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M.K. Rajagopalan vs. Dr. Periasamy Palani Gounder

Civil Appeal · 2023 INSC 486Decided 3 May 2023
Civil Appeal Nos. 1756, 1759, 1757, 1807, 1810 and 1827 of 2022
Dinesh Maheshwari · Vikram Nath

Background

The corporate debtor was Appu Hotels Limited, which went into insolvency resolution in 2020. A resolution applicant, Mr. M.K. Rajagopalan, submitted a resolution plan that the Committee of Creditors (CoC) approved with 87.39% voting share, subject to the plan being revised to properly compensate dissenting creditors. The National Company Law Tribunal (NCLT) approved the revised plan, but the National Company Law Appellate Tribunal (NCLAT) reversed this on appeal, rejecting the plan on multiple grounds, including that the resolution applicant was ineligible, that the revised plan was never actually placed before the CoC for approval before being filed with the NCLT, and other procedural lapses, and ordered the process restarted. Both the resolution applicant and the resolution professional appealed to the Supreme Court, while a separate dispute also involved the promoter's competing settlement offer to keep the company out of insolvency.

Decision Breakdown

The Supreme Court largely agreed with the NCLAT's bottom-line outcome (rejecting the resolution plan) but for narrower reasons. It disagreed with several of the NCLAT's findings, on valuation-process irregularities, non-publication of a public notice (Form G), the resolution professional's fee increase, treatment of a related-party creditor, and the promoter's settlement offer, holding these were not serious enough to invalidate the process, and that a company-law disqualification argument against the applicant (Section 164(2)(b)) was wrongly applied. However, the Court upheld two critical grounds for rejecting the plan: first, that the applicant was legally ineligible under Section 88 of the Indian Trusts Act because he had submitted competing resolution plans both individually and as managing trustee of a charitable trust that was itself already disqualified, effectively trying to gain personally through an "alter ego" workaround of the trust's disqualification; and second, and independently, that the resolution professional had improperly filed a revised version of the plan directly with the tribunal without first taking it back to the CoC for a fresh vote, which the Court held could not be cured by any "post facto" approval: the CoC's commercial wisdom must operate on the plan's actual final form, not an assumed one. Because a fresh settlement proposal from the promoter had since been approved unanimously by the CoC during the appeal's pendency, the Court left that specific question open for the NCLT to decide independently rather than ruling on it itself.

Lesson Learnt

In insolvency proceedings, a resolution applicant cannot sidestep a disqualification (such as one attached to a trust they control) by submitting a parallel individual bid for the same benefit, and a resolution plan's financial terms must be placed before and approved by the creditors' committee in their final, revised form: deviations at either stage are treated as substantive defects, not curable technicalities, even where the committee's "commercial wisdom" is otherwise given great deference by courts.

Official source (sci.gov.in)View Judgment (PDF)

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