M.K. Rajagopalan v. Dr. Periasamy Palani Gounder: The Supreme Court on Resolution Applicant Eligibility and CoC Approval of Revised Plans

The committee of creditors (“CoC”) sits at the centre of the corporate insolvency resolution process (“CIRP”) under the Insolvency and Bankruptcy Code, 2016 (“IBC”), and courts ordinarily defer to its commercial judgment. M.K. Rajagopalan v. Dr. Periasamy Palani Gounder & Anr. (Supreme Court, 3 May 2023) shows the limits of that deference. The Supreme Court upheld the rejection of a resolution plan approved by a large CoC majority, not because it second-guessed the commercial terms, but because the applicant was ineligible and the revised plan had not been placed before the CoC. At the same time, it disagreed with several other grounds on which the appellate tribunal had set the plan aside.

Background of the Case

The case concerned the CIRP of Appu Hotels Ltd., admitted by the NCLT, Chennai on an application under Section 7 by Tourism Finance Corporation of India Ltd. In the ninth CoC meeting on 22 January 2021, a resolution plan submitted by Mr. M.K. Rajagopalan was approved by 87.39 per cent of the voting share, subject to certain changes recommended by the CoC. The NCLT approved the plan on 15 July 2021. In appeals that included one by the promoter, Dr. Periasamy Palani Gounder, the NCLAT reversed that approval by its judgment dated 17 February 2022. The resolution applicant and others appealed (Civil Appeal Nos. 1682–1683 of 2022 and connected matters). The judgment was delivered by a Bench of Dinesh Maheshwari and Vikram Nath, JJ.

Grounds on Which the Supreme Court Disagreed with the NCLAT

Valuation. The NCLAT had found irregularities in the valuation process. The Supreme Court held that the resolution professional had engaged registered valuers, the CoC had been provided with fair value and liquidation value after confidentiality undertakings, and the process could not be said to be materially flawed. It reiterated that there is no requirement for a resolution plan to match the liquidation value.

Publication of Form G. Form G, the invitation for expressions of interest, had been published in newspapers but not on the designated website owing to technical difficulties that had been communicated to the Insolvency and Bankruptcy Board of India. The Court held that reasonable steps had been taken and the lapse did not vitiate the process.

Section 164(2)(b), Companies Act, 2013. The NCLAT had treated the applicant as disqualified as a director on account of an alleged default by another company. The Supreme Court held that any such disqualification would be a matter for the Registrar of Companies, and that unless a categorical finding of default and a specific order of disqualification existed, the applicant could not be treated as disqualified by assumption, particularly when his Director Identification Number status was “active compliant”.

Treatment of a related-party creditor. The Court held that the IBC does not require a resolution plan to treat related-party creditors on par with unrelated creditors, and differential treatment was a matter within the CoC’s commercial wisdom.

The promoter’s settlement proposal. The NCLAT had faulted the CoC for not properly considering a settlement proposal by the promoter under Section 12A, made shortly before the vote. The Supreme Court did not accept that finding.

The resolution professional’s fees. The Court also set aside the NCLAT’s findings concerning an increase in the resolution professional’s fees.

Grounds on Which the Rejection of the Plan was Upheld

Ineligibility linked to a trust (Section 88, Indian Trusts Act, 1882). The applicant had submitted expressions of interest both individually and as managing trustee of an educational trust, and the trust had been found ineligible. The resolution plan relied on the applicant’s position in the trust for its financial credentials. The Court held that the applicant could not be detached from the ineligible trust, and that Section 88, which requires a trustee to hold for the benefit of the trust any advantage gained by using that position, supported the finding of ineligibility.

Conflict of interest (Section 166(4), Companies Act, 2013). As an additional ground of ineligibility, the Court noted that the applicant was managing director of a company operating hospitals, while his plan proposed converting a property of the corporate debtor into a hospital. Section 166(4) prohibits a director from involving himself in a situation in which he may have a direct or indirect interest that conflicts, or may possibly conflict, with the company’s interest. The Court found such a conflict evident on the record and held that, for this reason too, the applicant could not have been accepted as eligible.

Revised plan not placed before the CoC. After the ninth meeting, the plan was revised to address the requirement concerning payments to dissenting financial creditors, and the revised plan with an altered financial layout was filed before the NCLT without being put to the CoC again. The Supreme Court held that each material aspect of a plan, particularly its financial layout, must be considered by the CoC before it can be said to have taken a considered decision, and that a later meeting could not supply a deemed post facto approval. This was treated as a material irregularity, not a technicality.

In paragraph 68, the Court summarised that even while respecting the CoC’s commercial wisdom, the plan could not have been approved for two major reasons: the ineligibility of the resolution applicant, and the failure to place the revised plan before the CoC. Questions concerning a fresh settlement proposal of the promoter approved by the CoC in October 2022 were left open for the Adjudicating Authority.

The Decision after the 2026 Amendments

The Insolvency and Bankruptcy Code (Amendment) Act, 2026, largely in force from 26 May 2026, changes several procedural features relevant to this judgment. The core propositions in M.K. Rajagopalan continue to apply, but they now operate within a revised statutory structure.

• Reasons for CoC approval. Section 30(4) now requires the CoC to record reasons for approving a resolution plan. This reinforces the Court’s emphasis on a considered decision on each material element of the plan.
• Opportunity to rectify. A proviso to Section 31(2) allows the Adjudicating Authority, before rejecting a plan, to give notice to the CoC to rectify defects. Where a defect of the kind found in this case is identified, the statute now provides a route to return the plan to the CoC rather than proceeding directly to rejection.
• Time for decision on the plan. Section 31(2A) requires the Adjudicating Authority to decide within thirty days of receiving the plan, recording reasons for any delay.
• Dissenting financial creditors. New Section 30(2)(ba) prescribes that financial creditors who do not vote in favour must receive not less than the lower of their liquidation entitlement under Section 53 or the amount they would receive if plan proceeds were distributed under the Section 53(1) waterfall. It does not apply where the CoC had already approved a plan, or liquidation had been ordered or intimated, before 26 May 2026.
• Withdrawal and settlements. The substituted Section 12A requires ninety per cent CoC approval and bars withdrawal after the first invitation for submission of resolution plans. A promoter settlement proposed at the stage seen in this case would not now provide a basis for withdrawal under Section 12A.
• Eligibility. Section 29A, which lists persons ineligible to be resolution applicants, was not substantively amended in this respect. The Court’s approach of looking at the substance of the applicant’s credentials and connections remains relevant.

Significance

The judgment in M.K. Rajagopalan v. Periasamy Palani Gounder is a useful reminder that deference to the CoC’s commercial wisdom presupposes a lawful CIRP process and an eligible resolution applicant. The Supreme Court distinguished procedural irregularities that did not affect the outcome from defects going to the validity of the resolution plan or the applicant’s eligibility. For CoCs and resolution professionals, the key takeaway is that any material change to a resolution plan after approval requires fresh consideration by the CoC, a principle further reinforced by the 2026 IBC amendments requiring reasons for approving a resolution plan.

FAQs

1. What did the Supreme Court decide in M.K. Rajagopalan v. Periasamy Palani Gounder?
The Supreme Court upheld rejection of the resolution plan because the applicant was ineligible and the revised plan was not placed before the CoC.

2. Can courts interfere with the CoC’s commercial wisdom?
Courts generally defer to the CoC’s commercial wisdom but may intervene where there is a legal or procedural defect.

3. Must a revised resolution plan be placed before the CoC?
Yes. A material revision, particularly to the financial structure of the plan, must be considered by the CoC.

4. Why is M.K. Rajagopalan important after the 2026 IBC amendments?
The judgment’s core principles remain relevant, while the 2026 amendments add requirements concerning CoC reasons, plan defects, and dissenting financial creditors.

Legal Information Disclaimer

This article provides general information about Indian law as it stood on 16 September 2026. It is not legal advice, and reading it does not create an advocate–client relationship. Statutes, rules and judicial interpretations change, and their application depends on the facts of each matter. Readers should consult the current official text of the laws and judgments cited and should not act on this information without advice specific to their circumstances. This article is published for legal awareness and education and is not intended to advertise or solicit professional work.

Sources / Authorities

1. M.K. Rajagopalan v. Dr. Periasamy Palani Gounder & Anr., Civil Appeal Nos. 1682–1683 of 2022 and connected appeals, Supreme Court of India, 3 May 2023 (Dinesh Maheshwari and Vikram Nath, JJ.) — Indian Kanoon
2. Insolvency and Bankruptcy Code, 2016 — Sections 12A, 29A, 30, 31, 53 (as amended) — IBBI – Legal Framework
3. Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026), clauses 8, 18 and 19 — Gazette text (IBBI); Notification S.O. 2625(E) dated 22 May 2026 — IBBI
4. Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 — Regulations 27, 35 and 36A
5. Companies Act, 2013 — Sections 164(2)(b) and 166(4)
6. Indian Trusts Act, 1882 — Section 88