Looks like MCI has shot down the idea. For now.
Apparently, the IITs -- with the exception of IIT-KGP -- want to run an MBBS program without running a teaching hospital; they would tie up with a private hospital. MCI, naturally, doesn't like it one bit.
At least, that's the explicitly stated reason for saying 'No' to the proposal. I'm not very clear about whether it is such a big deal; I mean, are there medical colleges that don't run their own teaching hospitals?