Pending Schemes, Pressing Creditors: What Omkara Means for Restructuring Strategy

Introduction : A company in financial distress that is already attempting to restructure its debts through a scheme of arrangement, might believe it is already taking action, while creditors may not be willing to wait for the restructuring process to conclude.

The company pursuing a scheme might expect that because restructuring proceedings are already before a court, parallel insolvency proceedings should not be allowed to disrupt them. But can a creditor invoke IBC on an ongoing restructuring process once a default has occurred?

S-230 of Companies Act 2013, essentially provides a mechanism through which a company can restructure its affairs through an arrangement involving the company and its creditors/members. And S-7 of IBC, by contrast, is a creditor’s route into CIRP upon financial default. 

These mechanisms may both respond to financial distress, but they do not serve precisely the same institutional purpose.

The Supreme court in Omkara Assets Reconstruction Pvt. Ltd v. Amit Chaturvedi &ors, has now made clear that a pending restructuring process cannot simply be invoked as a blanket shield against insolvency proceedings. 

This isn’t merely a case about whether CIRP can coexist with a pending scheme. It is about how creditors and distressed companies should plan when the two processes collide.

The article will examine why the SC refused to treat the pending scheme as a bar to CIRP, and how creditors and debtors should approach the resulting strategic and forum conflict and how companies can coordinate scheme-based restructuring with an insolvency contingency instead of treating them as isolated alternatives, and will end with a practical framework for deciding which restructuring route deserves priority depending on default, scheme viability, creditor support and procedural status.

Statutory Framework

S-230 of Companies Act, 2013- The restructuring route

Is a court/tribunal-supervised restructuring mechanism that permits a company to propose a compromise or arrangement with creditors/members. The scheme depends on procedural compliance and the requisite creditor/member approval and the tribunal ultimately considers whether the arrangement should be sanctioned.  A scheme is a process aimed at restricting the company’s affairs; it isn’t merely by being pending, an adjudication that the company’s creditors have lost their independent statutory remedies S-230, therefore, is the debtor’s restricting track.

S-7 of IBC: The Creditor’s Trigger

Allows a creditor to start a corporate insolvency resolution process against a company that fails to repay the debt of about ₹1 crore. The NCLT’s inquiry at admission is concerned that the statutory requirements for the S-7 are satisfied. S-230 asks whether a proposed arrangement can restructure the company’s obligations. S-7 asks whether the conditions for commencing the insolvency resolution have been met.

S-238 of IBC: Why IBC Overrides

S-238 gives IBC an overriding effect where its provisions are inconsistent with another law. The SC relied on this broader statutory architecture while dealing with the interaction between the Companies Act and IBC. The existence of a Companies Act proceeding cannot by itself displace the operation of the IBC where the statutory conditions for CIRP are independently satisfied.

Case Laws

Omkara Assets Reconstruction Private Limited v. Amit Chaturvedi & Ors

As per case facts, Omkara Assets Reconstruction Private Limited sought to initiate Corporate Insolvency Resolution Proceedings (CIRP) against a Corporate Debtor for debt recovery. The Debtor cited a SOA- under the Companies Act, and the appellate authority deemed it a reason to keep CIRP temporarily restricted. Later on, an appeal was filed against the Supreme Court and the issue arose whether the highly delayed and procedurally non-compliant SOA should stall the CIRP, especially given the overriding effect of IBC. And it was finally held that the SOA was no longer in effect due to its non-compliance with the statutory requirements and timelines. And IBC’s provisions prevail, prioritizing corporate revival, and the appellate tribunal’s order was set aside as there was no reason to stall CIRP.

The Court’s reasoning proceeded from the independent statutory character of the insolvency proceedings. The creditor’s S-7 application had to be considered within the statutory requirements of the section, rather than placing it in the abeyance and the proceeding concerning the corporate debtor was pending elsewhere. The very existence of the parallel restructuring process cannot by itself displace the consequence from a financial default under IBC.

This plays a significant role in preventing the pendency of restructuring proceedings from becoming an automatic procedural defence against insolvency. The question before the Adjudicating Authority is not whether the corporate debtor has attempted another restructuring mechanism, but whether the requirements to initiate CIRP under the IBC were satisfied. The two proceedings may concern the same underlying financial problem, but they operate through different institutional outcomes.

The Court’s reasoning, however, cannot be reduced to a statement that every Companies Act scheme must yield whenever an IBC application is filed. An equally important aspect of Omkara was the legal status of the particular scheme of Arrangement itself. This distinction between a proceeding being “pending”and being “legally-operative” is central to the judgement. In Omkara, therefore, the court was not merely choosing one forum over another, it was also examining whether the supposed alternative forum continued to possess a legally meaningful proceeding in the first place.

The same-day decision in Catalyst Trusteeship Ltd v. Ecstasy Really Pvt. Ltd, extends this logic to a different but analogous scenario; an informal debenture restructuring discussed via email between the corporate debtor and a single debenture holder, without following the debenture Trust Deed’s formal modification procedure could negate default under S-7. The court held that the debenture trust deed cannot be rewritten by emails, and that formal modification procedures must be followed before an informal restructuring can be treated as negating default.

This leaves a more difficult question on what happens when both routes remain available, which party should move first and what should it consider before doing so?

Creditor's Strategy & Forum Conflict

The creditor is no longer required to simply wait. As seen in Omkara’s case, a creditor confronted with a pending scheme isn’t necessarily trapped into waiting for its conclusion.

The creditor should ask whether any financial default actually occurred and whether S-7 application otherwise is maintainable and how advanced the scheme is and the producing recovery through it and whether the delay is likely to diminish recovery? The existence of a scheme is a factor in creditor strategy, not an automatic legal prohibition on CIRP.

Forum conflict: scheme versus CIRP

The practical difficulty arises when a creditor’s insolvency remedy and debtor’s restructuring efforts move on parallel tracks. The issue, therefore, is not simply which proceeding was initiated first. It is whether the existence of one proceeding can legally prevent the other from operating. The decision in Grand developers Pvt Ltd v. Nitin Batra, illustrates the judicial recognition that S-230 scheme is an independent mechanism and does not, merely by existence, create an absolute bar against CIRP. Similarly, the proceedings in ICICI Bank Ltd v. Supreme Infrastructure India Ltd, demonstrates the practical forum conflict that arises when a dissenting creditor seeks to invoke S-7 while a restructuring proposal is already pending.

This conflict is significant because two mechanisms place different considerations at the centre of the process. Omkara therefore shifts the focus away from the mere pendency of proceedings and towards their legal validity, progress and practical viability.

The Creditor’s Position Within The Scheme

A Scheme Should Not Be Treated As a Safe Harbour

A company should not be in the assumption that the filing of a scheme would keep the CIRP off the table and consider that once financial distress and potential default become serious, management should assume that a creditor may independently consider S-7. The company should be compliant and continuously assess that the scheme remains viable. A restructuring process should be treated as a solution rather than a shield.

Coordinating The Scheme With An Insolvency Contingency

A company pursuing a S-230 scheme should simultaneously process about what happens, when a financial creditor files S-7 tomorrow? Thus, a company should have a contingency plan covering outstanding defaults, creditor positions, likelihood of S-7 applications, statutory compliance and scheme status. And whether S-10 filing should be evaluated. S-10 is one possible debtor-initiated insolvency route that should be evaluated where consensual restructuring is unlikely to succeed and insolvency resolution may offer a more structured path.

When Should A Company Switch Tracks?

The company should continue with the scheme if the creditor’s support is strong, and legally valid and procedural requirements and implementation is realistic and being met and most importantly when the recovery under the scheme is demonstrably better.

And the company should reconsider the scheme where the creditors are increasingly dissenting and schemes cannot realistically be implemented and deadlines are not  being met. S-7 action appears imminent and the company’s financial position is deteriorating while the scheme remains stuck.

The longer a company waits to confront the possibility of CIRP, the less useful its contingency planning becomes.

Conclusion

The significance of Omkara Assets Reconstruction Pvt. Ltd. V. Amit Chaturvedi, lies not in making a choice between a Scheme of Arrangement and CIRP inevitable, but in clarifying that the two cannot be treated as sequential stages by default. 

The resulting decision framework can therefore be expressed as follows:

For the Debtor :-

1. If a Corporate Debtor is facing financial distress, he has to consider whether a financial default has occurred or not? If the answer is no, then explore or continue a S-230 restructuring, while securing creditor support and maintaining procedural compliance. If the answer is yes, then assess the existing restructuring position and the risk of creditor-initiated CIRP.

2. If there is any existing Scheme of Arrangement, the scheme needs to be legally valid, procedurally compliant and realistically implementable, and if not, evaluate available restructuring options, including negotiated restructuring and insolvency proceedings.

   For the Creditor

3. Is the scheme likely to maximise recovery within a credible timeframe? If yes, consider supporting, negotiating or participating in the scheme while protecting available remedies. And, if not, assess whether the requirements for S-7 are satisfied and whether initiating CIRP is more likely to preserve and maximise value. The practical lesson is therefore not that CIRP must always prevail over SOA. Rather, Omkara changes the question that both sides must ask. The issue is no longer about which proceeding prevails, but whether the restructuring is being relied upon as legally effective, compliant and time resilient.

   
   

   In a restructuring environment where a delay itself can destroy value, coordinating the two possibilities from the outset may be the difference between a genuine rescue and an insolvency process that arrives too late.

Author: Harshitha SV in case of any queries please contact/write back to us via email to content@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney

References

1. Omkara Assets Reconstruction Pvt. Ltd. v. Amit Chaturvedi & Ors., Civil Appeal No. 11417 of 2025, 2026 INSC 189 (S.C., Feb. 24, 2026) (K. Vinod Chandran, J.).

2. Catalyst Trusteeship Ltd. v. Ecstasy Realty Pvt. Ltd., Civil Appeal No. 7424 of 2025, 2026 INSC 186 (S.C., Feb. 24, 2026).

3. Grand Developers Pvt. Ltd. v. Nitin Batra, 2024 SCC OnLine NCLAT 646.

4. ICICI Bank Ltd. v. Supreme Infrastructure India Ltd., Interlocutory Application, NCLT, Mumbai Bench.

5. The Insolvency and Bankruptcy Code, 2016, § 7, § 238, No. 31, Acts of Parliament, 2016 (India).

6. The Companies Act, 2013, § 230, No. 18, Acts of Parliament, 2013 (India).

7. The Companies (Transfer of Pending Proceedings) Rules, 2016 (India).