RUSTOM KERAWALLA FOUNDATION versus STATE OF MAHARASHTRA AND ORS.
[2017] 13 S.C.R. 330, Supreme Court of India, 2017
Outcome: Disposed off
Segment: Ratio
A 
[2017] 13 S.C.R. 330 
RUSTOM KERAWALLA FOUNDATION 
V. 
STATE OF MAHARASHTRA AND ORS. 
(Civil Appeal No. 3696 of2017) 
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AUGUST03,2017 
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[ADARSH KiuMAR GOEL AND UDAY UMESH LALIT, JJ.] 
Maharashtra Educational Institutions (Prohibition of 
Capitation Fe'!) Act. 1987 - Appellant-Foundation runs a School -
Whether the Appellants are entitled to take the entirety of lease rent 
into account while having the fee structure approved in terms of 
provisions of the Act and if not, what should be the correct 
approach - Held: Under sub-clause (b) to s.4(2) of the Act the State 
is empowered, to exclude certain expenditure in regulating fees 
collected by the educational institution - The exercise on part of 
State Government must be guided to arrive at a just balance between 
two essentials. one-interest of the unaided institution to have a just 
and reasonable fee structure and other -the very purpose of the 
legislation to curb the capitation fee - In instant case, the plot of 
land of school came to be allotted not through normal competitive 
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channels but purely under discretionwy quota - Consideration 
payable for th~ plot was not guided by market conditions, and public 
property was made over purely for sub-serving public interest -
The land in question was originally given by MHADA (Maharashtra 
Housing and Area Development Authority) on behalf of the State 
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Government at concessional rate to MP MCT (Trust) - Thereafter. a 
tripartite agreement was executed between
the MHADA, MPMCT 
and a limited company - Consequent to which the said plot of land 
was sub-leased, to the company, which in turn gave leasehold rights 
to the appellant-Foundation to run the School from the building 
situated - The appellant-Foundation is paying rupees 2.5 crores 
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every year towards rent - Respondent No.3 is not off" the mark in 
contention thai in the process substantial sums of money are being 
made over to Me company in which the trustees of the Foundation 
are the only directors - Since, the lease deed and subsequent lease 
deed in the present case was on non-competitive basis and purely 
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on discretion{j1y quota of the State Government. the locational 
advantages of the land ought to be completely severed and 
330
RUSTOM KERAWALLA FOUNDATION v. STATE OF 
331 
MAHARASHTRA AND ORS. 
segregated and what should be basis for computation must be purely 
A 
that what was expended "on land and building" - Matter 
accordingly remanded to the State Government for fresh 
consideration - MHADA (Disposal of Land) Regulations 1982 -
regn.16. 
Disposing of the appeals and transfer petitions, the Court 
B 
HELD: 1. On perusal of documents on record, it 'shows 
that the allotment in question was made by Maharashtra Housing 
and Area Development Authority (MHADA) pursuant to the 
decision of the State Government to lease out a plot of land under 
2% discretionary quota of the State Government, in terms of c 
Regulation 16(2) ofMHADA (Disposal of Land) Regulati~ns 1982. 
In the instant case, the plot ofland came to be allotted not through 
norn.ial competitive channels but purely under discretionary quota. 
The consideration payable for the plot was also not guided by 
market conditions, and public property was made over purely for 
sub-serving public interest. Going by the test laid down that aid D 
may take several forms and that when public property or funds 
arc given as grant, they carry public character wherever they go, 
the allotment made by MHADA at the instance of the Q9vernment 
in favour of a lessee can certainly be termed as "aid". As laid 
down in Unni Krishnan J.P. case, among others, the condition 
that the institution shall not be entitled to charge any fees higher 
than what is charged
in Government htstitutions for similar 
courses, shall be understood to be the condition of grant of aid. 
The fact however remains that the lessee spent Rs.40.17 lakhs 
only for allotment of 6032 Sq. mtrs. through non-competitive 
mode. [Paras 13, 16] [353-G-H; 355-E-G; 356-B] 
2.1 Section 3(1) of the Maharashtra Educational Institutions 
(Prohibition of Capitation Fee) Act, 1987 prohibits demand or 
collection of any capitation fee from any student in consideration 
of hi.s admission to, and prosecution of any course of study, or 
promotion to a higher standard or class in any educational 
institution. The definition of educational institution under Section 
2(b) means.a school including kindergarten, pre-primary, balwadi 
or nursery, college or any institution by whatever name called 
whether managed by Government, Local authority, a University 
or a Private Management. Thus the extent of prohibition 
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contemplated by Section 3(1) squarely applies to and covers the 
School run by the appellant- Foundation. The definition of 
"capitation fee" under Section 2(a) means any amount in excess 
of the prescribed fee or as the case may be approved rates of fee 
regulated under Section 4. The regulatory mechanism under 
Section 4 has two facets; a) in case of aided institution, the fees 
to he regul11ted shall be such as may be prescribed by the 
University ot the State Government and b) in respect of unaided 
institution it shall be such as the State Government may approve. 
Under the first category the fees are "prescribed" either by the 
University or by the State Government while in respect of unaided 
institution the fees have to be "approved" by the State 
Government. Sub clause (4) of Section 4 speaks of constitution 
of a committee of experts in education field whose reports can 
be the basis for revision of fees. Said sub-section further provides 
that the fees regulated under Section 4 shall ordinarily remain in 
force for a period of three years. [Para 18] [356-D-G) 
2.2 Reading sub-clause (b) of Section 4(2) along with Section 
4(3) of the Act, three elements ought to be considered while 
approving the fees in respect of unaided institutions, namely; (i) 
regard must be had to the usual expenditure; (ii) excluding any 
expenditure pn lands and buildings or on such other items as the 
State Gover~ment
may notify; and (iii) the fees shall include the 
items specified in sub-clause (3) of Section 4. The expression 
"excluding any expenditure on lands and buildings or on such 
other items 11s the State Government may notify" is very crucial. 
It is importapt to note that expenditure on lands and buildings or 
for that matter any expenses towards rents do not form part of 
any of the items under sub-section (3) of Section 4. While 
considering (he ambit of the aforesaid crucial expression in Sub-
clause (b) of Section 4(2), two constructions are possible: 
(i) The qualification, "as the State Government may notify" 
covers only the second part, i.e., that part of the expression 
occurring at]ter "or" namely "on any such other items". Thus, 
the power entrusted with the State Government applies to and is 
restricted to "any such other items". In other words, the earlier 
part namely, "any expenditure on lands and buildings" is a stand-
alone part a1td must always be excluded. If this construction is 
accepted, expenditure on lands and buildings must always be kept
RUSTOM KERAWALLA FOUNDATION v. STATE OF 
MAHARASHTRA AND ORS. 
out of consideration while arriving at the decision with regard to 
the fees to be approved in respect of an unaided institutions. 
The power of the Government to notify will only be with respect 
to "other items" and not with respect to expenditure on lands 
and buildings. The fact that rent for building does not find any 
place in Section 4(3) of the Act, is an indicia in favour of such 
construction. Logical extension of this thought would be that in 
all, matters, no expenditure on lands and buildings can or ought 
to ,be taken into account . 
. (ii) The other possible construction is that the expression 
·· · "as the State Government may notify" must apply to the entirety 
of the clause including "any expenditure on lands and buildings" 
in which event, the State Government may, either as a matter of 
policy come out with any general notification or may decide in 
tlie 'context of any individual facts and circumstances. Since all 
333 
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the ~uthorities have gone on the latter construction in the present 
matter, the latter construction has been adopted as the basis for D 
a~sessment in the instant case. [Para 19) [356-H; 357-A-H] 
·• 2.3 Assuming that the expenditure on lands and buildings 
ca·n be reckoned while considering the case under sub-clause 
(b); the State Government is empowered to exclude certain 
expenditure. What then is the extent of power and under what 
circumstances and in what
manner such discretion is to be 
guided? The exercise on part of the State Government must be 
guided to arrive at a just balance between two essentials, one -
iiltetest of the unaided institution to have a just and reasonable 
foe ·structure and the other - the very purpose of the legislation 
nllniely to curb capitation fee. While discharging this duty and 
undertaking such exercise, the State Government must naturally 
b'e 'alive to and take all possible facets of the matter into account. 
In a given case, claim. for payment of rent in respect of buildings 
may' be just and reasonable while in other cases it may not be so. 
The ·exercise must and ought to be undertaken keeping the basic 
idea' of the legislation in mind. [Para 20) [358-A-C) 
n 
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, .. 2.4 If the State Government, while making over public assets 
o~ f111ids, has rendered a helping hand to an institution, the 
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resultant benefit flowing in favour of the institution must alwavs 
. ' ·~·d 
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be .tal!.en into account in order to arrive at a just and fair decision 
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(2017] 13 S.C.R. 
while approving the fees as claimed by that institution. The least 
that is expected is that the institution would not seek to profiteer 
from the public assets or public funds but must be made to let 
the benefit flow in favour of those, for whose ultimate benefit the 
public assets or funds were __ made over to it in the first instance. 
[Para 21] (358-D-E] 
3. In thp present case, the appellant- Foundation was always 
in the picture right since the beginning and was named as affiliated 
trust in the deed in question. It was only later that KARE Edumin 
Pvt. Limited came to be inducted as a sub-lessee to which the 
Foundation is presently paying rupees two and a half crores every 
year towards rent. Respondent No.3 ls therefore not off the mark 
in her conten~ion that in the process substantial sums of money 
are being made over to KARE Edumin Pvt. Limited in which 
company the trustees of the Foundation are the only Directors. 
In any event of the matter, all that the sub-lessee had expended 
towards acquisition of interest in the land was Rs.30 Lakhs, which 
was paid to MPMCT and Rs.5.02 Lakhs that was paid by it to 
MHADA towards premium. All the evaluation reports relied 
upon and placed on record have computed the rent payable on 
the basis of what was payable in market to similar premises in 
the locality in, question. Evaluation reports have gone on the basis 
of the locational advantages of the land,
which are nothing but 
elements depending upon the market value of the locality in 
question. Since the lease deed and subsequent sub-lease in the 
prese,nt case was on non-competitive basis and purely under the 
discretionary quota of the State Government, the locational 
advantages l)f the land ought to be completely severed and 
segregated and what should be the basis for computation must 
be purely that what was expended "on land and buildings''. The 
expenditure on I~nds being to the tune of Rs.35.02 lakhs, what 
the Foundation and the School are entitled to is only that, which 
represents reasonable return on such investment and the facilities 
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therein, or the rent as claimed, whichever is lower. With this 
view, matter remanded to the State Government for fresh 
consideration. [Paras 22, 23] (359-A-F] 
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Associ!:ltion of international Schools and Principal 
FoundaJion and Another v. State of Maharashtra (2010)
RUSTOM KERAWALLA FOUNDATION v. STATE OF 
MAHARASHTRA AND ORS. 
SCC online Bombay 1291; Unni Krishnan J. P. and 
Others v. State of Andhra Pradesh and Others (1993) 1 
SCC 645 : [1993) 1 SCR 594; T.MA. Pai foundation 
v. State ofkarnataka (2002) 8 SCC 481 : [2002) 3 Suppl. 
SCR 587 Modern School v. Union of India & Others 
(2004) 5 SCC 583 : [2004) 1 Suppl.-SCR 668; Islamic 
Academy of Education & Anr. v. State of Kamataka & 
Ors. (2003) 6 SCC 697 : [2003) 2 Suppl. SCR 474 -
referred to. 
. [1993) l SCR 594 
Case Law Reference 
referred to 
[2002) 3 Suppl. SCR 587 
[2004) 1 Suppl. SCR 668 
[2003) 2 Suppl. SCR 474 
referred to 
referred to 
referred to 
Para 14 
Para 15 
Para 15 
Para 21 
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CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3696 
D 
of2017 
From the Judgment and Order dated 16.09.2011 of the High Court 
of Judicature at Bombay in Writ Petition No. 1925 of 2009. 
WITH 
C. A. No. 3698 of2017 
T. P. (C) Nos. 89 and 90 of 2013. 
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Dr. A. M. Singhvi, Aspi Chinoy, Praveen Sandhani, Sr. Advs., 
MaheshAgarwal, Prateek Seksaria, Nivit Srivastava, Vivek Jain,Ankur 
Saigal, Navjot Singh, Raghav Dwivedi, Ms. Rangita Rohatagi, 
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E. C. Agrawala. E. R. Kumar, Ms. Nandita Bajpai, A. Jindal, 
Mis. Parekh & Co., Advs., for the Appellant. 
Sunil Fernandes, Ms. Astha Sharma,Amav Vidyarthi, Ms. Avisha 
Gopalkrishnan Kulkarni, Naveen R. Nath, Darpan K.M ., Nishant 
Ramakantrao Katneshwarkar, Advs., for the Respondents. 
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Respondent-in-person 
The Judgment of the Court
was delivered by 
UDAY UMESH LALIT, J. I. Rustom Kerawalla Foundation 
(appellant in Civil Appeal No.3696 of2017 and hereinafter referred to 
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SUPREME COURT REPORTS 
(2017] 13 S.C.R. 
as the Foundation), runs a school named Vibgyor High School (appellant 
in Civil Appeal No.3698of2017 and hereinafter referred to as the School) 
in Mumbai. These appellants are questioning cotTectness of the corrunon 
Judgment and Order dated 16.09.2011 passed by the High Court of 
Bombay in Writ Petition Nos.1925 of2009 and 19 I 9 of 2009 preferred 
by them. Along with these appeals, two transfer petitions, namelyT.P.(C) 
Nos.89 and 90 of2013 preferred by the Appellants are also listed before 
us. 
I 
These writ petitions challenged the orders dated 03.07.2009 and 
04.09.2009 passed by the Deputy Director ofEducation, i.e. Respondent 
No.2 who had disallowed the expenses incurred by the School towards 
rent in respect of school building in the sum ofRs.2.50 crores per annum. 
While so disapproving, the amounts towards other expenses claimed by 
the school were accepted by Respondent No.2 as usual expenditure and 
the fees prescribed by the school to the extent ofRs.54,598/- for Primary 
Section and Rs.61.149/- for Secondary Section from the years 2008-
2009 were approved. 
2. The Maharashtra E<lucational Institutions (Prohibition of 
Capitation Fee) Act. 1987 (hereinafter referred to as the Act) prohibits 
collection of capitation fee for admission of students to, and prosecution 
of any course of study, or for promotion to a higher standard or class. 
"Capitation Fee" is defined in the Act as, "any amount by
whatever 
name called, whether in cash or kind. in excess of the prescribed or, as 
the case may bo approved rates of fees rPgulated under Section 4 ". 
Sections 3. 4, 6 and 7 of the Act are a' under:-
"3 Demand or Collection of capitation fee prohibited-
( I) 
No!M. ithstanding anything contained in any law for the time 
being in force, no capitation fee shall be demanded or collected 
by or on behalf of any educational institution or by any person 
who is in charge of or is responsible for, the management of 
such institution. 
(2) 
Notwithstanding anything contained in sub-section (1 ). the 
management may in good faith, demand or, collect or accept 
donations in cash or kind in prescribed manner, from benevolent 
persons or organisations or public trusts or any other association 
of persons. for opening of new educational institution or for 
devclopnjcnt or expansion ofcducational facilities in the existing
RUSTOM KERAWALLA FOUNDATION v. STATE OF 
337 
MAHARASHTRA AND ORS. [UDAY UMESH LAUT, J.] 
educational institutions or for creation of endowment fund for 
A 
award of scholarships, prizes or the like, but while collecting or 
accepting such donations the management shall not reserve any 
seats in any educational institution run by it in consideration of 
such donations. All money and articles received in donation shall 
be accounted for in the institution and the money shall be deposited 
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in the name of the institution in any scheduled or co-operative 
bank and shall be applied or expended for the purpose for which 
such donations are collected or accepted or shall be applied 
towards the objects of the institution: 
Provided that, where in consideration of accepting such donations 
any scat is reserved for admission to any student in such institution 
such acceptance of donation shall be deemed to be collection of 
capitation fee. 
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(3) 
Where the State Government, on receipt of any complaint 
or otherwise, is satisfied that the management of any institution 
or any person who is in-charge of or is responsible for the 
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management of such institution, has contravened the provisions 
of this Act or the rules made thereunder, the State Government 
· may, in addition to any prosecution that may be instituted under 
this Act. aflcr giving a reasonable opportunity of being heard, 
direct such institution or person responsible that the capitation 
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fee collected in
contravention of this Act shall be refunded to the 
person from whom it was collected and on its or his failure to do 
so. the amount together with interest thereon shall~ 
(a) in the case of an aided educational institution, be deducted 
from the grant-in-aid payable by the State Government to 
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such institution; and then the same be paid to the person 
from whom such capitation fee was collected; and 
(h) in the case of an un-aided educational institution, be 
recovered as arrear ofland revenue; and when so recovered 
be paid to the person from whom such capitation fee was 
collected. 
(4) The management of any educational institution or any person 
who is in-charge of or who is responsible for the management of 
such institution demanding, collecting or accepting donations under 
sub-section (2) in connection with or in relation to any student in 
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[2017] 13 S.C.R. 
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consid¢ration of his admission to and prosecution of, any course 
of study or his promotion to a higher standard or class in institution, 
shall be deemed to have contravened the provisions of sub-section 
(I) and shall be liable to be proceeded against and punished 
accordilngly. 
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4. Regulation of Fees 
(I) It shall be competent for the State Government to regulate 
the tuitjon fee or any other fee that may be received or collected 
by any educational institution for admission to, and prosecution 
of study in any class or standard or course of study of such 
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institution in respect of any or all classes of students. 
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(2) The fees to be regulated Ullder sub-section (I) shall -
(a)in the case of the aided institutions, be such as may be 
prescribed by a university under the relevant University Law 
for the time being in force in the State or as the case may 
b¢, by the State Government; and 
(b) in the case of the un-aided institutions, having regard to the 
usual expenditure excluding any expenditure on lands and 
buildings or on any such other item as the State Government 
may notify, be such as the State Government may approve: 
Provided that, different fees may be approved under clause 
(b) in relation to different institutions or different classes or 
different standards or different courses of studies or 
djfferent areas. 
(3) The fees, to be prescribed or approved under sub-section 
(2) shall include
the following items, namely:-
(a) Tuition fee, whether on term basis or monthly or yearly 
basis; 
(b) Term fee per academic term; 
(c) Library fee and deposit as security per year or for the 
eµtire course; 
( d) Laboratory fee and deposi·, as security per year or for 
the entire course;
RUSTOM KERAWALLA FOUNDATION v. STATE OF 
339 
MAHARASHTRA AND ORS. [UDAY UMESH LAUT, J.] 
( e) Gymkhana fee on yearly basis; 
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(f) Caution money for the entire course;. 
(g) Examination fee, if any, per year or for the entire course; 
(h) Hostel fee, Messing charges, if these facilities are 
provided, whether on term basis or on monthly or yearly 
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. basis; 
(i) Any such other fee or deposit as security or amount for 
any other item, as the State Government may approve. 
( 4) The fees regulated under the section shall ordinarily remain 
in force for a period of three years and the State Government 
shall appoint a Committee of persons who, in the opinion of the 
State Government, are experts in educational field, for taking 
the review of the fee structure and may, after considering the 
report of the Committee, revise the fees ifit considers it expedient 
to do so. 
(5) Every educational institution or as the case may be, 
management shall issue an official receipt for the fees or deposits 
or any other amounts collected for any purpose, which shall be 
specified in such receipt. 
6. Power to enter and inspect-
( I) Any Officer not below the rank of Deputy Director of 
Education specially authorised by the State Government in this 
behalf, may at any time during the normal working hours of any 
educational institution enter such institution or any premises 
thereof or any premises belonging to the management of such 
institution in relation to such institution, ifhe has
reason to believe 
that there is or has been any contravention of the provisions of 
this Act or the rules made thereunder and search and inspect 
any records, accounts, registers or other documents belonging 
to such institution or of the management in so far as such records, 
accounts, registers or other documents relate to such institution 
and seize any such records, accounts, registers or other 
documents for the purpose of ascertaining whether there is or 
has been any such contravention. 
(2) The provisions of the Code of Criminal Procedure, 1973 
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relating 10 searches and seizures shall apply, so far as may be, to 
searches and seizures under sub-section (I). 
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7. Penalties 
Whoever contravenes any provision of this Act or the rules made 
thereunder, shall, on conviction, be punished with imprisonment 
for a term which shall not be less than one year but which may 
extend to three years and with fine which may extend to five 
thousancj rupees : 
Provided that, any person who is accused of having committed 
lhe offelilce under sub-section (I) of Section 3 of demanding 
capitation fee sha II, on conviction, be punished wi lh imprisonment 
for a term which shall not be less than one year but which may 
extend to two years and with fine which may extend to five 
thot1sand rupees." 
3. Respondent Nos.3 to 7 herein, namely parents of children 
studying in the $chool along wilh other parents had complained to the 
Education Minister of the State vidc letter dated 19.07.2007 alleging 
mal-administratitm in the School including unlawful elections to Parents-
Teachers' Association. This letter suggested that the fee structure of 
the School was not justified and it was submitted" .. we are sure Education 
Ministry will not allow any educational institution to run as a business, 
profit center". While !his letter was pending consideration. !he School 
proceeded to issue Circular dated 19.03.2008 increasing school fees. 
This increase wµs purportedly on the
basis of approval granted by the 
Accounts Officer (Education) vide his letter dated 21.02.2008 which set 
out the recommended expenditure and consequential increase in fees as 
under: 
"Thouglj it is impossible to implement the revised fee during this 
year, we arc furnishing herewith the Recommended Expenditure 
for the year 2008-09 as per the GR dated 22/07/1999, 27/05/ 
2005 and also as per the Secondary School Code. 
A) Recommended Expenditure for 2008-09 I 0, 75,22,351 /-Non-
Accepted Exp.: 
l) Professional Fee 60,91.264/-
2) Building Repairs 6,03, 132/-
RUSTOM KERAWALLA FOUNDATION v. STATE OF 
341 
MAHARASHTRA AND ORS. [UDAY UMESH LAUT, J.] 
3) StaffWelfare 5,00,009/-
Sanctioned Expenditure by 
Education Inspector 
(-) 71,94.405/-
10,03,27,946/-
B) Other Income (2007-08) support (-) 25,31,046/-
C) 5 % increase as per GR) 
dated 27 /05/2005 
9,77,96,900/-
. 48,89,845/-
Approved Salary Exp.+ Other Exp. 10,26,86,745/-
Out of the total expenditure during 2007-08, 54.24% is utilized 
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for Primary section and 45.76% for Secondary section. This 
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year the Recommended Expenditure is to be divided in the 
proportion of 54% for primary and 46% for secondary section. 
The revised fee structure has been recommended as shown 
below: 
Primarv Section 
54% Exnenditure 
5,54,40,842.50 
No. of Students· 746 
Annual Fee -73,347/-
Monthly Fee -6112.25 
Approved Monthly Fee-6112.00 
Yours truly, 
Sd/-
Accounts Officer 
(Education-West Zone) 
Mumbai." 
Secondarv Section 
46% Exnenditure 
4,72,35,903.00 
No. of Students -575 
Annual Fee- 82,149/-
Monthlv Fee- 6.845. 75 
Approved 
Monthly 
Fee 
6,845.00 
4. Complaining about the rise in school fees from Rs.55,000/-to 
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. Rs.82,500/-per annum, Respondent Nos.3 to 7 filed Writ Petition No. 722/ 
2008 praying for quashing of Circular dated 19.03.2008 issued by the 
School regarding increase in fee structure. Said writ petition was disposed 
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of by the High Court on 20.04.2009 directing that the earlier complaint 
dated 19.07 .2007 which was still pending consideration, be disposed
of 
by l)eputy Director and that the writ petitioners would be at liberty to 
submit any additional submissions/material in support of their complaint. 
It was directed that the Deputy Director would consider the entire 
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[2017] 13 S.C.R. 
material produced before him and pass a reasoned order. The High Court 
further directed that the fees would be paid in terms of the revised fees 
structure but recovery of fees would be subject to the orders to be passed 
by the Deputy J:i>irector. 
5. It app~ars that a Task Force was thereafter assigned the work 
of scrutiny and audit of accounts of the School which noticed that certain 
documents nec~ssary for arriving at any decision were not submitted by 
the School. Accordingly Respondent No.2 by his letter dated 15.06.2009 
called upon the school to furnish certain details. It further appears that 
as the infonnation was not forthcoming from the School, Respondent 
No.2 issued communication dated 30.06.2009/03.07.2009, relevant portion 
being: 
"As per the orders given by the Hon'ble High Court on 
20.04.2009, a joint decision from the Education Deputy Director 
regarding Vibgyor High School Goregaon(W), is expected. As 
per the~c orders, a meeting of the Task Force was organized at 
the otlice of the Education Deputy Director, Mumbai on 12/06/ 
09. In the meeting, with reference to the issues raised in the 
complaint, documents were checked and the following information 
was requested from the school through this office letter dated 
15.06.2009. 
1. 
Inc;ome & Expenditure Statement and the Audit Statements 
of the Financial Year 2008-09 (Certified by a Chartered 
Aacountant). 
2. Building Rent
Certificate provided through a competent 
authority and the copy of Property Tax paid. 
3. 
List of Teaching & Non-teaching Staff & their Salary scale. 
H~s the PTA permitted in case of salary paid is higher than 
the regular salary structure? 
4. 
Copy of establishment of the Parent Teacher Association. 
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Since the above information was not submitted by the school, 
a meeting of the Task Force was held on 30.06.2009 under the 
chairmanship of the Education Deputy Director to take a final 
decision. 
In this meeting, as per the documents available with the office, 
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the Expenses for the year 2008-09 as certified by the Education
RUSTOM KERAWALLA FOUNDATION v. STATE OF 
343 
MAHARASHTRA AND ORS. [UDAY UMESH LAUT, J.) 
Inspector (West Zone), the Audit Report dated 21.02.2008 of A 
the Accounts Officer(Education) West Zone, has been 
considered. After considering the same, the following decision 
has been taken. 
1) Formation of the PTA: 
As per the GR No. SSN 1099 (27/99) Sec. Edu.-2 dated 22"' 
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May, 2000 issued by the School Education Department, 
Mantralaya, Mumbai Vibgyor High School should innnediatcly 
form a PTA as per the prescribed procedure set out in the GR. 
2) With regard to expenses of Pre-Primary, Primary and 
Secondary Sections: 
C 
As per the Certificate dated 15.05.2009 of the Chartered 
Accountant submitted by VIBGYOR High School, the connnon 
expenses for Pre-Primary, Primary and Secondary sections have 
been segregated section-wise, which means the Income and 
Expenditure for Pre-primary is separate and Primary/Secondary 
D 
sections expenses have been reflected proportionately. 
3) Regarding Fees: 
A) Proposed Expenses for the 
Rs.10,75,22,351/-
year 2008-09 
Expenses disallowed by the Education Inspector in his report as 
per the GR No.SSN 11197(311/97)/Sec.Edu.3 dated 22"' July, 
1999. 
I.Professional Fees -60,91,264/-
2.Building Repairs 
- 6,03, 132/-
3.Staff Welfare 
- 5,00,009/-
4. 
Total 
- 71,94,405/-(Less) Rs.71,94,405/-
Expenses earlier approved by Education 
Inspector 
Building's rent expenses disallowed 
(Task Force) 
Rs.10,03,27,946/-
(Less)Rs. 2,50,00,000/-
E 
F 
G

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SUPREME COURT REPORTS 
Permissible Expenses 
B) Other Income (Basis: Report of the 
Yeav 2007-08) 
C) As per GR dated 271h May 2003 
Incremental income 
Permissible Salary & Other Expenses 
[2017] 13 S.C.R. 
Rs.7,53,27,946/-
(Less) Rs.25.31.046/-
Rs. 7 ,2 7 ,96,900/-
(Add) Rs.36,39,845/-
Rs. 7,64,36,745/-
After considering the use of the building during the year 2007-
08 as 46% for Secondary section and 54% for Primary section, 
C 
the below mentioned fees is being considered. 
Primarv Section 
Secondary Section 
Rs. 7,64,36, 745/- x 54% Exp. 
Rs.7,64,36,74?1-_x 46% EX!). 
Rs. 4,Jl,75,842/-
Rs.3,51,60, 9031-
Stu:leQts count -7 56 
Studcntconnt-575 
D 
Yearly Fees Rs. 54,598/- per Yearly Fees Rs. 61,149/- per 
student. 
student. 
Mont!ily Fee Rs. 4,550'- per Monthly Fee Rs. 5,096/- per, 
student. 
student. 
I 
For the Primary Section and the Secondary Section, Rs.4550/-
E 
& Rs.5096/- respectively, such monthly fees seem pennissible. 
Prima facie it appears that the salaries of the teaching and 
non-t~aching staff is more than the salary prescribed by the 
Government. As per the GR No.SSN 1197 (311 /97)/Sec.cd-3 
dated 22'"' July, 1999 at Sr. no.2, it is necessary to take approval 
F 
from lhe PTA regarding such high salary. 
However, vide GR No.Mis-2009/(108/09) Sec.Ed-3 dated 8"' 
May, 2009, order not to increase Education and other foes without 
the consent of the Fee Control Committee has been passed. As 
per this order, every school has been prohibited to
increase their 
G 
fees without the recommendation of the Fee Control Committee. 
Accordingly vide GR. No. Mis-2009 (108/09) Sec.Ed-3 dated 
11"' Jlllne, 2009, a committee has been formed to study and make 
recommendations for the purposes of fixing the fees. For taking 
a final decision in this regard, it will be appropriate that th~ further 
decision is taken in the Fee Fixation committee formed as per 
H 
the a\love GR.
RUSTOM KERAWALLA FOUNDATION v. STATE OF 
345 
MAHARASHTRA AND ORS. [UDAY UMESH LAUT, J.] 
Sd/ 
A 
(Counterfoil signed by the 
(Dongre) 
Deputy Director-Education) 
Deputy Director-Education 
Mumbai Division, for Mumbai" 
6. The communication dated 30.06.2009103.07 .2009 disallowing 
expenses towards rentand subsequent letter dated 04.09.2009 stating 
B 
that the fees determined in the decision dated 03.07.2009 were final and 
be acted upon, were questioned by the Appellants by filing Writ Petitions 
as stated' above. Considering the grievance that no reasons whatsoever 
were recorded in the decision dated 03.07.2009, the High Court by its 
order 03.08.2010 directed Respondent No.2 to permit the parties to file 
their response/submissions on the basis of which said respondent was 
C 
called upon to record reasons. Pursuant to the aforesaid order, Respondent 
No.2 passed order on 27.10.2010 recording reasons for disallowing the 
amount towards school building rent, the translation of relevant portion 
being:-
"Government has fasued a detailed order vide Government 
D 
Resolution dated 22"" July 1999 in respect of fixation of fees of 
unaided schools. 
While taking into account the expenses at the time of the 
fixing the fees, the above Government Resolution has been 
considered. 
E 
The proposal submitted by you (o this office for fixation of 
fees in pursuance of the order passed by the Hon 'ble High Court 
in Writ Petition No.722 of 2008 and other Writ Petitions has 
been
received and such received proposal was scrutinized. As 
per the criteria laid down by the Government from time to time 
F 
and by the Task force constituted under GR dated 3"' July 1999 
and the final decision dated 3"' J~ly 2009 was communicated. 
Your attention was drawn to schedule "A" of Secondary 
School Code in relation to provisions of fixation of building rent 
and further the directions given by respected Education Director, 
G 
Maharashtra State Punc, vide letter dated l 9'h July 1996 about 
documents to be submitted with the proposal for fixation offees 
ofunaided schools. 
In your proposal you have not submitted rent certificate, 
certified by Executive Engineer PWD, for allowing building rent, 
H
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c 
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SUPREME COURT REPORTS 
(2017] 13 S.C.R. 
required under above both the provisions. However instead of 
submitting certified normal rent certificate you have submitted 
rent certificate prepared on the basis of market value prepared 
by the valuer (Shrinivas S. Kini & Co.). As per prescribed 
provisions you have not submitted reasonable rent certificate of 
the CoIIjpetent Authority. Therefore while fixation of fees the 
cost of rent of the building proposed by you cannot be taken into 
account. 
Sd/-
Sunil Chowhan 
Dy. Dir. of Education 
Mumbai Div. Mumbai." 
7. The reasons so recorded in support of the decision dated 
03.07 .2009 and the direction contained in communication dated 04.09.2009 
were challenged before the High Court. It was submitted by the 
Appellants that! a) In terms of orders of the High Court passed on 
20.04.2009 and 08.05.2009, the proceedings were limited to examine 
the issues raised in the complaint dated 19.07.2007 and as such the 
subsequent decision to increase the tuition fee could not have been the 
subject matter of challenge. b) Respondent No.2 was not competent to 
fix tuition fees and could not have exercised any power on the basis of 
procedure prescribed in Government Resolutions. c) Respondent No.2 
could not have disallowed the expenses towards building rent on the 
ground of non production of the building rent certificate and in disregard 
of the approved/recommended expenditure by the Accounts Officer,
Education, West Zone, Mumbai in his letter dated 21.02.2008. d) As 
held by the High Court in ASSOCIATION OF INTERNATIONAL 
SCHOOLS AND PRINCIPAL FOUNDATION AND ANOTHER v. 
STATE OF MAHARASHTRA1 the power to approve the fees stood 
conferred by the Act on the State Government, which power could not 
be delegated. 
In response, it was submitted on behalf of Respondent No. I that 
the submission$ in the complaint dated 19 .07 .2007 were also in respect 
of excessive fees and alleged profiteering and therefore Respondent 
No.2 was quite competent to examine the grievances and while doing so 
was justified in disallowing the claim in respect of rent for school building 
as claimed Respondent Nos.3 to 7 while contesting the petitions submitted 
'W.P. No 1f76 of 2010 decided on 1.09.2010 (2010 SCC Online Bombay 1291)
RUSTOM KERAWALLA FOUNDATION v. STATE OF 
MAHARASHTRA AND ORS. [UDAY UMESH LAL!T, J.] 
' 
that a device was adopted by the appellant to profiteer and the alleged 
rent was being paid by the Foundation to a Private Linrited Company in 
which, very same trustees were the only Directors. 
8. Writ Petition Nos.1925 and 1919 of2009 were disposed ofby 
the High Court by its judgment and order which are presently under 
appeal. The High Court rejected the subnrission that the scope of enquiry 
was limited and confined to the allegations made i11 the complaint dated 
19 .07 .2007. According to the High Court, the aspect regarding 
commercialization and profiteering was put in issue and the authorities 
were within their rights to consider the matter. It was further.observed 
that even if it were to be accepted that Respondent No.2 had no right to 
prescribe the fees in respect of unaided institutions, in exercise of his 
powers under Section 6 of the Act he could certainly find out if any part 
of fees was in excess of what was prescribed under Section 4(3) of the 
Act and whether collection was without any approval by the State 
Government. It was observed by the High Court:-
" As aforesaid, we may not construe the said order of the Deputy 
Director as strictly regulating the fees or one of approval thereof. 
Even so, the conclusion reached by the Deputy Director, will 
have to be upheld for the reasons mentioned hitherto. In that 
case, the petitioners cannot recover any amount in
excess of the 
amount reworked by Respondent No.2, unless approved by the 
State Government." 
Very same thought was expressed by the High Court in para 53 
of the judgment in following terms: 
347 
A 
B 
c 
D 
E 
"Going by Section 4 of the Capitation Fee Act, the State 
Government alone is competent to approve the amount claimed 
F 
by the unaided school as usual expenditure so as to permit the 
school to recover commensurate amount from the students by 
way of fees. If the petitioners are keen that they should be allowed 
to recover the entire amount spent by them towards building 
rent for the relevant period from their students, they may have 
G 
to pursue the matter before the State Government for its approval. 
As aforesaid the State Government would be free to examine 
all aspects before taking final decision on the said proposal, 
including the grievance of the parents (such as respondent Nos.3 
to 7) that the amount spent by the school towards buildings rent 
is a subterfuge and device to siphon off that amount, which would 
H
348 
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B 
c 
D 
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SUPREME COURT REPORTS 
[2017] 13 S.C.R. 
eventually be received in the hands of three persons, who are 
the only Directors and shareholders of the private limited company 
and also the only trustees of the Trust, which claims to have 
incurred such expenditure. In other words, the payer and the 
receiver of the stated expenses are the same persons under the 
fa(:ade1orcloak of two juristic persons. All contentions available 
to the respective parties may have to be examined by the State 
Government on its own merits. We are not expressing any opinion 
as to whether the petitioners are entitled to claim recovery of 
entire lllllOUnt spent by them towards buildings rent from their 
students during the relevant period or otherwise." 
With this view the High Court disposed of the matters and the 
operative part of the order reads thus: 
"Both the petitions arc disposed of on the above terms with costs 
to be paid by the petitioners. Resultantly, in absence of approval 
of the State Government permitting the School to recover the 
expenditure from its students incurred on buildings rent during 
the relevant period, the petitioners are obliged to comply with 
the C-Ourt's order dated 20" April, 2009. Ordered accordingly." 
9. While issuing notice on 14.11.2011, this Court stayed the 
operation of the aforesaid judgment and order passed by the High Court. 
During the pendency of these matters Writ Petition Nos.2701 of2012 
and 2542 of 2012 were filed by the
Appellants in the High Court of 
Bombay challenging constitutional validity of Sections 2 and 4 of the 
Act. The Appellants later filed Transfer Petition Nos.89 and 90 of2013 
in this Court s~king transfer of said Writ Petitions to this Court in which 
notice was issued by this Court on 01.02.2013. After hearing the learned 
counsel for the parties, this Court, on 07.10.2015 felt that one of the 
disputes was about admissibility of expenditure incurred by the appellants 
towards lease rents. The Court recorded the submission of the connsel 
appearing for the Appellants that it was not possible to supply a copy of 
"building rent certificate" provided by a competent authority and that 
G 
the Appellants could furnish the details about the rent paid and the 
certificate of the valuer to show that the lease rent paid by the Appellants 
was reasonable and that the matter could thereafter be 'verified by 
Respondent No.2 through concerned Executive Engineer. This Court 
permitted the Appellants to submit material which would be considered 
H 
by Respondent No.2 who would then submit a report to this Court.
RUSTOM KERAWALLA FOUNDATION v. STATE OF 
MAHARASHTRA AND ORS. [UDAY UMESH LALIT, J.) 
Pursuant to the aforesaid directions, an affidavit was filed by Respondent 
No.2 on.11.02.2016 stating that the Executive Engineer vide his letter 
dated 07.01.2016 had informed Respondent No.2 that he could not certify 
oi. verify whether lease rent paid by a private party was as per the 
market rate. The affidavit however, stated that in order to ascertain 
whether the rent paid by the School was reasonable or not, the Appellants 
had produced reports of valuation prepared by approved valuer. The 
affidavit annexed copies of the reports of such valuers namely, Cushman 
and Wakefield, Shrinivas M. Kini and Co. and Santosh Kumar. In his 
subsequent affidavit filed on 02.03 .2016 Respondent No.2 in a tabulated 
form placed a summary of valuation reports as under:-
Summary of Valuation Reports 
Name 
of Year of Building Area Building 
Rate per sft. 
Ammal 
Valuer 
va1uation 
111entioned in Area 
per month 
Lease rent 
Report 
mentioned 
(including 
in 
the 
Pool 
and 
Report 
Sports 
(Including 
facility) 
Pool 
and 
Sports 
facility) 
Cushman & 
2008 
1,08,202 
88 
11.4 Cr. 
Wakefield 
Cushman & 
2011 
1,08,202 
94 
12.2 Cr. 
Wakefield 
Cushman & 
2014 
1,08,202 
103 
13.3Cr. 
Wakefield 
Shriiiivas 
2008 
69,795 
81.34 
6.8 Cr. 
M. Kini & 
Co 
Shriiiivas 
2010 
69,795 
96.15 
8.05 Cr. 
M. Kini & 
Co,. 
Santo sh 
2008 
81,547 
88 
8.6 Cr. 
Kumar 
Kakode 
& 
2008 
89,181 
(Mentioned 
8.02 Cr.
Associates 
75 to 80) 
considered 
75 
Kakode 
& 
2010 
89,181 
(Mentioned 
10.07Cr. 
Associates 
100 to 105) 
considered 
100 
349 
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SUPREME COURT REPORTS 
(2017] 13 S.C.R. 
I 0. When the matters were taken up for final hearing, Dr. Abhishek 
Manu Singh vi, Mr. Aspi Chinoy and Mr. Praveen Sarndani, learned Senior 
Advocates app~ared on behalf of Appellants and submitted:-
(i) Power under Section 4 of the Act could be exercised only by the 
State Government and such power could not be delegated. (ii) 
Respondent N<1>.2 could have exercised power under Section 6 which 
was in the nature of Search and Seizure but such power could not be 
utilized to regulate the fees. (iii) Expenses towards lease rent are 
permissible ancj not barred under the Act or the Rules or the Regulations; 
and (iv) There 'was comple\c lack of jurisdiction to regulate fees with 
regard to minority schools, in the absence of any exploitation or 
profiteering. 
It was also submitted that the Appellants would argue the issues 
regarding constitutional validity of certain provisions in the High Court in 
pending Writ Petitions and they would not press for transfer of those 
petitions to this Court. 
Mr. Suni\ Fernandes, learned Advocate appearing for Respondent 
No.3 submitted that the land in question was originally given by 
Maharashtra Housing and Area Development Authority ("MHADA" 
for short) on behalf of the State Government at a concessional rate to a 
Trust and part of such land was then sub-leased to a company which in-
tum had allowed the Foundation to run the School from the building 
situated
thereon. He further submitted that the trustees of the Foundation 
themselves were Directors in the company and the payment of lease 
rent was nothin~ but a device to siphon substantial sums of money. None 
appeared for Respondent Nos. I and 2. 
11. After conclusion of submissions, a note was filed on behalfof 
the appellants on 04.03.2017 annexing documents concerning the 
allotment and permission to sub-lease. The facts as set out in the note 
were as under: 
"Maharashtra Housing and Area Development Authority 
(MHAPA) is the owner of a land earmarked under the 
Development Plan (DP) for a restricted user of only a school 
and a play ground (PG) and as such the intrinsic value of the 
same is much lesser than a plot of land which can be used for 
any pulT]Joses including residential or commercial. Under an 
Agreement of Lease dated 4ili December 2002 MHADA granted 
to Madhya Pradesh Mitra Charitable Trust (MPMCT), lease in
RUSTOM KERAWALLA FOUNDATION v. STATE OF 
351 
MAHARASHTRA AND ORS. [UDAY UMESH LAUT, J.] 
respect ofland admeasuring 6032.86 sq.rots situated at Goregaon 
A 
(West), Mumbai fora one timepremiumofRs.40,17,151/- and a 
lease rent of Rs.Ii-per year for a tenure of 30 years .......... The 
calculation of one time lease rent by way of premium and other 
charges including rent are made as per the policy of MHADA 
and reproduced at Schedule H of the lease deed dated 41h 
B 
December 2002 .......... By a tripartite agreement dated 21" 
December 2004 entered into between MHADA, MPMCT and 
KARE Educational Institute (India) Limited (now known as 
KARE Edumin Pvt. Limited) the said KARE was granted a 
sub-lease in respect of a plot of land admeasuring 3016.44 sq. 
mtrs. out of the total of6032.86 sqmtrs. for the residual term of C 
the original lease. Though MPMCT had paid 40 lakhs to 
MHADA for the entire 6032.86 sq. mtrs. ofland, KARE paid 
to MHADA over and above the said sum a premium of Rs. 5, 
02, 144/-. Kare also paid to MPMCT sum of Rs. 30,00,000/- for 
acquiring the leasehold rights in respect of 3016.44 sq. mtrs. 
D 
(50% of the original land leased to MPMCT). Pertinently, 1508.22 
sq. mtrs out of 3016.44 sq. mtrs (50%) is reserved under the 
Development Plan (DP Plan) as a play ground (PG) ........ KARE 
using its own resources and /or amounts borrowed from banks 
and financial institutions constructed thereon a building comprising 
of Ground+ 12 upper floors and fully
furnished the said building 
E 
with central air conditioning, high speed elevators and other state 
of the art amenities such as swimming pools, etc ...... By and 
under a registered Deed of Lease dated 31" July 2006, Kare 
assigned to RKF' the leasehold right alongwith right to use, occupy 
F 
and enjoy, the finished building with all the infrastructure and 
amenities therein for a term of 26yeai-s at a fixed rent of Rs. 
2,50,00,000/- per annum (without any clause for escalation). 
Pertinently, the said lease agreement is only jn respect of the 
building along with the infrastructure and facilities and/or amenities 
thereon and no right, title or interest and /or any assignment of 
leasehold right in respect of the land is given by virtue of the said 
G 
agreement by KARE to RKF." 
12. Along with the note, the Appellants produced certain documents 
including Agreement of Lease dated 04.12.2002, the relevant recitals of 
which are:-
. ' RKF is abbreviation for the Foundation 
H
352 
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B 
c 
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E 
F 
G 
H 
SUPREME COURT REPORTS 
[2017] 13 S.C.R. 
"WHERij:AS the Authority is possessed of or otherwise well 
and suffiqiently entitled to a piece or parcel ofland admcasuring 
6032.86 $q. mt. situated at S.No. 16(pt) corresponding C.T.S. 
223 & 224, village Pahadi Goregaon, Goregaon (west), Mumbai-
400 I 04, in the registration Sub-District of Andheri Mumbai 
Suburban District and more particularly described in the Schedule 
I hereinunder written and shown by red coloured boundary line 
on the plan hereto appended (hereinafter referred to ns "the said 
land"). 
AND WHEREAS the Jessee requested to the government vide 
its application Jated 14.02.1999 to grant the plot ofland on lease 
situated al '\1ouje Pahadi, Goregaon (W) Motilal Nagar-1 for the 
purpose of constructing, maintaining and locating building for 
School. 
AND WHEREAS on the request of the lessee, the Govt. of 
Maharashtra as per the provisions, Regulation 16(2) of the 
MHADA (Disposal of Land) Regulations 1982, decided to lease 
out the plot of land under 2% discretionary quota of the State 
Government, for plots developed by the Authority to Lessee and 
the Govetlnment in Housing and Special AssistanceDepartment 
vide its letter No.ADL-7799/Case No.3746/Desk-I dated 
15.05.19'l9 directed the Mumbai Housing andArea Development 
Board, a r¢gional board of the Authority established under Section 
18 of the said Act (hereinafter referred to as "the said board") 
to allot the said plot of land
to the lessee on the terms and 
conditions hereinafter appearing and contained; 
AND WHEREAS in response to the Government directions it 
has been proposed by the Authority vide its letter No.Motilal 
Nagar-l/File-45/L-Br/5228 dated 24/10/2001 and letter No.CO/ 
MB/ALM/(B)/Madhya Pradesh/4828/2002 dated 2/1112002 to 
allot the said plot ofland on lease admeasuring 6032 sq. mts. in 
S.No. 16~t) corresponding C.T.S. No. 223 and 224 at village 
Pabadi Goregaon, Goregaon (West) Mumbai- 400104 to the 
lessee for the purpose of constructing maintaining and locating 
School & P.G (Hereinafter refereed to as "the said purpose") 
for a period of30 years lease with effect from the date of taking 
over the possession of the said land by the lessee, for the said 
purpose on the terms and conditions rent and covenants herein 
after appearing and contained.
RUSTOM KERAWALLA FOUNDATION v. STATE OF 
353 
MAHARASHTRA AND ORS. [UDAY UMESH LALIT, J.] 
AND WHEREAS in pursuance of the said decision, the said 
A 
Board vide No.Motilal Nagar-I/File-45/L-Br./5228 dated 24/10/ 
2001 and letter No.CO/MB/ALM/(B)/Madhya Pradesh/4828/ 
2002 dated 02.11.2002 for Rs.40, l 7, 151/- (Rupees Forty Lakhs 
Seventeen Thousand One Hundred and Fifty One Only) towards 
lease premium, 1 % annual lease r~n!. 8% capitalized lease rent 
B 
and nominal lease rent Rs. I/- per year for 30 years and legal 
charges for school and for playground b~ase Premium, annual · 
lease rent and nominal lease rent Rs. I/- per year for 30 years 
(as per Schedule II affixed herewith) on terms and conditions 
hereinafter appearing contended. 
AND WHEREAS the lessee has agreed to take the said land 
C 
admeasuring 6032.86 square metres on lease for the said terms 
of thirty years with effect from the date of taking over the 
possession of the said land i.e. the 
by the lessee for the 
said purpose on the terms and conditions rent and covenants 
hereinafter contained; 
D 
AND WHEREAS the lessee Charitable Trust, at present to 
discharge their objective effectively constituted to affiliated trust 
namely 'Rajashtan Vidya Niclhi' dulyregistcredvidc No. E-20322, 
Mumbai dated 18"' July, 2002 and Rustamji Kerawalla 
Foundation' duly registered vide no. E 19386, Mumbai dated 3"' 
May 2001 and by letter dated 4th June 2002, accordingly reque>ted 
. to incorporate these affiliated
trust along with the main trust and 
the lessee itselforthrough its affiliated trust (which will not amount 
subletting requested to execute lease deed in view of compliance 
of the terms and conditions of allotment.) 
AND WHEREAS it is expedient and necessary to execute this 
indenture to lease in favour of the lessee in pursuance of the 
above mentioned decision of the Authority agreed to by the 
lessee." 
E 
F 
13. These recitals show that the allotment was made by MHADA 
G 
pursuant to the decision of the State Government to lease out a plot of 
land under 2% discretionary quota of the State Government, in terms of 
Regulation 16(2) ofMHADA (Disposal of Land) Regulations 1982 (''the 
Regulations", for short). The Regulations deal with modes of disposal 
of land vested in MHADA by Government or acquired by MHADA. 
Regulation 3 speaks of normal modalities of disposal such as inviting 
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354 
SUPREME COURT REPORTS 
(2017] 13 S.C.R. 
A 
tenders by public advertisement, offers through public advertisement, 
public auction, etc., to which Regulation 16 is an exception. 
Secondly, the consideration paid by the Lessee under this Deed 
was one time payment of Rs.40.17 lakhs with Rs. I/- as nominal lease 
rent to be paid annually for an extent of 6032 sq. mtrs. The recitals also 
B 
show that the Foundation was very much in picture on the day the Deed 
was executed and was shown as affiliated trust. The Deed further shows 
that all three trustees of the Foundation are also trustees of Madhya 
Pradesh Mitra Charitable Trust (MPMCT). 
c 
D 
E 
F 
G 
H 
14. The jiresent matters are required to be considered in the 
aforementioned factual scenario. At this stage, we may quote Para 195 
from the majority decision authored by Justice B.P. Jeevan Reddy in 
UNNT KRISHNAN J. P. AND OTHERS v. STATE OF ANDHRA 
PRADESH AND OTHERS': 
"I 95. Private educational institutions may be aided as well as 
un-aided, Aid given by the Government may be cent per cent or 
partial. So far as aided institutions arc concerned, it is evident, 
they have to abide by all the rules and regulations as may be 
framed by the Government and/or recognising /affiliating 
authorities in the matter of recruitment of teachers and staff, 
their conditions of service, syllabus, standard of teaching and so 
on. In ]llarticular, in the matter of admission of students, they 
have to follow the rule of merit and
merit alone- subject to any 
reservations made under Article 15. They shall not be entitled to 
charge any fees higher than what is charged in Governmental 
institutions for similar courses. These are and shall be understood 
to be the conditions of grant of aid. The reason is simple public 
funds, when given as grant- and not as loan- carry the public 
character wherever they go, Public funds cannot be donated for 
private purposes. The element of public character necessarily 
means a fair conduct in all respects consistent with the 
constitulional mandate of Articles 14 and 15. All the Governments 
and oth~r authorities in charge of granting aid to educational 
institutions shall expressly provide for such conditions (among 
others), ifnot already provided, and shall ensure compliance with 
the same. Again aid may take several forms. For example, a 
medical college does necessarily require" hospital. We are told 
'0 993)1 sec 6451
RUSTOM KERAWALLA FOUNDATION v. STATE OF 
355 
MAHARASHTRA AND ORS. [UDAY UMESH LALIT, J.] 
that for a 100-seat medical college, there must be a fully equipped 
A 
700 bed hospital. Then alone, the medical college can be allowed 
to function. APrivate Medical College may not have or may not 
establish a hospital of its own. It may request the Government 
and the Government may permit it to avail of the services of a 
Government hospital for the purpose of the college free of charge. 
This would also be a form of aid and the conditions aforesaid 
have to be imposed- may be with some relaxation in the matter 
B 
of fees chargeable- as observed. The Governments (Central and 
State) and all other authorities granting aid shall impose such 
conditions forthwith, if not already imposed. These conditions 
shall apply to existing as well as proposed private educational 
C 
institutions." 
15. It is true that while answering Question No.9, larger bench of 
this Hon'ble Court in T.M.A. PAI FOUNDATION v. STATE OF 
KARNATAKA4 held the Scheme framed in Unni Krishnan to be 
unconstitutional. The aforesaid observations in Para 195 
arc, however, completely distinct from the Scheme formulated in the 
decision of U1111i Krisll11a11 and those observations, still hold good. As a 
matter of fact, in MODERN SCHOOL v. UNION OF INDIA & 
OTHERS5 the very next paragraph namely Para 196 from the decision 
of this Court in Unni Krisll11a11 was quoted by Justice S.H. Kapadia, as 
the learned
ChiefJustice oflndia then was, while speaking for majority. 
16. In the instant case, the plot of land came to be allotted not 
through normal competitive channels but purely under discretionary quota. 
The consideration payable for the plot was also not guided by market 
conditions, and public property was made over purely for sub-serving 
public interest. Going by the test laid down that aid may take several 
forms and that when public property or funds are given as grant, they 
carry public character wherever they go, the allotment made by MHADA 
at the instance of the Government in favour of a lessee can certainly be 
termed as "aid". As laid down in said para 195, among others, the 
condition that the institution shall not be entitled to charge any fees higher 
than what is charged in Government Institutions for similar courses, shall 
be understood to be the condition of grant of aid. Will not such "aid" 
mean that the institution is in theory and practice, an aided institution; in 
which case the fee structure has to be one which has been prescribed in 
'r20021 s sec 481 
'(2004) s sec 583 
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terms of Section 4(2)(a) of the Act? We may hasten to add that this part 
has not been dealt with at any juncture in the present proceedings and 
before a decision in that behalf is taken, the parties must have an 
opportunity to contest the position, if they so wish. Our observations 
must, therefore, be taken as purely tentative. The fact however remains 
that the lessee spent Rs.40.17 lakhs only for allotment of 6032 Sq. mtrs. 
through non-conipetitive mode. 
I 7. We wil) now deal with the question whether the Appellants are 
entitled to take t~e entirety of lease rent into account while having the 
foe structure apptoved in terms of provisions of the Act and if not, what 
should be the correct approach and for the present purposes, we proceed 
on the footing that the School is an unaided institution. 
18. Section 3(1) of the Act prohibits demand or collection of any 
capitation fee from any student in consideration ofhis admission to, and 
prosecution of any course of study, or promotion to a higher standard or 
class in any educational institution. The definition of educational institution 
under Section 2(b) means a school including kindergarten, pre-primary, 
balwadi or nursery, college or any institution by whatever name called 
whether managed by Government, Local authority, a University or a 
Private Management. Thus the extent of prohibition contemplated by 
Section 3(1) squarely applies to and
covers the School run by the 
Foundation. The definition of"capitationfee" under Section 2(a) means 
any amount in excess of the prescribed fee or as the case may be 
approved rates of fee regulated under Section 4. The regulatory 
mechanism under Section 4 has two facets; a) in case of aided institution, 
the fees to be regulated shall be such as may be prescribed by the 
University or the State Government and b) in respect of w1aided institution 
it shall be such ai; the State Government may approve. Under the first 
category the fees are "prescribed" either by the University or by the 
State Government while in respect of unaided institution the fees have 
to be "approved" by the State Government. Sub clause (4) of Section 4 
speaks of constitution of a committee of experts in education field whose 
reports can be the basis for revision of fees. Said sub-section further 
provides that the fees regulated under Section 4 shall ordinarily remain 
in force for a period of three years. 
19. Reading sub-clause (b) of Section 4(2) along with Section 4(3) 
of the Act. three elements ought to be considered while approving the 
fees in re~'Pect of unaided institutions. namely; (i) regard must be had to
RUSTOM KERAWALLA FOUNDATION v. STATE OF 
357 
MAHARASHTRA AND ORS. [UDAY UMESH LALIT, J.] 
the usual expenditure; (ii) excluding any expenditure on lands and buildings 
A 
or on such other items as the State Government may notify; and (iii) the 
fees shall include the items specified in sub-clause (3) of Section 4. 
The expression "excluding any expenditure on lands and buildings 
or on such other items as the State Government may notify" is very 
crucial. Important to note that expenditure on lands and buildings or for 
B 
that matter any expenses towards rents do not form part of any of the 
items under sub-section (3) of Section 4. While considering the ambit of 
the aforesaid crucial expression in Sub-clause (b) of Section 4(2), two 
constructions arc possible: 
(i) The qualification, "as the State Government may notify" 
covers only the second part, i.e., that part of the expression 
occurring after "or" namely "on any such other items". Thus, 
the power entrusted with the State Government applies to 
and is restricted to "any such other items". In other words, 
c 
the earlier part namely, "any expenditure on lands and 
buildings" is a stand-alone part and must always be excluded 
D 
If this construction is accepted, expenditure on lands and 
buildings must always be kept out of consideration while 
arriving at the decision with regard to the fees to be approved 
in respect of an unaided institutions. The power of the 
Government to notify will only be with respect to
"other items" 
and not with respect to expenditure on lands and buildings. 
The fact that rent for building does not find any place in Section 
4(3) of the Act, is an indicia in favour of such construction. 
Logical extension of this thought would be that in all matters, 
no expenditure on lands and buildings can or ought to be taken 
into account. 
(ii) The other possible construction is that the expression "as the 
State Government may notify" must apply to the entirety of 
the clause including "any expenditure on lands and buildings" 
in which event, the State Government may, either as a matter 
of policy come out with any general notification or may decide 
in the context of any individual facts and circumstances. Since 
all the authorities have gone on the latter construction in the 
present matter, we refrain from carrying the discussion further 
and adopt the latter construction as the basis for our 
assessment in the instant case. 
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20. Assuming that the expenditure on lands and buildings can be 
reckoned while considering the case under sub-clause (b}, the State 
Government is empowered to exclude certain expenditure. What then is 
the extent of power and under what circumstances and in what manner 
such discretion is to be guided? The exercise on part of the State 
Government m4st be guided to arrive at a just balance between two 
essentials, one • interest of the unaided institution to have a just and 
reasonable fee structure and the other· the very purpose of the legislation 
namely to curb capitation fee. While discharging this duty and undertaking 
such exercise, the State Government must naturally be alive to and take 
all possible fac(1ts of the matter into account. In a given case, claim for 
payment of rent In respect of buildings may be just and reasonable while 
in other cases it may not be so. The exercise must and ought to be 
undertaken keeping the basic idea of the legislation in mind. 
21. If the State Government, while making over public assets or 
funds, has rendered a helping hand to an institution, the resultant benefit 
flowing in favour of the institution must always be taken into account in 
order to arrive at a just and fair decision while approving the fees as 
claimed by that institution. The least that is expected is that the institution 
would not seek to profiteer from the public assets or public funds but
must be made to let the benefit flow in favour of those, for whose ultilnate 
benefit the publi~ assets or funds were made over to it in the first instance. 
At this juncture, we may refer to the following passage from the majority 
judgment of this Court in ISLAMIC ACADEMY OF EDUCATION & 
ANR. v. STATE OF KARNATAKA & ORS.': 
"7 ...... .The fee structure for each ins ti lute must be fixed keeping 
in mind the infrastructure and facilities available, the investments 
made, salaries paid to the teachers and staff, future plans for 
expansion and/or betterment of the institution etc. Of course 
there crun be no profiteering and capitation fees cannot be charged. 
It thus needs to be emphasized that as per the majority judgment 
imparting of education is essentially charitable in nature. Thus 
the surplus/profit that can be generated must be only for the 
benefit/use of that educational institution. Profits/surplus cannot 
be diverted for any other use or purpose and cannot be used for 
personal gain or for any other business or enterprise ....... " 
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'' (2003) 6 sec 691 Para 7
RUSTOM KERAWALLA FOUNDATION v. STATE OF 
359 
MAHARASHTRA AND ORS. [UDAY UMESH LAUT, J.] 
22. In the present case, the Foundation was always in the picture 
A 
right since the beginning and was named as affiliated trust in the deed in 
question. It was only later that KARE Edumin Pvt. Limited came to be 
inducted as a sub-lessee to which the Foundation is presently paying 
rupees two and a half crores every year towards rent. Respondent No.3 
is therefore not off the mark in her contention that in the process 
substantial sums of money are being made over to KARE Edumin Pvt. 
Limited in which company the trustees of the Foundation are the only 
Directors. In any event of the matter, all that the sub-Jessee had expended 
towards acquisition of interest in the land was Rs.30 Lakhs, which was 
paid to MPMCT and Rs.5.02 Lakhs that was paid by it to MHADA 
towards premium. All the evaluation reports relied upon and placed on 
record have computed the rent payable on the basis of what was payable 
in market to similar premises in the locality in question. Evaluation reports 
have gone on the basis of the locational advantages of the land, which 
are nothing but elements depending upon the market value of the locality 
B 
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in question. Since the lease deed and subsequent sub-lease in the present 
D 
case was on non-competitive basis and purely under the discretionary 
quota of the State Government, the locational advantages of the land 
ought to be completely severed and
segregated and what should be the 
basis for computation mll~t be purely that what was expended "on land 
and buildings". The expenditure on lands being to the tune ofRs.35.02 
lakhs, what the Foundation and the School are entitled to is only that, 
which represents reasonable return on such investment and the facilities 
therein, or the rent as claimed, whichever is lower. 
23. With this view, we remand the matter to the State Government 
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for fresh consideration. The High Court in Para 53 of its judgment had 
observed that the State Government would be free to examine all aspects 
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before arriving at a final decision. While reiterating that, we further direct 
the State Government to consider the matter in the light of the observations 
made herein. Since we are making over the matter to the State 
Government, all those submissions advanced on behalf of the appellants 
that Respondent No.2 was incompetent to deal with the matter need not 
be gone into. We direct the State Government to consider the matter 
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and pass appropriate orders within three months from the date of this 
Judgment and the status quo as prevailing today shall continue to be in 
operation till such time. It goes without saying that in case the fees as 
proposed by the Appellants are not approved, consequential orders for 
refund in terms of Section 3(3) of the Act shall be made. 
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24. Before we conclude, we must advert to one part which struck 
us as incongruent. When the matter was taken up on 21.02.2017, the 
State Government was duly represented by its counsel. The matter was 
thereafter ad~ourned and taken up on subsequent date when none 
appeared for tlie State Government. On our enquiries, the learned counsel 
appearing for Respondent No.3 told that the counsel who was earlier 
appearing fon the State Government would no longer appear as his 
instructions were withdrawn. We had no way to confirm that as even 
the learned advocate on record for the State chose not to appear. The 
matter, therefpre, went completely by neglect and default on part of the 
State Government and we were deprived of any assistance on behalf of 
the State Government. This must be brought to the notice of the concerned 
authorities an~ we direct that a copy of this Judgment and Order be sent 
to the Law Secretary for the State as well as to the learned Advocate 
General for the State. 
25. Lastly, since Transfer Petitions were not heard on merits, we 
discharge the notice issued in Transfer Petitions and request the High 
Court to deal with the pending Writ Petitions. With these observations, 
the present appeals and transfer petitions stand disposed of, with no 
order as to costs. 
Ankit Gyan 
Appeals and Petitions disposed of.