NCLT Upholds CoC's Commercial Wisdom to Distribute Proceeds Based on Security Value, Dismissing Dissenting Creditors' Objections Under IBC S.30 - 2025-08-07

NCLT Approves Kshitij Polyline’s Resolution Plan for Omkar Chemicals; Dismisses Objections from Dissenting Creditors

Mumbai, July 2025 - The National Company Law Tribunal (NCLT), Mumbai Bench, comprising Hon’ble Shri Ashish Kalia (Member Judicial) and Hon’ble Shri Sanjiv Dutt (Member Technical), has approved the resolution plan for Omkar Speciality Chemicals Limited submitted by Kshitij Polyline Limited. In a significant ruling, the tribunal dismissed two separate applications from dissenting financial creditors, Axis Bank Ltd. and NKGSB Co-operative Bank Ltd., reinforcing the supremacy of the Committee of Creditors' (CoC) commercial wisdom in determining the distribution of resolution proceeds.

Case Background

The case pertains to the Corporate Insolvency Resolution Process (CIRP) of Omkar Speciality Chemicals Limited, initiated in December 2022. After a lengthy process, the CoC, with an 83% majority, approved the resolution plan submitted by Kshitij Polyline Ltd. (SRA). However, two members of the CoC, Axis Bank (5.04% voting share) and NKGSB Co-operative Bank (12.00% voting share), filed objections challenging the plan's approval and its terms.

Arguments of the Parties

Axis Bank's Challenge (IA 2717/2024): Unequal Distribution

Axis Bank's primary grievance was the manner of distribution of the resolution amount among the secured financial creditors. The approved plan, heavily influenced by Bank of Baroda (holding an 82.96% voting share), stipulated that proceeds would be distributed based on the value of security interest held by each creditor, rather than pro-rata based on their voting shares.

• Axis Bank’s Argument: This distribution method was discriminatory and violated the principle of "fair and equitable treatment of similarly situated creditors." They argued that as all three banks were secured financial creditors, they belonged to the same class and should be treated equally. The addendum to the plan, which left distribution to the CoC's discretion, was a ploy by Bank of Baroda to use its "brute majority" to appropriate the lion's share of the proceeds (approximately 98.79% of the amount allocated to secured creditors).

• Respondents' Counter: The Resolution Professional (RP) and the SRA argued that the CoC is explicitly empowered by Section 30(4) of the IBC to consider the value of security interests. They contended that Axis Bank was not "similarly situated" to Bank of Baroda, as the latter held a first and exclusive charge over the majority of the corporate debtor's assets, while Axis Bank's subsequent charge was created without Bank of Baroda's consent. Furthermore, as a dissenting creditor, Axis Bank was only entitled to its liquidation value, which the plan provided.

NKGSB Bank's Challenge (IA 2908/2024): Multiple Plan Modifications

NKGSB Bank objected to the fact that the SRA was permitted to modify its resolution plan on multiple occasions.

• NKGSB's Argument: They contended that this violated Regulation 39(1A)(a) of the CIRP Regulations, which they claimed forbids modifying a plan more than once. These repeated modifications, they argued, delayed the CIRP and prejudiced their interests.

• Respondents' Counter: The RP defended the modifications, stating they were necessitated by material changes in the Information Memorandum (such as the addition of new claims and removal of a non-owned asset) and were undertaken to maximize value for all stakeholders. The decisions were approved by the CoC and supported by legal opinion.

Tribunal's Analysis and Decision

The NCLT conducted a detailed analysis of both objections before approving the main plan application.

On Unequal Distribution: The tribunal firmly rejected Axis Bank's plea, drawing a crucial distinction between the creditors.

"This is a settled position of law that two unequals cannot be treated as equals before a court of law. The Applicant does not fall within the class of secured creditors. So its claim to be treated at par with the Bank of Baroda has no legal standing... As discussed above, the Applicant Bank is not in the category of similarly situated creditor vis-a-vis Bank of Baroda for want of unencumbered security interest."

The bench held that the CoC's decision to distribute proceeds based on security value was well within its commercial wisdom and legally sanctioned by Section 30(4) of the IBC. It reiterated the principle that a dissenting creditor cannot demand more than its liquidation value entitlement under the Code.

On Multiple Modifications: Dismissing NKGSB Bank's application, the NCLT relied on established NCLAT precedents.

"...the contention of the Applicant that Regulation 39(1A)(a) of the CIRP Regulations prohibits modification of the resolution plan more than once is misplaced and contrary to the established legal position. The Hon’ble NCLAT... has held that the Committee of Creditors retains the power to negotiate and allow multiple modifications to the resolution plans as part of its commercial wisdom."

The tribunal found that the modifications were justified, approved by the CoC, and aimed at value maximization, thus not contravening the Code's provisions.

Final Order and Implications

Having dismissed both objections, the NCLT approved the Resolution Plan for Omkar Speciality Chemicals. The plan proposes an infusion of ₹2665 lakhs, with ₹2314 lakhs allocated for CIRP costs and creditor payments.

This judgment reinforces several key principles of the IBC: 1. Supremacy of CoC's Commercial Wisdom: The courts will not interfere with the CoC's business decisions, including the method of distributing proceeds, as long as they are compliant with the Code. 2. 'Similarly Situated' is Not a Blanket Term: Secured creditors with different priorities or qualities of security (e.g., first charge vs. subsequent charge) may not be considered "similarly situated" and can be treated differently in distribution. 3. Flexibility in Resolution Process: The CoC has the flexibility to negotiate and allow plan modifications to achieve the best possible outcome, and Regulation 39(1A) is not an absolute bar.

The order paves the way for the revival of Omkar Speciality Chemicals under the new management of Kshitij Polyline Limited, while extinguishing all prior claims not included in the approved plan.