A hotel's rescue plan was approved by 87% creditors. Then the court found a fatal flaw.

He submitted a plan to save the hotel. He also submitted a plan as a trustee of a trust. The court said: you can't have it both ways.

On a morning in early 2021, the creditors of Appu Hotels Limited—the company behind the Le Meridien hotel in Coimbatore—voted. By a landslide 87.39%, they said yes to a resolution plan that would pull the debt-ridden hotel chain back from the brink of insolvency. The man who submitted that plan, M.K. Rajagopalan, had promised to revive the business, pay off lenders, and keep the hotel running. The National Company Law Tribunal (NCLT) approved the plan in July that year. It looked like a textbook rescue.

But the story did not end there. By February 2022, the National Company Law Appellate Tribunal (NCLAT) had torn the plan apart. And by May 2023, the Supreme Court had largely agreed with the reversal. The question at the heart of the case: can a resolution applicant submit two competing plans—one as an individual, one as a trustee of a trust—without running into a conflict of interest that the law simply cannot ignore?

When the hotel stopped paying its bills

Appu Hotels Limited had borrowed money to build and run the Le Meridien in Coimbatore. When the project loans went unpaid, a financial creditor filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (the provision that allows a creditor to start insolvency proceedings against a defaulting company). In May 2020, the NCLT in Chennai admitted the application and kicked off the Corporate Insolvency Resolution Process (CIRP)—the formal process of trying to rescue the company or sell it off.

The Committee of Creditors (CoC)—the group of lenders who decide the fate of the company during insolvency—began evaluating resolution plans. M.K. Rajagopalan submitted one. It was approved with 87.39% of the vote. But here is where things got messy: after the CoC approved the plan, Rajagopalan made revisions to it. Those revisions were never placed back before the CoC for a final vote. The plan that went to the NCLT for approval was not the same plan the creditors had approved.

The promoter's last-minute offer

Meanwhile, Dr. Periasamy Palani Gounder, the promoter of Appu Hotels, tried to settle the matter. He submitted a proposal under Section 12-A of the IBC (the provision that allows a company to withdraw from insolvency proceedings if the creditors agree). But the CoC did not consider it. The NCLT, when it approved Rajagopalan's plan in July 2021, dismissed all objections—including the promoter's settlement offer and the irregularities in the plan's approval process.

Two hats, one man: why the Trusts Act mattered

The most striking issue the Supreme Court had to decide was whether Rajagopalan could simultaneously act as an individual resolution applicant and as the Managing Trustee of a trust that also submitted a resolution plan. Section 88 of the Indian Trusts Act, 1882, says that a trustee cannot use their position to gain an advantage for themselves—unless the beneficiary (the person for whose benefit the trust exists) gives clear consent. The court found that Rajagopalan had, in effect, submitted two competing plans: one in his personal capacity, and one as a trustee. That, the court held, was a clear conflict of interest.

The Supreme Court bench—Justices Dinesh Maheshwari and Vikram Nath—fell silent when the Trusts Act argument was made, the only sound the rustle of paper as counsel turned pages. The court then delivered its finding: "A resolution applicant who submits two resolution plans — one individually and one as Managing Trustee of a Trust — is ineligible under Section 88 of the Indian Trust Act for gaining advantage through fiduciary position." A trustee cannot wear two hats and pick whichever one gives him a better deal.

The principle is simple: if you are a trustee, you owe a duty of loyalty to the trust's beneficiaries. You cannot use that position to advance your personal interests. The court's reasoning drew from the very structure of fiduciary duty—a trustee holds property or authority for another's benefit, and any advantage gained from that position belongs to the beneficiary. By submitting a plan in his personal capacity while also acting as trustee, Rajagopalan had effectively hedged his bets. If the trust's plan succeeded, he benefited as trustee. If his individual plan succeeded, he benefited personally. Either way, the trust's beneficiaries lost the undivided loyalty the law demands.

This was not a technicality. The court treated it as a fundamental breach of trust law that could not be cured by creditor approval. The CoC's 87.39% vote, however overwhelming, could not wash away the conflict. The court cited its own precedents—including the landmark Essar Steel case—to say that the CoC's decisions must comply with the law in force. Commercial wisdom has limits: it cannot override statutory prohibitions.

The plan that changed without anyone voting

The second fatal flaw was procedural. The resolution plan had been approved by the CoC in January 2021. But after that approval, Rajagopalan made changes to the plan. Those changes were never placed before the CoC for a fresh vote. The plan that reached the NCLT for final approval was a different document from the one the creditors had said yes to.

The Supreme Court was emphatic: "If a modified resolution plan, carrying however minor modification, is not finally approved by CoC, presentation of such modified plan before the Adjudicating Authority is an incurable material irregularity." The regulations under the IBC—specifically Regulations 27, 35, and 36-A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016—require that the final version of the plan be placed before the CoC before it is filed with the NCLT. Even minor modifications, the court said, must go back to the creditors for approval. Presenting a modified plan without that step is a mistake so fundamental that it cannot be fixed later.

The CoC meeting room, with its single window overlooking the hotel's façade, had seen the original plan approved by a landslide. But the revised plan—with its handwritten margin notes and altered figures—never returned to that room. It went straight to the NCLT, a document the creditors had never seen.

The court was clear: there is no such thing as post facto approval of a resolution plan. The CIRP Regulations requiring placement of the final form plan before the CoC must be scrupulously complied with. Even if the modifications were minor—and the court did not rule on whether they were—the procedure is mandatory. The NCLT had approved the plan without verifying that the final version matched what the CoC had approved. That was an error of law.

The disqualification that wasn't

There was one point where the Supreme Court disagreed with the NCLAT. The appellate tribunal had also found Rajagopalan ineligible under Section 164(2)(b) of the Companies Act, 2013 (a provision that disqualifies a person from being appointed as a director if they have been convicted of certain offences). The NCLAT had treated this as a "deemed disqualification"—meaning the disqualification applied automatically, without any formal order from a court or regulator.

The Supreme Court rejected that reasoning. "There cannot be any concept of deemed disqualification," the court said. A person can only be disqualified if a competent authority passes a categorical order to that effect. You cannot assume disqualification exists without proof. On this point, the NCLAT was reversed.

The court drew a careful distinction: Section 164(2)(b) lists grounds for disqualification, but it does not create a self-executing bar. Some other authority—a court, a tribunal, or a regulatory body—must first determine that the grounds exist and pass an order. Without that order, the disqualification is not triggered. This was a significant clarification, because resolution applicants and their advisors had worried that any past conviction—even one unrelated to the insolvency—could automatically disqualify them. The court's ruling limits that risk.

Why the commercial wisdom of creditors has limits

A key argument made by Rajagopalan was that the CoC—the creditors—had approved the plan with 87.39% of the vote. Shouldn't that commercial wisdom be respected? The Supreme Court acknowledged the importance of the CoC's commercial judgment. But it drew a clear line: "The principle of commercial wisdom of CoC cannot brush aside shortcomings where decision-making was done in contravention of law in force." If the decision-making process itself was flawed—if the plan was not properly placed before the CoC, or if the applicant was ineligible under the Trusts Act—then the creditors' approval does not save the plan.

The court cited its own precedents, including the landmark Essar Steel case, to say that the CoC's decisions must comply with the law in force. In Essar Steel, the court had held that the CoC's commercial wisdom is paramount—but only within the framework of the IBC and other applicable laws. The CoC cannot approve a plan that violates the Trusts Act, or that skips mandatory procedural steps. The commercial wisdom of creditors is not a blank cheque.

The court also cited K. Sashidhar v. Indian Overseas Bank, where it had held that the NCLT and NCLAT have limited jurisdiction to review the CoC's commercial decisions. But that limited jurisdiction does not mean the courts are powerless. They can—and must—intervene when the process is tainted by illegality. The line between commercial judgment and legal compliance is not always bright, but in this case, it was clear: the Trusts Act violation and the procedural irregularity were both legal errors, not commercial disagreements.

The procedural journey: a timeline

The case wound its way through three levels of the insolvency framework. In May 2020, the NCLT in Chennai admitted the Section 7 application and initiated the CIRP against Appu Hotels. By January 2021, the CoC had approved Rajagopalan's plan with 87.39% of the vote. But the revised plan—never placed before the CoC—went to the NCLT, which approved it in July 2021, dismissing all objections.

The NCLAT reversed that approval in February 2022, finding multiple irregularities: valuation defects under Regulations 27 and 35, failure to invite fresh expressions of interest under Regulation 36-A, the Trusts Act conflict, and the failure to place the revised plan before the CoC. The NCLAT also found Rajagopalan ineligible under Section 164(2)(b) of the Companies Act—a finding the Supreme Court later reversed.

The Supreme Court, in May 2023, largely upheld the NCLAT's reversal. The plan could not be approved on two grounds: the ineligibility under Section 88 of the Trusts Act, and the failure to place the revised plan before the CoC. The court modified the NCLAT's directions but left the core reversal intact. The hotel in Coimbatore is still waiting for a rescue plan that follows the rules.

What this means for resolution applicants

The judgment in M.K. Rajagopalan v. Dr. Periasamy Palani Gounder & Anr. sends a clear message to anyone bidding to rescue a distressed company: you cannot cut corners. The process matters as much as the outcome. If you submit a plan as a trustee, you cannot also submit one as an individual. If you revise a plan after the creditors have approved it, you must go back to them for a fresh vote. And if you think a disqualification can be assumed without a formal order, think again.

THE PLAY: Before submitting a resolution plan, check every hat you wear—if you are a trustee, a director, or a related party of the corporate debtor, your eligibility may be compromised, and no amount of creditor support can fix a structural conflict of interest.

THE TEST: When a resolution plan is modified after CoC approval, the revised plan must be placed before the CoC for a fresh vote. Even minor changes require this step. Skipping it is an incurable material irregularity.

WHAT THIS MEANS: The commercial wisdom of creditors is not absolute. It operates within the bounds of law. A plan that violates the Trusts Act or bypasses procedural requirements cannot be saved by a high vote share.

The hotel in Coimbatore is still waiting for a rescue plan that follows the rules.