Educational Institutions Should Not Be Shut Down For Debt Recovery When Other Options Exist: DRAT Kolkata

The Debts Recovery Appellate Tribunal (DRAT) at Kolkata has recently observed that educational institutions should not be shut down or their management taken over by secured creditors when other lawful modes of recovery are available, while partly allowing an appeal filed by Kotak Mahindra Bank against an interim order passed by the Debts Recovery Tribunal, Kolkata.

Chairperson Justice Anil Kumar Srivastava observed,

“Educational Institutions are not to be shut down or their Management should not be taken over by any Institution if other resources are available for securing recovery of secured debt by the Secured Creditor.”

The appeal arose from recovery proceedings initiated by the bank against Camellia Educare Trust, which runs Camellia College & Engineering and Technology in Kolkata. The bank had sanctioned a term loan of Rs 8.50 crore to the trust on November 5, 2012.

The account was classified as non-performing in 2015, following which proceedings under the SARFAESI Act were initiated, culminating in a notice dated October 22, 2021 proposing to take over the management of the institution. A public notice regarding the proposed takeover was also published on October 28, 2021.

Challenging the action, the trust approached the DRT contending that the college was a charitable educational institution with more than 1,100 students enrolled and that the business of the institution had not been mortgaged to the bank.

The appellate tribunal noted that under the proviso to Section 13(4)(b) of the SARFAESI Act, takeover of management is permissible only when a substantial part of the borrower's business is held as security. It observed:

“At the very outset it is to be observed at this stage that the business of the Borrower was not mortgaged with the Appellants. In such situation, prima facie, case for taking over the Management of the Educational Institution, could not be established.”

The tribunal further emphasised the special nature of educational institutions, stating that the future of students must be considered while deciding recovery measures.

It observed that "This is not a simple case of taking over of Management of a Company or any other firm rather it relates to an educational institution. As observed earlier where a large number of students are pursuing their different courses, we cannot lose sight of the fact that their future would be at stake if the Management of the Institution would be handed over to a single person who too could not be said to be a expert in the field"

While partly allowing the appeal, the tribunal set aside the DRT's direction requiring withdrawal of the October 28,2021,1 public notice, holding that the notice had become academic due to the passage of time, but otherwise affirmed the protection granted to the institution.

The tribunal also transferred the pending securitisation application of 2021 from one bench of DRT Kolkata to another for expeditious disposal and directed that the matter be listed on March 23, 2026.