State Regulation Of Profiteering By Schools Does Not Violate Managements' Fundamental Rights Under Article 19(1)(g) : Supreme Court

The Supreme Court has held that State's regulation of profiteering by education institutions cannot be held to be violating the managements' fundamental right to trade and profession under Article 19(1)(g) of the Constitution.

A bench comprising Justice AM Khanwilkar and Dinesh Maheshwari held so while upholding the constitutional validity of the Rajasthan Schools (Regulation of Fee) Act, 2016.

As per the Act, the fees of private unaided schools must be determined by a School Level Fees Committee(SLFC), which includes a representative of the school management, five parents, three teachers and the principal. Further, the Act establishes regulatory commissions which can determine if the fee structure evolved by the schools has elements of profiteering.

A group of private schools challenged the provisions of the 2016 Act contending that its provisions resulted in impinging the autonomy of private schools.

Rejecting this argument, the Court observed :

"Setting up of an independent final adjudicatory authority especially created for considering the question as to whether the fee structure proposed by the school Management results in profiteering or otherwise, it does not impinge upon the fundamental right of the school Management guaranteed under Article 19(1)(g) of the Constitution"(Paragraph 43).

The Court also held that the provisions of the 2016 Act and the Rules made under it which mandate maintenance of books of accounts by schools and which give SFLC and the statutory commissions to make reasonable inquiry into the accounts do not violate the fundamental rights of the schools under Article 19(1)(g).

"The fee structure determined by the school Management can be altered by the Adjudicatory Authorities only upon recording a negative finding on the factum of amount claimed towards school fees relating to particular activities is an essential expenditure or otherwise; and that the fee would be in excess of reasonable profit being ploughed back for the development of the institution or otherwise. The recovery of excess amount beyond permissible limit would result in profiteering and commercialisation. In our opinion, therefore, even Rule 11 is a relevant and reasonable provision and does not impact or abridge the fundamental right under Article 19(1)(g) of the Constitution"

Referring to the constitution bench judgments in this regard including TMA Pai Foundation and P.A. Inamdar case, the court observed that Government has power to provide for external regulatory mechanism for determination of school fees or so to say fixation of "just" and "permissible" school fees at the initial stage itself.

The Court followed these precedents which hold that fees charged by the educational institutions must be commensurate to their services and they cannot indulge in 'profiteering' or 'commercialization. The Court said that a private institution has the autonomy to fix its own fees so long as it does not result in 'profiteering' and 'commercialization', and to that extent the State has power to impose regulations.

The Court was delivering its judgment in the case Indian School, Jodhpur vs State of Rajasthan and connected cases, which were appeals filed by private unaided schools from Rajasthan challenging a Government order, which permitted CBSE schools in the state to collect only 70% and state board schools to collect only 60% of the annual school fee on account of the COVID pandemic.

States cannot impinge on autonomy of private schools

At the same time, the Court held that States cannot impinge on the autonomy of private schools under the guise of fixing "just" and "permissible" school fees.

"It is one thing to say the State may regulate the fee structure of private unaided schools to ensure that the school management does not indulge in profiteering and commercialization, but in the guise of exercise of that power, it cannot transcend the line of regulation and impinge upon the autonomy of the school to fix and collect "just" and "reasonable" school fees from its students", the Court said(paragraph 99).

The State can provide independent mechanism only to regulate the fees fixed by school Management to the extent that it does not result in profiteering and commercialisation, the Court clarified(paragraph 94).

The judgment said that the determination of school fee structure(which includes reduction of fixed school fee for the relevant period) is the exclusive prerogative of the school Management running a private unaided school, it is not open to the Legislature to make a law touching upon that aspect except to provide statutory mechanism to regulate fees for ensuring that it does not result in profiteering and commercialisation by the school Management(paragraph 99).

Schools Have Saved Operational Costs During Lockdown; Can't Charge Students For Unused Facilities

The Supreme Court also held that private schools demanding fees from students for the activities and facilities not availed by them due to the lockdown amounts to 'profiteering' and 'commercialization'.

Taking judicial notice of the fact that classes have been held online during the last academic year, the Supreme Court observed that schools must have saved on overheads and operational costs. The Court reckoned that schools must have saved at least 15% in that way, and hence, they have to give a deduction in annual school fees to that extent. The Court said that the schools "must willingly and proactively" reduce fees to that extent.

The Supreme Court partly allowed the schools' appeals, by allowing them to collect annual tuition fee after giving a deduction of 15% towards the savings made on account of overheads and operational costs. The Court has allowed six monthly instalments for the payment of fees.

While allowing schools to charge 85% of the annual fees, the Court also directed that no student should be debarred from attending either online classes or physical classes on account of non­-payment of fees, arrears/outstanding fees including the installments,and shall not withhold the results of the examinations of any student on that account.

If any individual request is made by the parent/ward finding it difficult to remit annual fees for the academic year 2020-­21 , the school Management must consider such representation on case ­to ­case basis sympathetically.

The school Management shall not withhold the name of any student/candidate for the ensuing Board examinations for Classes X and XII on the ground of non­payment of fee/arrears for the academic year 2020­-21, if any, on obtaining undertaking of the concerned parents/students.

Also from the judgment  :

Schools Have Saved Operational Costs During Lockdown; Can't Charge Students For Unused Facilities : Supreme Court

Authorities Under Disaster Management Act Have No Power To Alter Fee Structure Of Private Schools: Supreme Court

Supreme Court Directs Rajasthan Private Schools To Give 15% Deduction In Annual School Fees; No Student To Be Debarred For Non-Payment Of Fees