NCLT approves Omkar Speciality Chemicals revival plan, overrules objections from minority lenders

The National Company Law Tribunal (NCLT), Mumbai Bench-II, has approved the Rs 25.65 crore resolution plan submitted by Kshitij Polyline Ltd for debt-ridden Omkar Speciality Chemicals Ltd., dismissing objections from Axis Bank and NKGSB Cooperative Bank over the distribution of funds. The ruling highlights the primacy of security interest value over voting share in distributing resolution proceeds and reinforces the commercial wisdom of creditors’ committees (CoC).

Key Details of the Resolution Plan

• Successful Bidder: Kshitij Polyline Ltd. (SRA), a publicly listed manufacturer of identity cards and stationery.
• Total Infusion: ₹26.65 crores (₹4.75cr equity + ₹21.9cr loans).
• Payout: ₹23.14 crores to creditors, including ₹21.76cr to secured lenders.
• Approval: Backed by 83% of the CoC’s voting share, led by Bank of Baroda (BoB).

Contentious Distribution of Funds The dispute centered on the allocation of resolution proceeds:

• Bank of Baroda (BoB): Received 98.79% of secured creditors’ share (₹21.52cr), reflecting its first charge over most of Omkar’s assets.
• Axis Bank & NKGSB: Awarded only 0.40% (₹8.71 lakhs) and 0.81% (₹17.64 lakhs), respectively, despite holding secured creditor status.
• Recovery Rate: BoB recovered 7.42% of its admitted claim, while Axis and NKGSB recovered 0.5% and 0.42%.

Objections Overruled by NCLT

• Axis Bank’s Challenge (IA 2717/2024): Argued unequal treatment violated the principle of “fair and equitable treatment” for similarly situated creditors. The Tribunal’s View was that Axis’s security interest (hypothecation of current assets) was not equivalent to BoB’s first charge on fixed assets. “Two unequals cannot be treated as equals,” the order stated, citing Supreme Court precedents.
• NKGSB’s Challenge (IA 2908/2024): Contended that repeated modifications to Kshitij’s resolution plan violated IBC regulations. The Tribunal’s View was that modifications were justified due to updates in asset information and were approved by the CoC. NCLAT rulings allow CoCs to negotiate plans multiple times.

Legal Precedents Cited

• Essar Steel (2020): CoC has discretion to balance stakeholder interests.
• Amit Metaliks (2021): “Similarly situated creditors” must be treated fairly – but Axis/NKGSB were not deemed “similarly situated” to BoB.
• K. Sashidhar (2019): NCLT cannot interfere with CoC’s commercial wisdom.

Broader Implications

The ruling:

• Validates Security-Based Payouts: Prioritizes the value and priority of collateral over proportional voting shares.
• Reinforces CoC Authority: Affirms CoC’s right to permit plan modifications and determine distribution mechanisms.
• Signals Caution for Lenders: Secondary secured creditors may recover minimal amounts if primary lenders dominate the CoC.

Plan Implementation Kshitij Polyline must:

• Form a monitoring committee to oversee the revival.
• Pay operational creditors ₹6.4 lakhs (above liquidation value).
• Extinguish all pre-CIRP claims not part of the approved plan.

Omkar Speciality Chemicals, a Thane-based manufacturer of specialty chemicals, entered insolvency in December 2022 after defaulting on loans. Its liquidation value was estimated at ₹13.15 crores.

Also See: NCLT orders liquidation of Venus Garments, rejects promoter’s revival bid