DRAT Kolkata: Educational Institutions Should Not Be Taken Over Under SARFAESI When Other Recovery Modes Exist

February 24, 2026 : The Debts Recovery Appellate Tribunal (DRAT), Kolkata has held that secured creditors should refrain from taking over the management of educational institutions under the SARFAESI Act where alternative recovery mechanisms are available, emphasising the need to protect students’ interests and the special character of such institutions.

The ruling came in Kotak Mahindra Bank Ltd. v. Camellia Educare Trust & Ors., where Justice Anil Kumar Srivastava (Chairperson) partly allowed an appeal challenging an interim order of the Debts Recovery Tribunal-III, Kolkata.

The dispute arose after Kotak Mahindra Bank sanctioned a term loan of ₹8.50 crore to the respondent trust in 2012. The account was classified as a Non-Performing Asset in 2015, following which SARFAESI proceedings were initiated. In October 2021, the bank issued a notice under Section 13(4)(b) read with Section 15 of the Act proposing takeover of the management of the educational institution run by the trust, along with a public notice.

The trust challenged the action before the DRT, contending that it was a charitable educational institution running Camellia College & Engineering and Technology with approximately 1100 students, and that the business of the institution had not been mortgaged in favour of the bank.

Examining the statutory framework, the Appellate Tribunal noted that the power to take over management under Section 13(4)(b) is conditional and can be exercised only when a substantial part of the borrower’s business is secured. In the present case, the Tribunal found that the business of the educational institution was not mortgaged or charged to the secured creditor, and therefore no prima facie case for takeover was made out.

Significantly, the Tribunal underscored the distinct nature of educational institutions. It observed that such institutions are governed by regulatory norms, including those of AICTE, and cater to a large number of students whose academic future may be jeopardised by abrupt changes in management. The Tribunal held that education plays a critical role in shaping the future of the nation and cautioned against measures that could disrupt institutional functioning.

In a key observation, the Tribunal stated that educational institutions should not be shut down or their management taken over if other lawful modes of recovery are available to the secured creditor.

The Tribunal also considered the principles of balance of convenience and comparative hardship, holding that these factors weighed in favour of the educational institution. It noted that the bank had alternative remedies, including proceedings under the Recovery of Debts and Bankruptcy Act and enforcement against secured assets, and that the interests of students warranted protection.

At the same time, the Appellate Tribunal found fault with the DRT’s direction requiring withdrawal of the public notice at an interim stage. It observed that such a mandatory direction ought not to have been issued before final adjudication, especially since the notice had already lost relevance over time.

Accordingly, the Tribunal partly allowed the appeal by setting aside the DRT’s direction to withdraw the notice while affirming the remaining protective relief granted to the institution. It also transferred the pending securitisation application from DRT-III Kolkata to DRT-II Kolkata for expeditious disposal, directing that the matter be listed on 23 March 2026.