A historic ruling on schools

Print edition : May 21, 2004

The Supreme Court lays down guidelines to prevent profiteering by unaided schools in Delhi.

in New Delhi

IN Delhi there are 1,500 private unaided schools offering `quality education' to about 30 per cent of the city's children. But this education comes at a price: these schools collect Rs.1,500 to 2,000 as tuition fee a month (some schools charge even Rs.8,000 a month) and amounts ranging from Rs.2,000 to 30,000 as annual fee for their own `development'. `Development', as parents have found, often means constructing more buildings, financing other schools run by the management and even creating and maintaining swimming pools. The schools do not generally fulfil their statutory obligation of filling 25 per cent of the seats with children from the weaker sections and granting freeship to them.

Off to school, in Delhi. The Supreme Court is expected to make private unaided schools affordable for children from middle-class families.-RAJEEV BHATT

All this will have to change following the Supreme Court's judgment in Modern School vs Union of India & Others, delivered on April 27. It is expected that the school fees will be slashed by about 60 per cent, thus fulfilling the aspirations of middle-class and lower middle-class parents of educating their wards in these schools. The court also directed the schools to ensure that they meet the statutory requirement of admitting children from the weaker sections. A three-member Bench delivered the verdict by a majority of 2:1. Justice S.H. Kapadia gave the ruling on behalf of himself and Chief Justice of India V.N. Khare, while Justice S.B. Sinha authored the dissent.

The case came up before the Supreme Court as appeals by several unaided private schools in Delhi against a Delhi High Court judgment. The High Court had found considerable proof that recognised unaided schools were blatantly commercialising education. The High Court confirmed the existence of irregularities in the accounts maintained by these schools. It also declared that the Delhi School Education Act, 1973, and the rules framed under it prohibited the transfer of funds from a school to a society/trust running the school or to other schools run by the same society/trust. The High Court had appointed a committee headed by Justice Santosh Duggal to examine the economics of each of the recognised unaided schools in Delhi.

The Directorate of Education, Government of Delhi, accepted the Duggal Committee's report in 1999 and under the provisions of the Delhi School Education Act issued directions to the managing committees of all recognised unaided schools in Delhi on December 15, 1999. The school managements challenged the validity of these directions, one of which limited development fees to 10 per cent.

The 141-page Duggal Committee report stated that of the 142 schools that supplied the complete record of their financial status, only two were justified in hiking the fee. Although there were 929 Delhi government-recognised unaided schools and 377 unaided schools recognised by the Municipal Corporation of Delhi and New Delhi Municipal Committee, only 142 provided the documents sought by the committee. The rest of the schools did not adopt a cooperative attitude, the report noted. The report said these schools tended to "generally understate the surplus and/or overstate the deficit". This was achieved by "resorting to over-provisioning under certain heads... diverting a part of the school revenue receipts to various funds usually created with the specific intention of temporarily parking the money... depreciating assets not owned by the school and simultaneously transferring equivalent amounts to the parent society... ."

The parent societies (and not the schools) were allotted land at concessional rates on philanthropic grounds and as such the transfer of funds to a parent society is a grave matter. But the Committee found that "no ways and means are left untapped by them to turn the philanthropic activity like school education into a profitable venture in one form or the other". There is, therefore, no rationale whatsoever for a fee hike. The Supreme Court observed in a 1997 verdict: "Where the public property is being given to such institutions practically free... the conditions imposed should be consistent with public interest and should always stipulate that in case of violations of any of those conditions, the land shall be resumed by the government."

In their petition in the High Court, the parents associations alleged that the amounts collected under the head `tuition fee' were in excess of the expenditure incurred, and that huge amounts were taken from parents as interest-free loan for granting admission to children. They also alleged that the huge amounts collected under the head `building fund' remained unspent. The schools submitted that the increase in fees, annual charges, admission fees and security deposits were justified on account of the increase in expenses, in particular the salaries of teachers in compliance with the Fifth Pay Commission's recommendations.

Section 17(3) of the Delhi School Education Act, 1973, states that every recognised school shall file before the commencement of each academic session with the Director a full statement of the fees to be levied and no school shall charge any fees in excess of the fees specified in such statement. Sections 17(1) and (2) empower the government to regulate the fees payable by aided schools. Other sections under the Act require that the income derived from unaided schools by way of fees shall be utilised only for prescribed educational purposes. Rule 177(8) under the Act clearly says that no amount can be transferred from the recognised unaided school fund to a society or trust or any other institution.

The income derived by way of fees can be utilised for meeting the pay, allowances and other benefits admissible to the employees of the school. If there is anything remaining of such income, after making these payments, the managing committee of the school could use the same for other educational purposes, including the award of scholarships to pupils and the establishment of any other recognised school. The rules make it clear that savings could be arrived at only after providing for pension, gratuity and other benefits to the employees of the school and for any expenditure in connection with the school's development.

In the T.M.A. Pai Foundation case (2002), an 11-member Bench of the Supreme Court held that subject to the twin prohibitions on collecting capitation fee and profiteering, fees to be charged by unaided educational institutions cannot be regulated. In the Islamic Academy of Education case (2003), the Supreme Court held that there could be no rigid fee structure and that each institution should have the freedom to fix its own fee structure after taking into account the need to generate funds to administer the institution and provide facilities to the students.

In the present case, the Supreme Court has held that the Director is authorised to regulate the fees and other charges to prevent the commercialisation of education.

The Supreme Court opined that one of the methods of preventing the commercialisation of education in schools is to insist that every school follow the principles of accounting applicable to not-for-profit organisations/non-business organisations. The court thus directed the Director to analyse the statements of fees of the schools and apply the above principle in each case. The court found, on the basis of the balance sheets of two schools, that they were run on a profit-making basis and that their accounts were maintained as if they were corporate bodies.

The court upheld the collection of development fees by schools for supplementing resources for the purchase, upgradation and replacement of furniture, fixtures and equipment. It permitted the managements of unaided schools to charge development fees not exceeding 15 per cent of the total annual tuition fee.

The court interpreted the 1973 Act so as to bring in transparency, accountability, expenditure management and utilisation of savings for capital expenditure/investment without infringement of the autonomy of the institution in the matter of fixing fees.

The court asked the Director to ascertain whether the terms of allotment of land by the government to the schools had been complied with. The terms of allotment require not only strict compliance with the percentage of freeship from tuition fee as laid down in the rules by the Delhi Administration, but also admission of pupils from the weaker sections to the extent of 25 per cent and the grant of freeship to them. Contrary to the misgivings expressed by the school managements, the integration of children from the poorer sections with those of the `elite' has been generally welcomed by the parents of children from the non-weaker sections, says Ashok Agarwal, convener of Social Jurist, a non-governmental organisation and one of the petitioners before the High Court.

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