NCLT Clears Omkar Speciality Chemicals Revival Plan

Mumbai Bench-II of the National Company Law Tribunal (NCLT) has approved a ₹25.65 crore revival plan of a debt-ridden Omkar Speciality Chemicals Ltd. The plan, which was guided by Kshitij Polyline Ltd, has survived intense scrutiny and strong opposition from minority lenders, especially Axis Bank and NKGSB Cooperative Bank, over the distribution of resolution proceeds. The judgment not only saves Omkar Speciality Chemicals but also strengthens the basic principles regarding the priority of security interest and commercial judgment of creditors' committees.

What Is the Revival Plan and Who Is Involved?

The approved plan involves a direct infusion of ₹26.65 crore, ₹4.75 crore equity and ₹21.9 crore in loans by Kshitij Polyline, which is listed and deals in manufacturing identity cards and stationery. Creditors, including secured lenders, will receive the lion's share of the payout, ₹23.14 crore, with specially secured lenders receiving ₹21.76 crore. This was backed by 83 percent of the voting share in the Committee of Creditors (CoC), which was mainly headed by Bank of Baroda (BoB).

Bank of Baroda, which has the first charge over the fixed assets of Omkar, is to receive a large amount of ₹21.52 crore or 98.79% of the allocation to secured creditors. In sharp contrast, Axis Bank and NKGSB, having been identified as secured creditors, will get only ₹8.71 lakh and ₹17.64 lakh, respectively, which is only 0.4 percent and 0.81 percent of the total secured distribution. All pre-insolvency (CIRP) claims not taken up in the plan will be extinguished and operational creditors will get ₹6.4 lakh, a payout higher than the liquidation value.

Why Did Some Banks Object to the Plan?

Both Axis Bank and NKGSB protested, stating that the allocation mechanism was unfair to secured creditors as it discriminated against them based on the principle of fair and equitable treatment. Axis Bank, which had based its claim on hypothecation of current assets, insisted that all secured creditors should be treated equally regardless of the nature or value of the security.

However, the NCLT, citing landmark Supreme Court judgments in Essar Steel (2020) and Amit Metaliks (2021), drew a strict line: the value and priority of each creditor security interest are the key determinants of its ultimate recovery. The tribunal was categorical in its ruling that two unequals cannot be treated as equals and that the first charge on fixed assets would automatically mean that BoB was entitled to a better share than the creditors whose only security was on current assets. The court also upheld the principle of non-interference with the “commercial wisdom” of the CoC, a doctrine that gives lenders the power to design solutions by security priorities and the realities of asset markets.

NKGSB further claimed procedural irregularities by arguing that several amendments to the proposed plan of Kshitij Polyline were against IBC rules. The tribunal rejected this with references to NCLAT precedents that creditors can seek clarifications or improvements and renegotiate plans to reflect new asset data, so long as the changes have majority CoC approval.

Legal Implications and Industry Impact

The NCLT ruling delivers several pivotal messages to stakeholders in India’s stressed asset market:

• Security Over Voting Power: The decision confirms that the allocation of resolution proceeds should be grounded on the worth and precedence of security interests as opposed to a CoC voting percentage of a creditor. This may imply that, practically, secondary or junior secured lenders can experience significantly reduced recoveries in the event that their collateral is poor or already depleted through enforcement by a senior lender.
• Affirmation of CoC Authority: The decision once again confirms that tribunals should not second-guess economic decisions of creditors, so long as due process and legal minimums are followed, by reaffirming the standard of commercial wisdom. The flexibility of CoCs to change and renegotiate resolution plans based on new information is also highly encouraged.
• Caution for Lenders: Financial institutions must carefully consider the quality and enforceability of their collateral at the time of lending. The outcome for Axis Bank and NKGSB underscores the risks of lending against current assets or holding a second charge, especially in multi-lender scenarios.

What Happens Next for Omkar Speciality Chemicals?

The plan will be implemented with the approval of the tribunal by establishing a monitoring committee. Kshitij Polyline has been appointed to restructure Omkar Speciality Chemicals, wipe out historical claims and set the company on a new path after months of insolvency proceedings.

Omkar Speciality Chemicals is a specialty chemicals manufacturer in Thane that went into insolvency in December 2022 because of debt default, with an estimated liquidation value of ₹13.15 crore. The settlement at a superior amount not only gives hope to the stakeholders but is also a major precedent to be used in future cases that involve competing secured creditors.

The outcome shows the increased complexity of insolvency law in India under the Insolvency and Bankruptcy Code, which balances creditor recoveries, commercial realities, and the rule of law.