The Neem-oil methyl ester (NME) produced from transesterification of Neem-oil was mixed with diesel fuel in the share of 10%(N10) and 20%(N20) were used with varying flow rate of oxy-hydrogen gas (HHO) gas at 5%,10% and 15% energy share along with exhaust gas recirculation (EGR) in a 3.7 kW CI engine. Presence of fuel-borne oxygen in NME, facilitates increase in brake thermal efficiency (BTE) at high load related to neat diesel operation. Further the BTE was improved by introducing varying flow rate of HHO gas in order to maintain energy share of 5, 10 and 15% at all loads. The BTE was found as 33.80% and 35.40% for N20 + 10%HHO and N20 + 15%HHO compared to 31.5%, 30.4% and 29.4% for N20, N10 and Neat diesel fuel respectively. Significant emission reduction of CO, CO2, uHC and smoke opacity were observed during NME + HHO gas operation, but NOx emission was augmented which was controlled using EGR along with further improvement in the engine characteristics.