HC: Mortgaged bldg of school can be sold to recover loan

The Bombay high court (HC) rejected an argument that a mortgaged school building cannot be sold to recover the outstanding loan amount advanced by a bank.

The Bombay high court (HC) rejected an argument that a mortgaged school building cannot be sold to recover the outstanding loan amount advanced by a bank.

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A division bench of chief justice Pradeep Nandrajog and justice Bharati Dangre said the reasoning was “perverse for the reason if an institution takes a loan from a secured creditor and secures an immovable property wherefrom a school is run, the security would never be capable of being enforced.”

The bench was hearing a petition on Monday filed by the State Bank of India. The bank had approached HC after the Nashik district collector rejected its plea to take possession of the secured asset – a school building mortgaged by RS Luth Education Trust.

The collector had refused to take over the building and hand over its possession to the bank on the ground that a school was being run on the premises and that children have the right to education under the Right of Children to Free and Compulsory Education Act, 2009. The collector’s reasoning, however, failed to sustain the test of legality and the bench rejected it for being “perverse”.

Relying on Rule 8(3) of the Security Interest Enforcement Rules, 2002, which enjoins upon the person authorised or appointed to take possession of a secured asset to take appropriate care of the property, the educational institute then contended that SBI would be obliged to continue to run the school. The bench rejected this argument also.

The court, however, referred the bank’s plea back to the district collector for fresh adjudication, after noticing there was a factual dispute with regard to the asset mortgaged. It directed the revenue authority to decide the plea afresh in three months.