Court’s Decision
The Delhi High Court quashed and set aside the orders passed by the Directorate of Education rejecting fee-hike proposals submitted by private unaided recognised schools at the commencement of academic sessions. The Court held that such orders were based on a misconceived assumption that schools required prior approval from the DoE before increasing fees even at the start of an academic year.
The Court held that under Section 17(3) of the Delhi School Education Act, 1973, a private unaided recognised school does not require prior permission to increase fees at the commencement of an academic session. Its obligation is to file the statement of proposed fees before the session begins. Prior approval is required only if the school proposes a fee hike during an ongoing academic session.
However, to balance the interests of schools and parents, the Court directed that the last proposed fee increase filed by various schools would apply only from the next academic session beginning April 2027, and no school shall recover arrears retrospectively for past academic sessions.
Facts
A large batch of petitions was filed by private unaided recognised schools challenging the DoE’s orders rejecting their proposals for increasing fees. The schools argued that the DoE had arbitrarily disallowed fee hikes by treating funds such as contingency reserve, development fund, depreciation reserve, gratuity and leave encashment liabilities as “funds available” for revenue expenditure.
The schools contended that the DoE’s approach had affected their financial autonomy and caused stagnation in the development and growth of educational institutions. The Court noted that the litigation had arisen because the DoE had continued to act contrary to settled law and binding precedents.
Issues
The Court considered whether the DoE’s orders rejecting fee-hike proposals violated natural justice, exceeded statutory powers under the DSE Act and Rules, wrongly treated school funds under accounting principles, and whether the DoE’s powers differed between schools with a “land-clause” and those without it.
The Court also considered whether schools could maintain reasonable surplus, retain earmarked funds, pay salaries to administrative staff, pay employees more than government school employees, and whether DoE was required to decide mid-session fee-hike proposals within a time-bound framework.
Petitioners’ Arguments
The schools argued that as private unaided recognised schools, they have autonomy under Article 19(1)(g) to administer their institutions, including financial autonomy. They submitted that the DoE’s role is limited to preventing profiteering, commercialisation and capitation fee, and unless the DoE makes a specific finding of such conduct, it cannot interfere with the fee structure.
They further argued that the DoE was wrongly treating earmarked and reserve funds as available surplus, even though such funds are meant for specific purposes such as future development, capital assets, depreciation, contingency, gratuity, leave encashment and statutory liabilities. They also argued that schools cannot be forced to maintain a parallel accounting system different from the Income Tax Act and ICAI Guidance Note applicable to not-for-profit schools.
Respondents’ Arguments
The DoE argued that it had authority to regulate fees of private unaided schools, especially to prevent commercialisation of education and unjustified fee increases. It submitted that the fee-hike proposals were scrutinised through chartered accountants, the Project Management Unit and internal committees.
The DoE also argued that schools situated on government-allotted land with a “land-clause” were subject to stricter regulatory control and required prior approval for any fee hike. According to the DoE, its process ensured transparency, accountability, and protection of students and parents.
Analysis of Law
The Court held that the DoE’s powers are regulatory, not managerial. Its role is to prevent profiteering, commercialisation and capitation fee, but it cannot assume the power to micro-manage how private unaided schools arrange their financial affairs.
The Court clarified that a finding of profiteering or commercialisation cannot be presumed merely because a school has surplus funds. Such a finding can be returned only after a proper audit under Section 18(5) of the DSE Act, based on audited financial returns and after following principles of natural justice.
The Court also rejected the distinction between schools with a “land-clause” and those without such a clause for the purpose of DoE’s statutory powers under the DSE Act. It held that a land-clause does not override Sections 17 and 18 of the DSE Act or Rule 177 of the DSE Rules. If a land-clause school is found guilty of profiteering after a proper audit, the DoE may inform the land-owning agency, which may then act under the lease terms.
Precedent Analysis
The Court relied upon and reaffirmed the settled position flowing from Supreme Court and Delhi High Court precedents, including T.M.A. Pai Foundation, P.A. Inamdar, Islamic Academy, Modern School, Delhi Abhivabhavak Maha Sangh, Action Committee, Ramjas School, Mahavir Sr. Model School, and Bluebells School International.
The core principle reaffirmed was that private unaided schools have autonomy to fix a reasonable fee structure, subject only to regulation against profiteering, commercialisation and capitation fee. The Court reiterated that a reasonable surplus for growth and development of the institution is permissible and cannot automatically be treated as profiteering.
Court’s Reasoning
The Court held that the DoE had wrongly proceeded on the assumption that schools must seek prior approval for fee hikes at the start of the academic session. The Court clarified that filing the fee statement before commencement of the session is sufficient under Section 17(3).
The Court found that the DoE’s references to profiteering and commercialisation in the impugned orders were not based on any definitive finding after a proper audit. The Court described these observations as “gratuitous rhetoric” arising from the DoE’s flawed understanding of school accounting.
The Court also held that the DoE cannot treat every surplus as available revenue. Funds lying under court lien, refundable caution money, development fund, depreciation reserve, contingency reserve, and statutory liabilities like gratuity and leave encashment cannot be mechanically counted as money available for meeting current expenses.
On school administration, the Court rejected the DoE’s objection to payment of remuneration to administrative personnel such as chairpersons, directors, managers and consultants. The Court observed that expecting persons managing a school to work for free “can only be envisaged in la-la-land.”
The Court further held that there is no bar on private unaided schools paying employees more than government school employees. Section 10 of the DSE Act only requires that salaries should not be less than corresponding government school employees; it does not impose an upper cap.
Conclusion
The Delhi High Court held that the DoE’s orders rejecting fee-hike proposals at the commencement of academic sessions were legally unsustainable and quashed them. Pending proposals before the DoE were closed because they were based on the same misconceived requirement of prior approval.
For mid-session fee hikes, the Court directed that schools must submit proposals at least two months before the proposed date of implementation, and the DoE must decide within two months. If it fails to do so, the proposal will be deemed approved. The Court also held that any such DoE decision must be based on a determination of profiteering or commercialisation after audit under Section 18(5) and after following natural justice.
The Court finally directed that the last proposed fee increase filed by schools would apply only from April 2027 and that no retrospective recovery of arrears for past academic sessions would be allowed.
Key Takeaway
Private unaided recognised schools do not require prior approval from the DoE to increase fees at the start of an academic session. The DoE can regulate fees only to prevent profiteering, commercialisation or capitation fee, and such findings must be based on a proper audit and natural justice. At the same time, parents cannot be burdened with retrospective arrears for past years.