Legal Complication Of Fee Structure in

Private Unaided Educational Institutions -

India
Prepared By
Sandeep Kumar Mohanty

2016

Rajiv Gandhi School Of Intellectual Property Law, IIT Kharagpur

Legal Complication of Fee Structure in Private Unaided Educational Institutions - India

How much should private schools charge fees? The Delhi School (Verification of Accounts
and Refund of Excess Fee) Bill, 2015 is the latest in the line of state legislations seeking to
regulate fees in private schools. Already, Delhi, Maharashtra, Rajasthan and Tamil Nadu
have passed similar regulations. Parents in states like Uttarakhand, Madhya Pradesh, Assam
and Telangana too have been asking their governments to curb the high fees charged by
private schools.

Attempts at regulating fee have always met fierce opposition from private schools, which
argue that such laws infringe their autonomy. Others contend that high fees are a problem
only in a few schools that cater to students from high-income backgrounds, so such
regulations should not be uniformly imposed on all private schools. These debates have
frequently found their way to the courts.

It is important to consider two questions.

1. Is it legal for the state to regulate fees charged by private institutions?

2. If so, what factors should be kept in mind to ensure that the regulations are not merely
populist?

Legal position

The constitutional basis for regulating the fees charged by private unaided educational
institutions was considered by the Supreme Court in TMA Pai Foundation v. State of
Karnataka (2002). The court laid down that states should devise appropriate machinery to
ensure that there is no profiteering and capitation fees. However, a "reasonable surplus" to
further education was permissible.

What this "reasonable surplus" has also been a subject of litigation.

In Islamic Academy of Education v. State of Karnataka (2003), it was held that each
institute could fix its own fees structure taking into consideration the need to generate funds
for running it and providing necessary facilities for the students. The surplus so generated
should be used to further the growth of that institution. Similarly, the Supreme Court in PA
Inamdar (2005), affirming the TMA Pai ruling, allowed private institutions the freedom to
devise their own fee structure which could be regulated to prevent profiteering and capitation
fee.

It is important to note that these judgments largely dealt with fees regulation in higher and
professional education institutions. In Modern School v. Union of India (2004), the issue of
fees hikes in private schools in Delhi was considered by the Supreme Court. The court,
upholding the right of unaided educational institutions to generate "reasonable surplus" for
development and expansion, held that this autonomy should not lead to commercialization of
education. Further, the private schools should follow the principles of accounting used by
non-profit organizations.

Two points emerge from these judgments.

 First, profiteering and charging of capitation fee are not permissible. Consequently,
state regulation is warranted in the interest of keeping a check on both these
activities.
 Second, private schools are entitled to generate a reasonable surplus out of the fee
charged. Thus some profits are permissible - as long as they are not excessive.

Different models of regulation

Tamil Nadu was the first state to enact a law for regulating fee charged by private schools in
2009. Under this law, a state-appointed committee determines whether the fee charged by
each school is in accordance with prescribed factors. This law was challenged before the
Madras High Court in 2010, which upheld it on the grounds that it did not prescribe a rigid
fee structure but only invited the schools to submit the same so it may be verified. Rajasthan
sought to emulate this model in 2012, although it has since run into legal complications. The
Rajasthan High Court has flagged some issues with the uniform fee-fixation formula being
used by the regulatory committee. The matter is still under litigation.

Maharashtra enacted a different model, under which no attempt is made to fix the fees.
Schools are required to get their fee structure approved by an executive committee
comprising parents and teachers, failing which the decision is forwarded to a district-level
committee. This law came into force at the end of 2014 and is yet to see proper
implementation. It has run up against a fresh round of protests by private schools that are
against the requirement to get their fee approved by parents.

Delhi bill prefers an indirect approach in regulating not the amount of fee but the way it is
accounted for and utilized. It establishes a committee to verify financial returns of schools by
ascertaining compliance with existing legal provisions on maintenance and utilization of
funds. It can direct refund of any excess fee collected and hear complaints from parents
regarding non-refund of excess fee or misuse of school funds. The Bill has already attracted
opposition from parent associations claiming that these provisions are insufficient to curb the
problem. Arguably, the success of the bill will depend on the regularity and promptness with
which the account verifications are carried out.

Considerations for effective policy

Past experiences and current challenges suggest certain considerations that governments
contemplating fee regulation should keep in mind. First, the state should clearly articulate the
objectives behind regulating fee. It must be acknowledged that schools are free to set their
fee structure and the state can only verify whether the fee charged is reasonable and does
not amount to profiteering. In the interest of certainty and efficiency, it would be useful to
define "profiteering", and "reasonable surplus" allowed to private schools.
Secondly, there is a need for transparency in private school finances. A series of ad hoc
committees have investigated fee hikes in private schools in Delhi over the years and found
many irregularities in the way schools manage their funds. In 2010, an investigation by
Comptroller and Auditor General revealed that many prominent schools in the capital had
been sitting on excessive surpluses, but were still raising their fee every year. Regulations
must include strong provisions on accountability and transparency. The accounting
standards for schools recommended by the Supreme Court in the Modern School case should
be strictly enforced.

Lastly, it is crucial that a regulation strikes a balance between protecting the interests of
students and parents, and preserving the autonomy of schools. A policy skewed towards
either would not only be ineffective but also potentially illegal.

Management of DAV Public School and Ors. V. State of Orissa and Anr.

Hon'ble Orissa High Court have observed that Sub-Section (5) of Section 6
of Orissa Education Act provides that while according recognition to a Private Educational
Institution, the Prescribed authority shall have regard to matters, like provision for suitable
and adequate accommodation, location of the institution, its sanitary and healthy
surroundings appointment of qualified teachers, provision for equipments and teaching
materials and adequate financial support for the continuous and efficient maintenance of the
institution. Besides, several allegations have been received of mal-administration and
mismanagement of such institutions. It has thus become imperative to prescribe certain
guidelines to be followed before according N.O.C./Recognition to such institution and to
withdraw such N.O.C./Recognition in the event of violation of any of the instructions issued
in this Resolution. Any Organization/Individual seeking No Objection Certificates (NOC)
from the State Government to open any unaided school to be affiliated to the ICSE/CBSE
shall be required to fulfill the terms and conditions as per the guidelines prescribed.

The writ applications were heard on various occasions and the learned
counsel for the respective parties in course of hearing, raised various questions of law with
regard to the legality or otherwise of the hiking of fees as well as the jurisdiction of the local
managing committees of the respective schools to take such decisions inasmuch as the
validity of the constitution of such local managing committees. The managing committees of
the said schools in consultation with the representative of the parents and teachers of the
respective schools will fix the fee.

As the Orissa Education Act and the Rules are silent with regard to the Government
control to regulate fee structure in such unaided private educational institutions unlike
Delhi Education Act, no provision in law is available empowering any authority to examine
any allegation made against any such institution with regard to fixation/hike of fees and as to
whether such fixation of fees amounts to profiteering/ capitation or misutilirsation of funds.

Court held that till such a policy decision is taken by the Government, a Committee
should be constituted, which shall look into the matter of fee hike by a private unaided
educational institution (High Schools and Secondary Schools) and for the above purpose, any
school intending to hike/raise its fees from the existing rate to higher rate shall make an
application through its Principal/Headmaster/Headmistress to such committee constituted
along with documents and materials that are relevant to be examined to fix a fee structure,
which shall not be contrary to the law laid down by the Supreme Court, i.e., there should be
absence of profiteering collection of capitation fees/donations and such fee should be fixed at
a rate which is necessary to meet its expenditure and general surplus which can only be used
for betterment and growth of the concerned institution. Such fee structure is to be fixed
keeping in mind the infrastructure and facilities available, the investment made, salaries paid
to the teachers and staff, future plans for expansion and/or betterment of the institution. The
committee on examining the materials made available to it shall fix the fee structure of the
applicants-schools. The Committee, if required, may cause a spot enquiry of the school and
collect materials and evidence from the staff members with regard to the actual salary being
received by them and may also collect information from the parents, if required, where the
school does not have a registered association of parents with regard to the facilities being
provided to the students of such school. All such materials shall be taken into consideration
while fixing the fee structure for the applicant-school.
Anti-Corruption and Crime Investigation Cell V. State of Punjab and others

Court held that the fees charged should be in commensurate with the facilities provided by the
institution and under the „heads‟ prescribed by the Education Department of the State. No
capitation fee/donations for getting admission in schools can be charged which is a malpractice.
No fees enhancement can be effected without consultation with parent’s representatives. Fee
charges should be commensurate with the facilities provided by the institution. Fees should
normally be charged under the heads prescribed by the Department of Education of the
State/U.T. for schools for different categories. No capitation fee or voluntary donations for
gaining admission in the school or for any other purpose should be charged/collected in the
name of the school. In case of such malpractices, the Board may take drastic action leading to
disaffiliation of the school.

The Court, thus, analyzed the judgments of TMA Pai Foundation and Islamic Academy of
Education by observing that it was held therein that fees to be charged by unaided educational
institutions cannot be regulated except that capitation fees and profiteering were forbidden.
There could not be any rigid fees structure and each institution must have freedom to fix its own
fees structure, after taking into account the need to generate funds to run the institution and to
provide facilities necessary for the benefit of the students. In the process, such educational
institutions were even empowered to generate surplus funds, which must be used for betterment
and growth of the educational institutes with clear embargo that these profits/surplus funds
cannot be diverted for any other use or purpose and cannot be used for personal gain or any
business or enterprise.

For fixing the fees structure, following considerations are to be kept in mind:

(a) The infrastructure and facilities available;

(b) Investment made, salaries paid to teachers and staff;

(c) Future plans for expansion and/or betterment of institution subject to two restrictions, viz.,
non-profiteering and non-charging of capitation fees.

It was held in no uncertain terms that the fees to be charged by unaided educational institutions
cannot be regulated except that capitation fees and profiteering were forbidden. There could not
be any rigid fees structure and each institution must have freedom to fix its own fees structure,
after taking into account the need to generate funds to run the institution and to provide
facilities necessary for the benefit of the students. In the process, such educational institutions
were even empowered to generate surplus funds, which must be used for betterment and growth
of the educational institutes with clear embargo that these profits/surplus funds cannot be
diverted for any other use or purpose and cannot be used for personal gain or any business or
enterprise.

No capitation fee/donations for getting admission in schools can be charged which is a

malpractice. No fees enhancement can be effected without consultation with parent’s
representatives. The only check which rests with the Government is to see that there is no
profiteering and no capitation fees is being charged and the Director would be in a position to
issue directions in case he finds that the schools are indulging in capitation fees or resorting to
profiteering.
Conclusion

Although the Supreme Court has dealt the issue of fee structure in detail, it is evident as has
been pointed out by the apex court itself, that the findings are not exhaustive in nature. The
instant issue cannot be cabined within a straight jacket formula. The basic notion that has to
be borne in mind while forming any statute or while imposing any regulation on such
institutions is that education is a charitable occupation, where the private players are allowed
to earn profits but not to profiteer, i.e. to make unreasonable or excessive profits. A
harmonious balance has to be struck between the conflicting interests of the autonomy of
private unaided educational institutions in fixing a reasonable fee structure on one side,
ensuring that they earn a reasonable surplus, while the students are not compelled to pay
exorbitant or unjustified fees, on the other hand. The golden thread which runs through this
issue is that private unaided educational institutions enjoy a greater autonomy in matters of
administration which encompasses the fixation of fee structure also. A workable formula,
which is not rigid in nature needs to be formulated so that the institutions can be allowed to
earn reasonable surplus, taking into consideration the nature of the course i.e. super speciality
courses or other courses etc. The objective is not only to fix a reasonable fee structure vis-à-
vis educational institutions, but that the students get commensurate facilities and quality
education in exchange of the fee paid by them.