Hotel owner's twin plans: one as person, one as trustee — Supreme Court says no

He submitted two resolution plans for the same hotel — one as an individual, one as a trustee. The court said: you can't have it both ways.

The lobby of Le Meridian Coimbatore, once bustling with guests and the clink of coffee cups, had grown quiet. The hotel, run by Appu Hotels Limited, had stopped paying its project loans. In May 2020, a financial creditor filed an application under Section 7 of the Insolvency and Bankruptcy Code (IBC — the provision that allows a lender to start insolvency proceedings against a defaulting company). The National Company Law Tribunal (NCLT), Chennai, admitted the case on May 5, 2020. The file landed on the desk with the weight of a failing business.

The Corporate Insolvency Resolution Process (CIRP — the formal process of trying to revive a defaulting company or sell it) began. A Resolution Professional (RP — the person appointed to manage the company during insolvency) took charge, sifting through the hotel's accounts, its debts, its fading hopes. The Committee of Creditors (CoC — the group of lenders who decide the company's fate) was formed, their chairs around a conference table heavy with the burden of recovering crores.

Then M.K. Rajagopalan stepped in with a plan to take over the hotel. He saw something in the silent corridors and empty check-in counters that others might have missed — a chance to revive the property, to bring back the guests.

When 87% said yes

Rajagopalan's resolution plan went before the CoC. The creditors voted, their pens scratching against ballot papers in a room thick with tension. The result: 87.39% approved. Under the IBC, a plan needs at least 66% creditor approval. He had cleared that threshold easily. The stack of papers on the table — the resolution plan, the financial statements, the valuation reports — seemed to promise a way out.

But dissenting creditors raised concerns. Their voices, sharp with dissatisfaction, echoed in the meeting room. To address them, Rajagopalan revised the plan. The revised plan was never put back before the CoC for a fresh vote. Instead, it went directly to the NCLT for approval, slipped into the court file like a secret.

That procedural shortcut would later sink the deal.

The promoter who fought back

Dr. Periasamy Palani Gounder, the promoter of Appu Hotels, opposed the plan. He wanted to settle the debt under Section 12-A of the IBC (a provision that allows a company to withdraw from insolvency if all creditors agree). The NCLT, however, approved Rajagopalan's plan on July 15, 2021. The courtroom was still, the judge's signature sealing the fate of the hotel — or so it seemed.

The promoter appealed to the National Company Law Appellate Tribunal (NCLAT — the appellate body that hears appeals against NCLT decisions). On February 17, 2022, the NCLAT, Chennai Bench, reversed the order. It found Rajagopalan ineligible on two grounds: first, under Section 88 of the Indian Trusts Act (a provision that prevents a trustee from benefiting personally from their position as trustee), and second, under Section 164(2)(b) of the Companies Act (a provision that disqualifies certain persons from being directors). The NCLAT also found a material irregularity — the revised plan had never been placed before the CoC for final approval. The judgment landed like a hammer on the table.

Rajagopalan and the Resolution Professional appealed to the Supreme Court. The case file, now thick with documents and orders, travelled to Delhi.

Two plans, one man, one hotel

The first problem the Supreme Court examined was the dual role. Rajagopalan had submitted one resolution plan in his individual capacity. He had submitted another plan as the Managing Trustee of a trust. Both plans were for the same hotel. The bench of Justice Dinesh Maheshwari and Justice Vikram Nath looked at the two documents side by side — one signed by a man, the other by a trustee. The same hotel, the same ambition, but two different hats.

Section 88 of the Indian Trusts Act, 1882, states that a trustee cannot use their position to gain an advantage for themselves. If a trustee submits a plan as a trustee and also as an individual, they are essentially competing with themselves — using the trust's credibility to push their personal bid, or using their personal bid to influence the trust's terms. The court saw this as a clear conflict, a violation of the fiduciary duty that a trustee owes to the beneficiaries of the trust.

The Supreme Court held this was a clear violation. A resolution applicant who submits two plans — one as an individual and one as a trustee — is ineligible under Section 88. The fiduciary position (the legal duty a trustee owes to act in the best interest of the trust's beneficiaries) cannot be used to gain a personal advantage in a corporate rescue. The courtroom fell silent as the judgment was read, the words settling like dust on the file.

The disqualification that wasn't there

The second ground — Section 164(2)(b) of the Companies Act — was more complicated. This provision disqualifies a person from being a director if they have been convicted of certain offences. The NCLAT had assumed that Rajagopalan was "deemed disqualified" under this provision, even though no court had passed a categorical order disqualifying him. No letter, no order, no signature — just an assumption, a leap of logic that the appellate tribunal had made in the absence of evidence.

The Supreme Court rejected this reasoning. "There is no concept of 'deemed disqualification'," the bench held. A person cannot be rendered ineligible under Section 164(2)(b) unless a competent authority has passed a specific order disqualifying them. You cannot assume disqualification from silence. The court's words were firm, leaving no room for doubt. The file on the bench contained no such order — only the assumption of one.

On this point, the resolution applicant won. But the victory was hollow.

The procedural flaw that killed the plan

The third issue was the one that ultimately sank the deal. The revised resolution plan — the one that addressed the dissenting creditors' concerns — had never been placed before the CoC for final approval. It had gone directly from the Resolution Professional to the NCLT, bypassing the committee that had the final say. The creditors had not seen the revised terms, had not voted on them, had not given their nod.

The Supreme Court was categorical: this was an incurable material irregularity. The CIRP Regulations require that the final resolution plan be placed before the CoC for approval. No plan can be presented to the NCLT without the CoC's final nod. There is no concept of "post facto approval" — you cannot get the CoC's approval after the plan has already been filed in court. The stack of papers on the bench — the original plan, the revised plan, the NCLT order — told a story of a process that had gone wrong.

"If a modified resolution plan, carrying however minor modification, is not finally approved by the CoC, then presentation of such modified plan before the Adjudicating Authority is an incurable material irregularity," the court said. The words were final, the judgment a door that had been shut.

The commercial wisdom of the CoC — the principle that courts should not interfere with the business decisions of creditors — could not save a plan that had been processed in violation of the law. The court made it clear: even the best business judgment cannot excuse a procedural failure.

Why the commercial wisdom doctrine has limits

The appellants argued that the CoC had approved the original plan with 87.39% votes, and the revised plan was only a minor tweak. The court disagreed. The principle of commercial wisdom — that the CoC's business judgment is final — cannot brush aside procedural violations. If the CoC itself made a decision in contravention of the law, that decision cannot be protected by the commercial wisdom doctrine. The court's reasoning was a reminder that procedure is not a formality — it is the backbone of the insolvency process.

The court upheld the NCLAT's order in substance. The resolution plan could not be approved on two grounds: the ineligibility of the resolution applicant under Section 88 of the Trusts Act, and the failure to place the revised plan before the CoC. The hotel remained in the grip of insolvency, its lobby still empty, its future uncertain.

THE PLAY: If you revise a resolution plan after CoC approval — even for a minor change — you must place the revised plan before the CoC for a fresh vote before filing it in court. No shortcuts.

The hotel stayed in insolvency, waiting for a resolution applicant who would play by the rules. The silence in the courtroom that day was the sound of a process being reset, a lesson for every professional who thinks a shortcut is just a faster path to the same destination.