M.K.Rajagopalan Vs. Dr.Periasamy Palani Gounder & ANR

Case Number: Civil Appeal No. 1682 of 2022 & Civil Appeal 1683 of 2022

Judges Name: Hon’ble Judges Mr. Dinesh Maheshwari, Mr. Vikram Nath

Order dated: 03.05.2023

Facts of the Case:

  1. Appu Hotels Limited, the Corporate Debtor, availed project loans to construct ‘Le Meridien, Coimbatore’, but the business did not materialize, leading to loan repayment default.
  2. Tourism Finance Corporation of India Limited (TFCIL), a Financial Creditor, filed an application under Section 7 of the Insolvency & Bankruptcy Code.
  3. Corporate Insolvency Resolution Process (CIRP) was initiated, and expressions of interest (EOIs) were invited from potential Resolution Applicants.
  4. Out of the 13 EOIs received, one was withdrawn, and another from Sri Balaji Vidyapeeth was found ineligible due to it being a charitable trust which is violative of Section 88 of the Indian Trusts Act.
  5. Three resolution plans were received, with one submitted by the Appellant/RA and another one submitted was found non-compliant with IBC requirements.
  6. The remaining two Resolution Applicants were asked to submit revised plans due to claim revisions and changes in Financial Creditors.
  7. The Appellant RA was the only one to submit a revised resolution plan, which was put up for voting before the Committee of Creditors (CoC) on January 22, 2021.
  8. Prior to that, the promoter and former director of the CD, Dr. Periasamy Gounder, submitted a one-time-settlement proposal with reference to Section 12-A of the IBC on January 21, 2021.
  9. However, the CoC proceeded with voting on the Appellant’s resolution plan, which received 87.39% approval from the total voting share of FCs.
  10. The plan was sent back to the Appellant to ensure dissenting financial creditors were paid an amount not less than what they would have received in liquidation.
  11. Instead of another vote, the revised resolution plan was presented to the Adjudicating Authority for approval.
  12. The CD submitted another settlement proposal to TFCIL, requesting the withdrawal of the application under Section 12-A of the IBC.
  13. The Adjudicating Authority rejected objections against the resolution plan and approved it on July 15, 2021.
  14. The former promoter of the CD, a related party, and an NRI shareholder filed an appeal against the aforesaid order before the National Company Law Appellate Tribunal (NCLAT).
  15. On February 17, 2022, the Appellate Tribunal reversed the Adjudicating Authority’s decision, rejecting the resolution plan and remanding the matter back to the CoC.
  16. The RP and RA filed appeals with the Supreme Court, challenging the Appellate Tribunal’s decision.

Hon’ble Supreme Court Observed/ Held As Follows:

  • That the resolution plan submitted by the Resolution Applicant could not have been approved by the Adjudicating Authority for two primary reasons: i)The Resolution Applicant was ineligible to submit the resolution plan under Section 88 of the Trusts Act and Section 166(4) of the Companies Act and ii) the revised resolution plan was not presented to the Committee of Creditors before being submitted to the Adjudicating Authority for approval. 
  • The SC emphasized that the commercial wisdom of the CoC should be respected but highlighted the need to address glaring irregularities in the submission and approval process of a resolution plan. 
  • The SC stated that the CoC must consider every aspect of the resolution plan, including its financial layout, and deliberate on it before reaching a final decision. 
  • It was emphasized that presenting a revised resolution plan directly to the National Company Law Tribunal (NCLT) without obtaining final approval from the CoC cannot be dismissed as a mere technicality. 
  • The SC stressed that the CoC’s approval and exercise of commercial wisdom should be duly followed, and failure to do so constitutes a serious irregularity that cannot be rectified by presenting the plan to the Adjudicating Authority. The Supreme Court upheld the NCLAT’s decision.

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