SC Orders Closure of Private School; Creditor May Seek Possession Under SARFAESI Act

The Supreme Court of India has directed the shutdown of a school in Maharashtra after finding that the Management’s conduct had shown an extreme lack of solicitude for the rule of law. The Court noted that the Management had compounded its contemptuous conduct by wilfully and deliberately defying the orders issued by the Court on multiple occasions, particularly with respect to its persistent failure to clear the outstanding dues.

A Bench of Justice Dipankar Datta and Justice Satish Chandra Sharma heard a Special Leave Petition that arose from a Bombay High Court order in proceedings connected with possession and recovery under Section 13(2) of the Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002 and a writ under Article 226 of the Constitution of India, 1950. The petition challenged the High Court's directions and raised issues relating to repossession, administration of the school premises and protection of students' interests.

The Court summarized its decision by dismissing the Special Leave Petition and directing closure of the school with specified ancillary directions to balance the rights of the secured creditor and the interests of students. The Court permitted the secured creditor to seek police assistance to obtain peaceful and vacant possession and required a fresh valuation before any auction. The Court also recorded its concern at repeated non-compliance by the petitioners and imposed costs of Rs. 1 lakh on the petitioners to be paid to the secured creditor.

The Court, in its reasoning, observed: "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, once and for all times to come. In the meanwhile, the petitioners shall issue transfer certificates to all the students who wish to pursue further studies by enrolling themselves in the 5 (five) nearby schools or elsewhere."

Background

The dispute arose after the petitioners obtained financial assistance from the secured creditor and failed to repay the outstanding amount, leading to action under Section 13 of the Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002. A notice under Section 13(2) of the Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002 was issued on 13th September, 2021, demanding approximately Rs. 5.06 crore, and the petitioners provided a series of promises, undertakings and memoranda which the courts found were not honoured. The High Court recorded incidents of forcible trespass and repeated obstruction to repossession, and directed police assistance and restraining orders while keeping open remedies for restoration of possession.

This Court had earlier granted interim relief, recorded failures of the petitioners to comply with commitments and directed workable arrangements to protect enrolled students, including the appointment of an Administrator by the District Education Officer. The petitioners, however, did not hand over records or cooperate with the Administrator and were held to have acted in wilful disobedience of court orders, conduct that the Court found aggravated the situation and justified firm measures. The Court further observed that it would grant liberty to the secured creditor to approach the Superintendent of Police and the Station House Officer for assistance in obtaining peaceful possession and instructed that upon receiving vacant possession the secured creditor could proceed with disposal by auction after obtaining a fresh valuation by a Government valuer.

The Court noted that the administrative order appointing the Administrator stood recalled because the school did not receive government grants, and it dismissed the Special Leave Petition while directing the petitioners to issue transfer certificates to affected students and pay costs. The Court warned the petitioners that any future hindrance in compliance would invite strict action: "We do hereby warn them of strict action, the results whereof may not be too palatable for them." The invocation of Section 13(2) of the Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002 had been the statutory basis for the secured creditor's repossession efforts, while the petitioners had sought relief under Article 226 of the Constitution of India, 1950 against the High Court order; the Supreme Court resolved those contentions by upholding the directions that facilitated repossession and safeguarded student interests.

Case Details:
Case No.: SPECIAL LEAVE PETITION (C) No. 19540 OF 2025
NeutralCitation: 2026 INSC 408
Case Title: CHAITANYA BAHUUDDESHIYA SHIKSHAN PRASARAK MANDAL & ORS. v. AUXILO FINSERVE PVT. LTD. & ORS.

Source: 2026 CaseBase(SC) 358