to employees for last six to eight months. Its financial position is so precarious that it reportedly defaulted on payments to surveyors of classification societies and suppliers of spares and provisions.

Khatau, the promoter and CMD of Varun, said the company is going in for a financial restructuring and that would take care of the creditors’ dues.

“The immediate problem is working capital and we expect some positive developments in a day or two,” he told Business Line . Seamen’s union leader Abdulgani Sarang, said Khatau promised to pay wage arrears upto July 2013, by this month end.

“We do understand the difficult market environment, but how long we can wait,” he said.

Varun Shipping reported a loss of Rs 54.93 crore for the quarter ended September 2013. It has posted a profit of Rs 2 crore in the June quarter.

The company, according to its website, has a fleet of 20 vessels comprising 10 LPG carriers, three crude tankers and seven offshore supply vessels. Of these, only eight-six LPG tankers and two OSVs — are in India.

According to information available, all the six LPG carriers in India have been laid up following the show-cause notice.

Other vessels, registered outside India, are operated by associate companies.

Globally, the shipping industry has been facing a severe recession since 2008 and several companies are in deep financial crisis.

Varun too has been facing cash crunch for the last two years. However, analysts say unlike bulk and container shipping, LPG tanker rates have been stable in the last two years. In India, LPG tankers have always been in demand and Varun is the market leader.

The company has a net trade receivable of more than Rs 500 crore. “Why the management is not trying to get this money when it is struggling to borrow funds,” asked an analyst.

A few months ago, two independents directors of the company quit on personal grounds. This was followed by the resignation of the company secretary. The company is run by a three-member board now. Earlier, there were eight board members.

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