Bank Directed to Reconsider Application, Emphasizing Constitutional Principles of Social Justice and Equality
In a landmark judgment, the Karnataka High Court, Dharwad Bench, has quashed the rejection of an educational loan application by Karnataka Grameen Bank, which was based solely on the adverse CIBIL score of the applicant's parent. The court emphasized that educational loans are instruments of social justice and equality, meant to democratize access to higher education, and cannot be equated with commercial loans.
The case involved petitioners Sanket and another, who sought an educational loan for pursuing a Bachelor of Engineering in Artificial Intelligence at the Dayananda Sagar Academy of Technology and Management Institution, Bengaluru. The bank had rejected their application due to the poor credit history of Sanket's father, classifying him as a defaulter.
Justice Sachin Shankar Magadum highlighted that the rejection of the loan application was arbitrary and contrary to the constitutional vision of promoting educational opportunities. The court noted that educational loans are investments in human capital and should not be determined by the parent's financial status alone. It directed banks to adopt a rational and welfare-oriented approach when evaluating such applications.
The court observed that mechanically applying commercial lending principles to educational loans defeats the objective of such schemes, which are designed to uplift students from economically weaker sections. The judgment reiterated that banks, as instrumentalities of the State, must act fairly and in a non-arbitrary manner, aligning their decisions with the constitutional mandate of social justice.
The court directed Karnataka Grameen Bank to reconsider the application without treating the parent's CIBIL score as the sole criterion for rejection. It instructed the bank to evaluate the student's eligibility based on academic merit and the objectives of the educational loan scheme. The bank was also asked to consider extending the loan to cover tuition fees already paid for the first academic year.
This judgment sets a precedent in reinforcing the constitutional obligation of banks to support students' educational aspirations, irrespective of their family's financial background. It underscores the importance of educational loans in enabling access to higher education and advancing social justice.
Bottom line:-
Educational loans cannot be equated with commercial loans, and rejection solely based on the parent's CIBIL score is arbitrary and contrary to the constitutional vision of social justice and equality of opportunity.
Statutory provision(s): Articles 14, 21, 38, 41, 46 of the Constitution of India
Sanket v. Karnataka Grameen Bank, (Karnataka)(Dharwad Bench) : Law Finder Doc id # 2947618
