Supreme Court Orders Closure Of School Occupying Secured Asset After Persistent SARFAESI Default & Breach Of Court Undertakings

"The petitioners... seem to have shown extreme lack of solicitude for the rule of law and aggravated the contempt already committed by acting in wilful and deliberate disobedience of the orders passed by this Court", Supreme Court, in a decisive ruling dated April 22, 2026, ordered the permanent closure of a school situated on a secured asset following repeated defaults and blatant disregard for judicial undertakings by the management.

A bench of Justice Dipankar Datta and Justice Satish Chandra Sharma observed that the petitioners had taken the judiciary "for a ride" by failing to honor multiple commitments to repay debts. The Court held that the school must cease operations by May 1, 2026, to facilitate the repossession and auction of the property under the SARFAESI Act.

The dispute arose when Chaitanya Bahuuddeshiya Shikshan Prasarak Mandal defaulted on a loan of approximately Rs. 5.06 crore from Auxilo Finserve Pvt. Ltd. After the secured creditor initiated action under Section 13(2) of the SARFAESI Act, the school management provided multiple undertakings to the Debt Recovery Tribunal and the Bombay High Court to clear the dues. Despite these promises and a Memorandum of Understanding, the petitioners failed to pay, leading the High Court to grant police assistance for the repossession of the school premises.

The primary question before the Court was whether a school functioning on a secured asset could be ordered to close to allow a creditor to exercise its rights under the SARFAESI Act. The Court also considered the legal consequences of a borrower’s persistent failure to comply with judicial undertakings and their interference with a court-appointed Administrator.

Court Condemns Petitioners' History Of Broken Undertakings

The Court took serious note of the timeline of defaults and the "unsuccessful promises" made by the petitioners. It noted that the management had issued a promise to repay in February 2023, an undertaking before the DRT in March 2023, and a further payment schedule before the High Court in late 2024. Despite these formal commitments, no substantial payments were made to the secured creditor.

The bench highlighted that the petitioners had even ignored the High Court's directive to inform parents that academic activities would discontinue from the 2025–26 session. The Court observed that such a pattern of behavior demonstrated a strategy of seeking indulgence through the court process without any genuine intention of satisfying the statutory debt.

Extreme Disregard For Rule Of Law And Strong-Arm Tactics

The Court expressed shock at the petitioners’ conduct, particularly their repeated trespassing onto the secured asset after possession had been legally handed over to the creditor’s authorized officer. The judgment referenced findings that groups of individuals had trespassed the property multiple times, necessitating police intervention.

"The conduct of the applicants/borrowers has been far from satisfactory and by sheer use of strong arm tactics showing utter disregard to the rule of law."

The bench noted that even after the Supreme Court appointed an Administrator to manage the school’s affairs, the petitioners non-cooperated and prevented the official from assuming charge. This was characterized as an "aggravated contempt" of the Court’s previous orders and a total lack of solicitude for legal procedures.

Balancing Creditor Rights With Students' Academic Interests

While recognizing the impact on students, the Court noted that it had already provided a "workable arrangement" to ensure the current academic session was not hindered. It was informed that final examinations had been completed and parents were notified via the school notice board regarding the imminent closure.

"Since the final examinations have been conducted and the parents duly informed, and enough indulgence has been shown to the petitioners, we now direct closure of the SCHOOL with effect from the forenoon of 1st May, 2026."

The Court directed the management to issue transfer certificates to all students wishing to enroll in five nearby schools or other institutions. By setting the closure date after the conclusion of the academic year, the Court ensured that the management could no longer use the "student interest" plea to stall the SARFAESI proceedings indefinitely.

Police Assistance For Possession And Mandatory Fresh Valuation

To ensure the secured creditor can finally realize its dues, the Court granted liberty to the creditor to seek assistance from the Superintendent of Police, Kolhapur. The police are mandated to provide "adequate help and support" to obtain peaceful and vacant possession of the building and its surroundings.

The Court further directed that upon obtaining possession, the secured creditor must obtain a fresh valuation report from a Government valuer. The reserve price for the subsequent auction sale must be based on this updated valuation, ensuring transparency in the recovery process.

"If there be any hindrance created by them in course of compliance of this order... the same will be at their own risk and peril."

The Supreme Court dismissed the Special Leave Petition and imposed costs of Rs. 1 lakh on the petitioners for their contumacious conduct. The Court emphasized that while it refrained from drawing up formal contempt proceedings at this stage, any further interference with the repossession process would invite "strict action." The ruling reinforces that educational institutions cannot use their status to evade financial liabilities or bypass the rule of law.

Date of Decision: 22 April 2026