Supreme Court Orders Shutdown Of School For Loan Default, Directs Police Aid For Take Over Under SARFAESI Act

The Supreme Court has ordered the closure of a private school in Maharashtra's Kolhapur after the school management repeatedly blocked the proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, for default in payment of the outstanding dues.

The Court ordered the closure of the school with effect from May 1, 2026, after finding that the management repeatedly defaulted on loan repayments and wilfully disobeyed court orders, showing an “extreme lack of solicitude for the rule of law.”

A bench of Justice Dipankar Datta and Justice Satish Chandra Sharma granted liberty to the secured creditor to take the help of the local police to take possession of the school premises, clarifying that a secured creditor's right to take possession cannot be blocked by force or illegal occupation, and the Courts will not tolerate physical resistance to lawful recovery proceedings.

“Since the secured creditor has failed in its attempt to secure a purchaser owing to alleged resistance offered / disturbances created by the petitioners, we grant liberty to the secured creditor to approach the Superintendent of Police, Kolhapur and the Station House Officer of the jurisdictional Police Station for rendering adequate help, assistance, support and cooperation to obtain peaceful and vacant possession of the secured asset, i.e., building and its surroundings forming part of the SCHOOL.”, the court said.

The dispute arose after the lender issued a demand notice under the SARFAESI Act seeking repayment of over ₹5 crore. When the borrower failed to comply, recovery proceedings were initiated, including steps to take possession of the property of Chaitanya Public School and Junior College.

Despite this, the school management repeatedly sought time before courts, promising repayment but failing to honour any commitment.

The Court noted that several repeated breaches in honouring the commitment to pay the outstanding dues showed a lack of respect for judicial proceedings. Further, the court deprecated the practice of forceful blockage of the lawful recovery proceedings by the Appellants to deprive the secured creditor of their legal right to take possession.

Since the final examinations have been conducted and the parents duly informed, and enough indulgence has been shown to the petitioners, the Court directed closure of the School with effect from the forenoon of 1 st May, 2026, once and for all times to come.

Moreover, a last warning was given to the Appellants not to create hindrances in the recovery proceedings; otherwise, they will be at their own risk and peril.

The appeal was dismissed.

Cause Title: CHAITANYA BAHUUDDESHIYA SHIKSHAN PRASARAK MANDAL & ORS. VERSUS AUXILO FINSERVE PVT. LTD. & ORS.

Citation : 2026 LiveLaw (SC) 416

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Appearance:

For Petitioner(s) :Mr. Samir Arunkumar Vaidya, Adv. Mr. Anand Dilip Landge, AOR Mrs. Sangeeta Nenwani, Adv. Ms. Revati Pravin Kharde, Adv. Mr. Shreenivas Patil, Adv. Mr. Rahul Prakash Pathak, Adv.

For Respondent(s) :Mr. Arjun Garg, AOR Ms. Amruta Arjun Garg, Adv. Mr. Aakash Nandolia, Adv. Ms. Arushi Kulshrestha, Adv. Ms. Muskan Bensla, Adv. Ms. Mrinmoyee Das, Adv. Mr. Varad Kilor, Adv. Mr. Siddharth Dharmadhikari, Adv. Mr. Aaditya Aniruddha Pande, AOR Mr. Shrirang B. Varma, Adv.