Supreme Court Holds Kerala’s Corpus Fund for Subsidizing Medical Education Unconstitutional: “No power to create such fund without legislative backing; Fee Regulatory Committee cannot act beyond its statutory remit”

Court’s Decision

The Supreme Court upheld the Kerala High Court’s decision quashing Government Order (GO) dated 06.06.2018 which had mandated the creation of a corpus fund using a portion of the fees collected from NRI students to subsidize education for students from economically weaker sections (EWS). The Court held that:

“The High Court was correct in striking down the GO dated 06.06.2018 as devoid of any authority of law.”

It ruled that neither the Admission and Fee Regulatory Committee (AFRC) nor the State had the legal authority under the Kerala Medical Education (Regulation and Control of Admission to Private Medical Educational Institutions) Act, 2017 (the 2017 Act) to levy or collect fees for such a corpus fund in the absence of proper legislation.

Facts

• The 2017 Act was enacted to regulate admission and fee structures in private medical institutions in Kerala.
• Under this, the AFRC fixed NRI student fees at ₹20 lakhs per annum in 2018, an increase from ₹15 lakhs, directing that ₹5 lakhs per student be diverted towards a “corpus fund” to subsidize EWS students’ education.
• The GO dated 06.06.2018 from the State of Kerala supported this move.
• Medical colleges challenged the deduction of ₹5 lakhs; NRI students sought a refund; and BPL students intervened, supporting the GO as a welfare measure.

Issues

1. Whether the Committee had the power to direct that a portion of the fees charged to NRI students be retained in a corpus fund managed by the State.
2. Whether the NRI students are entitled to a refund or adjustment of the corpus fund amount against their fees.

Petitioner’s Arguments

(Self-financing Medical Colleges and NRI students)

• The High Court rightly quashed the GO since no provision in the 2017 Act allowed such a levy.
• KMCT Medical College stated that they already subsidized students voluntarily and the deduction of ₹5 lakhs hindered their operational finances.
• NRI students argued that:
  • Any subsidization should benefit only students within the same college.
  • The GO lacked legislative authority and imposed an illegal financial burden.
  • Post-dated cheques were forcibly taken for the fund.
  • The fee for NRI students should not exceed the amount required to subsidize two EWS students, i.e., ₹15 lakhs.

Respondent’s Arguments

(State of Kerala and BPL Students)

• The GO was based on paragraph 131 of P.A. Inamdar v. State of Maharashtra, which encourages subsidization through higher NRI fees.
• The corpus fund had a welfare objective and was in public interest.
• Self-financing colleges were accused of collecting ₹182.9 crores from students over six years but only remitting a fraction to the State.
• Discontinuation of the fund caused BPL students to face financial hardship and risk of discontinuing their education.

Analysis of the Law

• The Court evaluated paragraph 131 of P.A. Inamdar, which permits charging higher fees to NRIs for subsidizing EWS students, but only through suitable legislation.
• The Committee’s authority was restricted to:
  • Fixing fees reasonably.
  • Preventing profiteering and capitation.
  • Regulating NRI admissions to prevent misuse.
• It held that the Committee could not divert or impose any component of fees without statutory authority.
• Reference was also made to paragraph 7 of Islamic Academy of Education v. State of Karnataka, emphasizing that the Committee’s scope was limited to verifying fee reasonableness.

Precedent Analysis

1. P.A. Inamdar v. State of Maharashtra:
   • Recognized the concept of subsidization through NRI fees.
   • Did not authorize the Committee to create or direct corpus fund collection.
2. Islamic Academy of Education v. State of Karnataka:
   • Authorized Committees to verify proposed fee structures, not to create funds.
3. Modern Dental College v. State of Madhya Pradesh and Najiya Neermunda v. Kunhitharuvai Memorial Charitable Trust were also relied on for determining regulatory powers under fee statutes.

Court’s Reasoning

• “Howsoever laudable, pious, or noble the objective behind the GO dated 06.06.2018 may be, it cannot be legitimized unless its genesis is traceable to a legislative action.”
• The Court clarified:
  • P.A. Inamdar encourages welfare objectives but does not substitute the need for enabling legislation.
  • The Committee’s powers under Sections 8A and 11 of the 2017 Act were only for regulating fees—not creating or directing corpus funds.
• The absence of a statutory mechanism invalidated the GO and Committee’s directions.

Conclusion

• The GO dated 06.06.2018 is ultra vires and rightly quashed.
• The Committee has no power to create or manage a corpus fund from NRI student fees without legislation.
• Refund or adjustment of collected amounts must be decided by appropriate legal process or by the institutions, but the scheme cannot continue in its present form.

Implications

• Establishes that fee collection and utilization in self-financing educational institutions must have a clear statutory foundation.
• Limits the powers of regulatory committees in absence of legislative delegation.
• Reinforces that welfare goals, even when noble, cannot override constitutional mandates regarding taxation and fee collection.
• Medical colleges and the State must now create statutory backing if they wish to implement similar subsidy schemes.

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