Date:14/04/2005 URL: http://www.thehindubusinessline.com/2005/04/14/stories/2005041401260600.htm

Back Banks to scan closely educational trust loans

L.N. Revathy

Most bankers are still unaware of the restrictions in the Tamil Nadu Land Reforms Act (1961) and have been advancing to educational institutions. Some have, following circulars from the central/zonal offices, turned cautious.

Coimbatore , April 13

BANKS that have given loans to educational institutions and trusts may be in for a surprise. If they have not critically analysed the collateral security cover, they may find that some of these advances may eventually turn out to be "unsecured".

But should bankers worry about the "status" of the security, for even secured advances have turned bad in the past? "Definitely" say bankers. They contend that in granting advances to trusts and educational institutions, the sanctioning authority would have to verify if the powers have been vested with the loan applicant for pledging the security. "Only then is it enforceable. Otherwise, we will not be able to initiate action against the loan defaulter," a banker explained.

Most bankers are still unaware of the restrictions in the Tamil Nadu Land Reforms (Fixation of Ceiling on Land) Act (1961) and have been advancing to educational institutions. Some have, following circulars from the central/zonal offices, turned cautious. These banks have started to impose restrictions on creation of charge on the property of private schools and colleges in the State.

Section 37 B of the Land Reforms Act, states that if any public trust, created after March 1, 1972, desires to hold or acquire any land for establishing any educational institution or hospital or expanding any educational institution, it should make an application in writing to the Government for permission.

It further states that acquisition of property by a public trust "without prior permission" under Section 37-B "is invalid". The legal effect of Section 20-A is obvious as the acquisition of any property (land) so acquired is deemed to have been transferred to the Government as penalty, with effect from the date of acquisition.

Under the All India Council for Technical Education (AICTE) regulations, a public trust has to own and possess the required extent of land and such possession or holding should be lawful.

The Madras High Court had some time ago issued an ultimatum to 17 engineering colleges to approach the State Government and get land ceiling exemption certificates for approval, or face denial of affiliation by Anna University.

Dismissing the petitions challenging the denial of affiliation, Mr Justice E. Padmanabhan said: "Legal ownership and lawful possession alone would ratify the requirements of the All-India Council of Technical Education Regulations as well as the provisions of the Anna University. As without land and buildings there could be no establishment of the institutions, without the valid permission under Section 37 B of the Land Reforms Act, the petitioner-trusts cannot claim that they are in legal possession or legally the owner of the extent of land as prescribed by the AICTE.''

Based on this ruling, managers have been advised to look into "trust advance" more critically.

Section 31 of the Tamil Nadu Recognised Private Schools (Regulation) Act, 1973 and the Tamil Nadu private Colleges (Regulation) Act, 1976 states that no property of private school shall, except with the previous permission in writing of the competent authority be transferred by way of sale, exchange, mortgage, charge, pledge, lease, gift or any other manner whatsoever, and if such property is transferred without such permission, the transfer shall be null and void.

While the competent authority is the District Education Officer (for primary/middle schools) and Chief Educational Officer (Higher Secondary and Teacher Training Schools), at the college level, the Director of Collegiate Education has the power for granting such permission.