SC Directs Closure of School and Police-Assisted Repossession Following Repeated Breaches of SARFAESI Act Undertakings

The petitioners (borrowers) obtained financial assistance from the respondent/secured creditor but defaulted on repayment, leading to action under the SARFAESI Act starting September 2021.

Despite multiple undertakings before the Debts Recovery Tribunal, the High Court, and a Memorandum of Understanding, the petitioners failed to clear approximately Rs. 5.06 crore in dues.

The High Court of Bombay directed the closure of the petitioners' school for the 2025–26 session and ordered police assistance to hand over possession to the secured creditor after instances of trespassing by the petitioners.

The Supreme Court initially stayed the High Court order to protect student interests and appointed an Administrator.

However, the petitioners non-cooperated with the Administrator, failed to hand over records, and violated court-mandated conditions.

1. Whether the petitioners' persistent failure to honor financial undertakings and subsequent interference with the Administrator warrants the immediate closure of the school and handover of the secured asset.

2. Whether the court should initiate formal contempt proceedings for the petitioners' "extremes lack of solicitude for the rule of law".

Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, which empowers secured creditors to enforce security interests without the intervention of a court or tribunal.

The court also exercised its inherent powers to ensure the Rule of Law and protect the interests of students under Article 142 of the Constitution (implied), while considering the conduct of the parties as a factor in granting or refusing equitable relief.

The Court observed that the petitioners consistently "took the High Court as well as this Court for a ride" by breaching multiple undertakings and commitments.

Despite the Court's earlier indulgence in appointing an Administrator to protect the academic session of students, the petitioners’ refusal to provide documents and their continued trespassing demonstrated "wilful and deliberate disobedience".

The Court found that student interests had been sufficiently mitigated as final examinations were concluded and notices regarding closure and nearby enrollment options were issued.

Consequently, the Court reasoned that the petitioners had forfeited any further indulgence, necessitating firm steps to restore possession to the secured creditor via police assistance under the SARFAESI framework.

Directed the petitioners to issue transfer certificates to all students; Directed the Superintendent of Police, Kolhapur, to provide force to the secured creditor to obtain peaceful vacant possession of the premises; Mandated a fresh valuation by a Government valuer prior to any auction; and Recalled the appointment of the Administrator.

While formal contempt proceedings were not initiated at this stage, the Court warned of strict action for any future hindrance and imposed costs of Rs. 1 lakh on the petitioners.