Hotel resolution plan rejected: CoC approval can't fix missing step
Supreme Court says a resolution plan modified after CoC vote must go back to the committee — even minor changes. Also, a trustee who bids as an individual may be barred by fiduciary rules.
87.39
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Supreme Court says a resolution plan modified after CoC vote must go back to the committee — even minor changes. Also, a trustee who bids as an individual may be barred by fiduciary rules.
The CoC approved his plan with 87% votes. Then he tweaked it — and filed it straight to the tribunal. The court said: that's a fatal shortcut.
Appu Hotels Limited, the company behind Le Meridian Coimbatore, had defaulted on project loans. A financial creditor dragged it into insolvency in May 2020. A resolution professional was appointed. Creditors formed a committee. Then M.K. Rajagopalan submitted a plan to rescue the hotel chain. The Committee of Creditors (CoC — the group of lenders who decide the fate of a bankrupt company) approved it with 87.39% voting share. But they asked for revisions — specifically, how the plan treated creditors who had dissented.
Rajagopalan revised the plan. Then he filed it directly to the National Company Law Tribunal (NCLT — the special court that handles insolvency cases). He did not place the revised version back before the CoC for a fresh vote. The silence in that 9th meeting room, where the original plan had been approved with a resounding majority, now hung over a document the creditors never saw again. The NCLT approved the plan anyway. The promoter, Dr. Periasamy Palani Gounder, tried to settle the matter under Section 12-A of the IBC (a provision that allows withdrawal of insolvency proceedings if all creditors agree). That failed. The NCLAT — the appellate tribunal — reversed the NCLT's order, finding multiple fatal errors. The Supreme Court had to decide: can a resolution plan that was modified after CoC approval, but never re-approved by the CoC, be legally valid?
When the plan changed but the vote didn't
The timeline matters. On January 22, 2021, at the 9th meeting of the CoC, Rajagopalan's original resolution plan was approved with 87.39% votes. The CoC, however, directed him to revise certain aspects — particularly the treatment of dissenting financial creditors (those who had voted against the plan). Rajagopalan made those changes. Then, on July 15, 2021, he filed the revised plan directly with the NCLT under Section 30(6) of the IBC (the provision that requires the resolution professional to submit the approved plan to the tribunal). The physical document of the revised plan — pages that had never been tabled, never been debated, never been voted upon — now sat before the adjudicating authority as though it carried the CoC's stamp.
The NCLT approved the plan. But the NCLAT reversed that decision. The appellate tribunal found that the revised plan had never been placed before the CoC for a fresh vote. That, the NCLAT said, was a violation of Section 30(2) of the IBC (which requires the CoC to approve a resolution plan after considering its feasibility and viability). The NCLAT also found that Rajagopalan was ineligible under Section 88 of the Indian Trust Act (a provision that bars a trustee from gaining an advantage from the trust property) and Section 164(2)(b) of the Companies Act (which disqualifies a person from being a director if they have been convicted of certain offences).
The fiduciary problem: one man, two hats
The Supreme Court examined a second, equally critical issue. Rajagopalan had submitted two resolution plans — one in his individual capacity, and one as the Managing Trustee of a Trust. The court found this arrangement problematic under Section 88 of the Indian Trust Act (the rule that a trustee cannot use their position to gain a personal advantage from the trust property). Two competing plans, each bearing the same name but different signatures — one as a man, one as a fiduciary — lay before the court.
The bench, comprising Justice Dinesh Maheshwari and Justice Vikram Nath, held that a resolution applicant who submits two plans — one as an individual and one as a trustee — is ineligible under Section 88. The reasoning: a trustee owes a fiduciary duty to the beneficiaries of the trust. By bidding in both capacities, the trustee creates a conflict of interest. The trust's plan and the individual's plan could compete against each other, and the trustee would be in a position to favour one over the other — potentially to the detriment of the trust's beneficiaries.
The court clarified that there is no concept of "deemed disqualification" under Section 164(2)(b) of the Companies Act. A person cannot be disqualified as a director unless a competent authority passes a categorical order to that effect. But the Section 88 issue was independent and decisive.
Why post-facto approval doesn't work
The Supreme Court's most significant ruling was on the procedural question. The NCLAT had found that the revised plan was never placed before the CoC before being filed with the NCLT. The Supreme Court agreed — and went further.
The court held that there is no concept of "post-facto approval" of a resolution plan by the CoC. Once a plan is modified — even with minor changes — it must be placed before the CoC in its final form for a fresh vote. Filing a modified plan directly with the NCLT without CoC re-approval is an "incurable material irregularity." The court used strong language: "If a modified resolution plan, carrying however minor modification, is not finally approved by CoC, presentation of such modified plan before NCLT for approval is an incurable material irregularity."
This means that the commercial wisdom of the CoC — the principle that courts should not second-guess the business decisions of creditors — cannot override procedural compliance. The court cited its own precedent in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta (2020) to reinforce that the CoC's commercial wisdom is not absolute. In that landmark case, the Supreme Court had held that the CoC's commercial decisions are entitled to deference, but only when they operate within the four corners of the IBC. The Essar Steel framework, the court now clarified, does not immunise procedural shortcuts. The CoC cannot, by a majority vote, ratify a plan it never saw in its final form — because the vote itself would be on a phantom document.
The court also drew on K. Sashidhar v. Indian Overseas Bank (2019), where it had ruled that the NCLT and NCLAT cannot sit in appeal over the commercial wisdom of the CoC. But that deference, the court now emphasised, has a boundary: it applies only where the CoC has actually applied its mind to the precise plan being approved. A plan that was modified after the vote — and never re-presented — escapes that boundary entirely. The commercial wisdom doctrine, the court held, "cannot brush aside shortcomings where decision-making contravened applicable law in force."
The limits of commercial wisdom
The Supreme Court also addressed the broader question of how much deference courts owe to the CoC's commercial judgment. The court cited Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh (2020) alongside K. Sashidhar to reiterate that the NCLT and NCLAT cannot sit in appeal over the commercial wisdom of the CoC. But that deference has limits.
Where the CoC's decision-making contravenes the law — for example, by approving a plan that was never placed before it in its final form — the court can and must intervene. The principle of commercial wisdom cannot be used to "brush aside shortcomings" where the decision-making process itself was flawed.
The court also examined the valuation issues raised by the NCLAT. The NCLAT had found violations of Regulations 27 and 35 of the CIRP Regulations (which deal with valuation of the corporate debtor's assets). Regulation 27 requires the resolution professional to appoint two registered valuers to determine the fair value and liquidation value of the corporate debtor. Regulation 35 mandates that these values be disclosed in the information memorandum and considered by the CoC when evaluating resolution plans. The NCLAT had found that these valuation requirements were not properly complied with — a finding that, while not central to the Supreme Court's final decision, reinforced the pattern of procedural infirmities. The Supreme Court did not delve deeply into these findings, but it did not disturb them either. The core holding remained: the plan could not survive because of the procedural irregularity and the Section 88 ineligibility.
What this means for resolution applicants
For practitioners, this judgment delivers two clear messages. First, a resolution plan that is modified after CoC approval must go back to the CoC for a fresh vote — no exceptions, no shortcuts. The silence of a plan never tabled cannot be cured by a later vote. Second, a trustee who bids in both individual and fiduciary capacities faces a structural conflict that the IBC cannot cure.
THE PLAY: Never file a modified resolution plan with the NCLT unless the CoC has approved the exact final version — even a single changed clause requires a fresh vote.
The Supreme Court upheld the NCLAT's order in relevant parts. The resolution plan was rejected. Appu Hotels Limited would have to go through the insolvency process again — or find another way out. The courtroom, when the bench reserved judgment on May 3, 2023, had the quiet weight of a decision that would redraw the procedural map of corporate insolvency.