Source: http://www.expertchoice.co.in/Topic_Details.aspx?TopicName=Fee%20Structure%20vis-a-vis%20Private%20Unaided%20Educational%20Institutions
Timestamp: 2019-04-21 03:10:15+00:00

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The specific question that: “How far is it permissible under the Constitution for the State to control and regulate admission and fee in private unaided educational institutions?” has bothered the Supreme Court on a plethora of occasions. The apex court in its wisdom has answered the above-mentioned question although meticulously but has left it open-ended. The primary and the contemporaneous issue that whether the constitution of India guarantees a fundamental right to education to its citizens, was answered in affirmative by the Supreme court in the case of Unnikrishnan, J.P. v. State of Andhra Pradesh.  An eleven judge bench of the Supreme Court for the first time, inter alia addressed the issue of fee structure in detail in the case of T.M.A. Pai Foundation & Ors. v. State of Karnataka & Ors. (hereinafter referred to as the Pai Foundation case). A bench of eleven judges was constituted so that it would not be bound by any of their earlier decisions. The fact that merits consideration is that the apex court was divided in its opinion in this case, which gave rise to subsequent questions, arising from the different interpretations by the different High courts.
The apex court was vigilant enough to take into cognisance the ambiguities which had arisen from the aforesaid judgment, hence it constituted a constitution bench comprising of five judges to clarify the doubts which had arisen in the Pai foundation case. The Pai foundation case was elaborated and simplified in the case of Islamic Academy of Education and Anr. v. State of Karnataka and Ors. Despite the sincere efforts made by the Supreme Court to clarify the doubts and to answer the questions which had arose subsequent to the Pai Foundation case, the Islamic Academy case had its own lacuna and failed to serve the said purpose.
Finally, in 2007 another bench of the Supreme Court comprising of seven judges in P.A. Inamdar and Ors. v. State of Maharashtra and Ors. assembled to clarify the Pai Foundation case and to address the issues which had cropped up pursuant to the Islamic Academy case. The apex court for the first time delivered a unanimous opinion. The decision in the Inamdar case illuminated several vital aspects which were conducive towards the answering of several questions posed after the Pai foundation and the Islamic Academy cases.
The Supreme Court reiterated the above notion vis-à-vis fee structure, in Action Committee, Unaided Private Schools of Delhi v. Director of Education  in the following words.
In a democratic and welfare country like India, the state has the primary responsibility to impart education among all ages of students. The constitution has through Ar. 21-A specifically mandated that it shall be the duty of the Government to impart free and compulsory education among students of six to fourteen years of age. Education and matters incidental to it have been incorporated in Entry 25 of the Concurrent list or List III (mentioned in schedule VII) of the Constitution of India. But the same is subject to entries 63, 64, 65 and 66 of List I. The intention of the legislature by the said entries is that education is both a State and Union subject, i.e. matters pertaining to education are to be dealt both by the state and the union. Both, the centre and the state governments are within their legislative competence to enact laws pertaining to education. But, it is well settled that in case of conflict between the State and Union laws, the latter prevails.
Specifically Article 38 harmoniously read with Articles 41, 45 and 46 of the Constitution proclaims about education of the people, naturally subject to availability of the funds, is the duty of the States. But if state is not in a position of provide equal opportunities of the education to all sections of the human being it may liberate the opportunities through private educational institutions. The words "within the economic capacity" in Article 41 empowers the states to permit the private educational institutions to be established and administered on its own. And for this they should have their funds which will naturally and reasonably be incurred from the students in the form of fees collected from them by the institutions.
"The hard reality that emerges is that private educational institutions are a necessity in the present day context. It is not possible to do without them because the Governments are in no position to meet the demand - particularly in the sector of medical and technical education which call for substantial outlays. While education is one of the most important functions of the Indian State it has no monopoly therein. Private educational institutions - including minority educational institutions - too have a role to play."
39. “That private educational institution are a necessity becomes evident from the fact that the number of government-maintained professional colleges has more or less remained stationary, while more private institutions have been established. For example, in the State of Karnataka there are 19 medical colleges out of which there are only 4 government-maintained medical colleges. Similarly, out of 14 Dental Colleges in Karnataka, only one has been established by the government, while in the same State, out of 51 Engineering Colleges, only 12 have been established by the government. The aforesaid figures clearly indicate the important role played by private unaided educational institutions, both minority and non-minority, which cater to the needs of students seeking professional education.
“3. In modern times, all over the world, education is big business. On 18th June, 1996, Professor G. Roberts - Chairman of the Committee of Vice-Chancellors and Principals commented:"The annual turnover of the higher education sector has now passed the $10 billion mark. The massive increase in participation that has led to this figure, and the need to prepare for further increases, now demands that we make revolutionary advances, in the way we structure, manage and fund higher education."
It is for the same reason that for the past few decades India has experienced the mushrooming of private unaided educational institutions. The education sector has lately caught the attention of large MNC’s and the Corporate, experiencing large amount of investments, as the education sector is not only lucrative but recession proof. With thinning demand for real estate and growing cash constraints, many developers are now looking at thriving sectors. They are divesting in non-core businesses such as education with a conviction that it’s a recession-proof sector. High rate of return on investment coupled with huge demand-supply gap is attracting realtors to this sector, who will be comfortable setting up the required infrastructure. The AEZ group has recently announced a tie-up with Mother’s Pride, a chain of schools, by investing Rs 500 crore in the company. This unprecedented investment in the education sector, although termed as a philanthropic measure by the investors, needs careful scrutiny.
In all of these cases, the central issue is that when the private party invests money in education, the question of control comes in. The experience has been that wherever private control is high, educators feel stifled and education ultimately suffers.
The Tatas and Birlas have many educational interests for a long time. In a different way, so do the Manipal Group, the Apeejay group or the Amity group. While in the former case, values and philanthropy has been the riding motive, the latter have dedicated themselves largely to education alone. Education is perhaps seen more as a commercial venture for making money. The primary question which concerns us is that whether and to what to extent the State can impose restrictions and regulations vis-à-vis the fee structure of such institutions. The primary objective of the state is to ensure that quality education is imparted by such institutions and to ensure excellence in it. However, the issue of commercialisation of education and illegal profiteering by such institutions is of paramount importance and it is in this light that the apex court has laid down the guidelines in the Pai foundation case and subsequently clarified it in the Islamic and the Inamdar case vis-à-vis fee structure.
It was held per Khare, CJ. (for himself and for Variava, Balkrishnan and Pasayat, JJ) that so far as fee structure is concerned the majority Judgement in the Pai Foundation case is very clear. There can be no fixing of a rigid fee structure by the Government. Each institute must have the freedom to fix its own fee structure taking into consideration the need to generate funds to run the institute and to provide facilities necessary for the students. They must also be able to generate surplus which must be used for the betterment and growth of that educational institution. Again, it was re-iterated that "the decision on the fees to be charged must necessarily be left to the private educational institutions that do not seek and which are not dependent upon any funds from the government. Each institute will be entitled to have its own fee structure. The fee structure for each institution must be fixed keeping in mind the infrastructure and facilities available, the investments made, salaries paid to the teachers and staff, future plan for expansion and/or betterment of the institution etc. Of course, there can be no profiteering and capitation fee cannot be charged. It thus needs to be emphasised that as per majority Judgment in the Pai foundation case imparting the 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. Surplus/profits cannot be diverted for any other use or purpose and cannot be used for personal gain or for any other business or enterprise.
The Court noticed that there were various statutes/regulations which governed the fixation of fee and, therefore, this Court directed the respective State Governments to set up committee headed by a retired High Court Judge to be nominated by the Chief Justice of that State to approve the fee structure or to propose some other fee which could be charged by the institute.
Regulation of fee structure stems from the broader right to administration of educational institutions. However, this right is not absolute in nature, i.e. blanket powers to frame its rules and regulations and to set a fee structure of their own choice cannot be given to the private unaided educational institutions. The state can interfere in matters of fee regulation where it deems fit that the institution is exploiting the students by providing inadequate facilities which is not commensurate to the fee charged. However, it is not to say that these restrictions or regulations imposed by the state are always to be regarded pristine in nature or undisputable. If the private unaided educational institutions can fairly prove that the fee structure framed by them is conducive to the welfare of the students who are being provided commensurate facilities which is to achieve the greater goal of excellence in education, then the state would be obliged to withdraw the charges or the restrictions imposed by it earlier. But the contentions of the educational institutions that the fee charged by them is reasonable and not in excess shall be supported by sufficient material to prove beyond reasonable doubt that institution is in no manner indulging in the commercialization of education.
"capitation fee means any amount by whatever name called, paid or collected directly or indirectly in excess of the fee prescribed, under Section 4;"
The wide prevalent notion that capitation fee is only in cash is erroneous. As the above definition suggests, capitation fee can be in kind also. The term ‘kind’ is of wide import and can be construed to include any property, favour, a commodity or anything which is given not being commensurate to the fee charged.
On perusal of the above two definitions it is evident that the term capitation fee may have different characteristics at different levels of education. At the primary or elementary level, the term is confined to donation or contribution, whereas at the higher education level the term in addition to the meaning attributed to it at the primary level also envisages the qualities of favours.
The prohibition against the charging of capitation fee has been laid down by the Supreme Court in a catena of judgments. However, the reality is that the unscrupulous activity of charging capitation fee is still being marshalled by some of the institutions. The need of the hour is to pierce the veil and to expose the activity of charging capitation fee, which is not in consonance with the constitutional fabric. Charging capitation fee is the patent denial of the fundamental right to education of citizens of India.
With a view to eliminating the practice of collecting capitation fee for admitting students in educational institutions, the Karnataka Legislature passed an Act purporting to regulate tuition fee in private medical colleges in the State. By issuing a notification under the act, the Government fixed Rs. 2000/- per year as tuition fee payable by candidates admitted against ‘government seats’, but other students from the State were to pay Rs. 25,000/- per annum. The Indian students from outside the State were to pay Rs. 60,000/- per annum. On a writ petition filed by an out of the State student, the Supreme Court quashed the notification under Ar. 14.In justification of the notification, the private medical colleges had argued that they did not receive any financial aid from the Government and so they must charge much higher fees from private students to make good the loss incurred o government students.
The States of Tamil Nadu, Maharashtra, Karnataka and Andhra Pradesh enacted statutes prohibiting collection of capitation fee and regulating admission in professional colleges. In terms of the provisions of the said Acts, the management of the professional colleges is prohibited from charging any fee other than fee determined under the said Acts.
Private Unaided Educational Institutions are allowed to make Profits but not Profiteering.
"Taking- advantage of unusual or exceptional circumstances to make excessive profits."
Thus the fine thread which differentiates ‘expense’ from ‘expenditure’ is that while the former is on annual basis, the latter is of enduring nature and is not accounted during the financial year. The unjustified practise observed by some of the institutions is to show frivolous entries in their expense accounts so that they can incur profits on the same.
Ex. It is a usual feature that the private institutions advertise their colleges in the newspapers throughout the year. The monies incurred for the same is shown in the expense accounts. However, this practise is erroneous in nature as advertising is only a measure to popularise the brand name of such institutions and cannot be termed as a proper expense. Hence, the institutions are not entitled to earn profits on the same.
The scheme formed by the Islamic case that the books of account are to be scrutinised by a Charted Accountant acts as a safety valve against such unwarranted practices. Another feature that distinguishes expense from expenditure and which is relevant in regard to the fee charged by the institutions is that while expenses are to come out of the fee charged, whereas the expenditure has to come out of the savings of the institutions. This concept was pointed out by the apex court in the Modern school case (2004) in the following words:“21…..
What amount of Reasonable Surplus is Reasonable?
However, it is submitted that in order to fix the reasonable surplus care has to be taken in respective cases. An institution charging exorbitant fees and not providing commensurate facilities to its pupils cannot be allowed to earn a reasonable surplus of 15%. The notion of reasonable surplus cannot be cabined within doctrinaire limits or generalized, hence special care has to be taken while examining the issue of reasonable surplus.
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. It is my sincere opinion that the instant issue cannot be cabined within a straight jacket formula. The basic notion that has to borne in mind while forming any statute or while imposing any regulation on such institutions is that education is a charitable occupation, in which 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.
 (1993) 1 SCC 645. Although this case was overruled by the Pai Foundation case subsequently, the notion that the citizens have a fundamental right to education, which inherently flows from Ar. 21 and the practice of charging capitation fee was abhorrent to the constitutional scheme, hence prohibited, were upheld by the later. The Pai foundation case was in consonance with this case in these 2 aspects.
 (2002) 8 SCC 481. The majority judgment was delivered by Kirpal, CJ with Ruma Pal, S. N. Variava and Ashok Bhan, JJ concurring with him. Khare, J. delivered a separate but concurring opinion. The judgment was delivered on 31st October, 2002.
 (2003) 6 SCC 697. The majority judgement was delivered by Khare, CJ on behalf of Variava, Balakrishnan and Pasayat, JJ. While Sinha, J delivered a separate opinion. The judgement was delivered on 14th August, 2003.
 (2005) 6 SCC 537. The decision which was delivered by Lahoti, CJ.
 (2009) 7 SCC 751. Para 4.
 (2009) 10 SCC 1. Para 24, per Kapadia, J.
 Entry 25 of List III (VIIth schedule) of the Constitution of India: Education, including technical education, medical education and universities and universities, subject to the provisions of entries 63, 64, 65 and 66 of List I; vocational and technical training of labour.
 Islamic Academy of Education and Anr. v. State of Karnataka and Ors. (2003) 6 SCC 697; Para 1, per Sinha, J.
 T.M.A. Pai Foundation v. State of Karnataka (2002) 8 SCC 481, para 39.
 Praveen K. Singh, - Education is recession proof.
 Modern Dental College & Research Centre v. State of M.P. (2009) 7 SCC 751, Para 10.
 T.M.A. Pai Foundation v. State of Karnataka (2002) 8 SCC 481, Para 69, per Kirpal, C.J.
 T.M.A. Pai Foundation v. State of Karnataka (2002) 8 SCC 481, Para 61, per Kirpal, C.J.
 Unaided Private Schools of Delhi v. Director of Education (2009) 10 SCC 1. Per Sinha,J. Para 68. This case came before the apex court in the form of a review petition under Ar. 137 of the Constitution of India. The court reviewed its earlier decision in the case of Modern School v. Union of India (2004) 6 SCC 537. Sinha,J. dissented in this case on the same lines as he did in the Modern School case.
 Per Kirpal, C.J. in the Pai foundation case. (answer to Q. 9)The court at this point overruled the Unnikrishnan case, but upheld it to the extent that right to education is a fundamental right and charging capitation fee is prohibited.
 Modern School v. Union of India AIR 2004 SC 2236, per Kapadia, J. Para 20.

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