Private Schools Dependent On Fee Collected By Them, Maintaining Surplus Can’t Be Construed As Commercialization Of Education: Delhi High Court

Observing that private unaided schools are entirely dependent on the fee collected by them, the Delhi High Court on Wednesday ruled that planning and maintaining a surplus by such schools, per se, cannot be construed as commercialisation of education.

Emphasising that it is important for private unaided schools to maintain a surplus for further development and honing of their educational facilities and services, Justice Sanjeev Narula said:

“The right of unaided schools to determine fee to be charged from students cannot be faltered purely only on account of presence of reasonable surplus in their books of account.”

The court added that since the unaided schools perform a public function, regulatory control of the State is essential to ensure that such schools operate within the parameters of the Delhi School Education Act, 1973 (DSEA) and do not engage in commercialisation or profiteering.

“Therefore, there needs to be a collaborative effort between private unaided schools and the regulatory authorities to maintain a balance between the right to charge fees and the need for regulatory control to ensure the quality and affordability of education,” it said.

The court said that private unaided schools must ensure that the surplus generated by them is utilised for the improvement and development of the school and their students.

Justice Narula made the observations while quashing an order passed by Delhi government’s Directorate of Education (DoE) dated January 25, 2019, rejecting the proposed fee hike of Mahavir Sr. Model School and Mahavir Jr. Model School.

Allowing the plea moved by the schools, the court ordered that Mahavir Sr. Model School shall be entitled to increase its fee in terms of the statement of fees submitted to the DoE whereas Mahavir Jr. Model School shall be entitled to enhance its fee structure in accordance with law.

“Balance arrears recoverable from the concerned parents, in terms of order dated 25th May, 2021, shall be paid to the Sr. School within a period of four weeks from today. For this purpose, Sr. School shall communicate the outstanding dues to such parents within two weeks from today,” the court said.

The DoE contended that notwithstanding the status of private unaided school, no fee can be fixed without their prior permission. On the other hand, the petitioners schools submitted that they enjoy freedom in management of their affairs, including fixation of the fees.

Calling it a classic tussle between autonomy of private schools in fixation of fees and the extent of governmental control, Justice Narula said that even though there is no provision under the DSEA requiring unaided schools to seek prior permission from DoE before fee hike, yet, DoE exercises regulatory control in terms the enactment.

However, the court added that while regulating the fee structure, DoE does not act as an appellate body.

“It is not vested with the power to analyse the correctness of discretion exercised by the school, but is entitled to ensure that the school does not indulge in commercialisation of education. The bounds of regulatory jurisdiction are limited and restricted, as expounded by the judicial precedents noted hereinafter,” it said.

The court observed that although DSEA and its Rules specify that the DoE has the authority to seek and examine accounts of the schools, such regulatory power must be exercised within the precincts of law.

“The accumulation of surplus funds is essential for the long-term sustainability and growth of the school which enables them to invest in better infrastructure, equipment, and resources. Private unaided schools may need to invest in building or improving infrastructure, such as construction of new classrooms, libraries, laboratories, sports facilities or technology upgrades, such as new computers, tablets and software. These increments are generally sourced from the surplus funds and enable the school to stay up-to-date with the latest technologies and provide quality education to its students,” it said.

Calling the approach of the DoE in the matter as “incorrect and impermissible”, the court said that the determination of what constitutes a reasonable surplus would depend on various factors such as the size of the school, level of infrastructure, facilities provided, salaries of the staff and overall financial position of the school.

The court also observed that Mahavir Sr. Model School, in its statement of fee given to DoE, had incorporated a detailed chart of estimated expenses expected to be incurred in the academic session of 2018-19 and the income generated by them. Thus, it said that there was transparency in their financial operations and that they can be held accountable for utilisation of funds.

“Therefore, the DoE has undertaken the exercise of reworking the balance sheets without disclosure of justifiable reasons, or a finding of profiteering or commercialisation of education. This exercise reflects DoE’s subjective opinion, without any objective criteria, making the entire exercise arbitrary and unreasonable,” Justice Narula said.

The court further said that the DoE cannot act as an appellate body and reject the financial documents in absence of any evidence to show that the accounts were not prepared in accordance with applicable accounting standards or were rejected by the tax authorities.

Advocates Kamal Gupta, Sparsh and Yash Yadav appeared for the petitioners.

Title: MAHAVIR SR. MODEL SCHOOL AND ANR. v. DIRECTORATE OF EDUCATION

Citation: 2023 LiveLaw (Del) 239