# MODERN SCHOOL v. UNION OF INDIA AND ORS - **Citation:** [2004] Supp. 1 S.C.R. 668 - **Court:** Supreme Court of India - **Decided:** 2004-04-27 - **Case number:** Civil Appeal No. 2699 of 2001 - **Bench:** V.N. Khare, S.B. Sinhaands.H. Kapadia - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/modern-school-v-union-of-india-and-ors-20005 - **Pages:** 40 ## Headnote Constitution of India, 1950-Article 19(/)(g)-Unaided educational institutions-Determination of fee structure-Autonomy-Exercise of-Held: C Such institutions exercise a great autonomy since they are entitled to a reasonable surplus for development of education and expansion of institutionHowever, commercialization of education is 'prohibited Delhi School Education Act, 1973: Section 17(3) and Section 18(3) and (4)-Unaided SchoolsD Regulation of quantum of fees charged-Held: Reading Sections 18(3) and (4) with rules 172, 173, 174, 175 and 177 on one hand and Section 17(3) . on the other hand, Director is authorized to regulate fee and other charges under Section 17(3) of the Act to prevent commercialization of educationDelhi School Education Rules, 1973-Rules 172, 173, 174, 175 and 177. E Section 24(3)-Transfer of fees/funds collected by unaided schools to society/ trust-Order of Director prohibiting the transfer-Held: On reading Rules 172, 175 and 177 it is clear that appropriation of savings (income) is different from transfer of fund-By Order of Director, management restrained from transferring any amount from the fund to society/trust-Rule 177(/) F refers to appropriation of savings (income) from revenue account for meeting capiial expenditure of the school-Hence, there is no conflict between Rule 177 and the Order of Director-Delhi School Education Rules, 197 3- Rules 172, 175 and 177. Section 24(3)-Recognized unaided schools-Setting up of Development . G Fund Account-Entitlement of-Held: On account of increased cost due to inflation, Management entitled to. create Development Fund Account-For creation of such fund, management permitted to charge development fee not exceeding 15% of the total tuition fee. There was a fee hike in various schools in Delhi. Delhi Abibhavak II 668 r. MODERN SCHOOL v. U.0.1. 669 Mahasangh - a federation of parents filed public interest litigation before A the High Court impleading thirty unaided recognized public schools in Delhi on the ground that these schools are indulging in large scale commercialization ·or education since there was excess of income over expenditure under head tuition fee, the huge amount collected remained unspent and there is transfer of funds by the said schools to society/trust or B any other institution. Government appointed an inspection team which submitted a report High Court found irregularities in the management of accounts and directed that the tuition fees be utilized for payment of salaries of teachers and employees and also utilization of surplus under specific head of tuition C fees. It held that the Delhi School Education Act, 1973, and Delhi School Education Rules, 1973, framed thereunder prohibited transfer of funds from school to society/trust or to other schools run by same society/trust and appointed a Committee to examine economics of each of the recogniud unaided schools in Delhi. Aggrieved unaided recognized schools and action committee of unaided D private schools filed appeals in this Court. During pendency of the appeals, the Committee submitted its report. Director of Education accepted the same and issued directions under Section 23(4) read with Sections 18(4) and (S) of the Act to the effect that the Director of Education has authority to regulate quantum of fees charges by unaided schools; that fees/funds collected from E parents/students would not be transferred from the recognized unaided school fund to society or trust; and that the management is entitled to create Development Fund Account for which it is required to collect development fee not exceeding 10% of the total tuition fee. These directions are subject matter of the present appeals. Appellants-schools contended that the Government has no authority to regulate the fees payable by the students of unaided schools as indicated by Section 17(3) of the Act; that under Rule 177(1) income derived by unaided schools from fees shall be utilized firstly to meet salaries of employees and F th ## Text _Characters 0–39,314 of 101,457. This is a partial read: ask again with offset=39314 for what follows._ A B MODERN SCHOOL v. UNION OF INDIA AND ORS. APRIL 27, 2004 [V.N. KHARE, CJ., S.B. SINHAANDS.H. KAPADIA, JJ.] Constitution of India, 1950-Article 19(/)(g)-Unaided educational institutions-Determination of fee structure-Autonomy-Exercise of-Held: C Such institutions exercise a great autonomy since they are entitled to a reasonable surplus for development of education and expansion of institutionHowever, commercialization of education is 'prohibited Delhi School Education Act, 1973: Section 17(3) and Section 18(3) and (4)-Unaided SchoolsD Regulation of quantum of fees charged-Held: Reading Sections 18(3) and (4) with rules 172, 173, 174, 175 and 177 on one hand and Section 17(3) . on the other hand, Director is authorized to regulate fee and other charges under Section 17(3) of the Act to prevent commercialization of educationDelhi School Education Rules, 1973-Rules 172, 173, 174, 175 and 177. E Section 24(3)-Transfer of fees/funds collected by unaided schools to society/ trust-Order of Director prohibiting the transfer-Held: On reading Rules 172, 175 and 177 it is clear that appropriation of savings (income) is different from transfer of fund-By Order of Director, management restrained from transferring any amount from the fund to society/trust-Rule 177(/) F refers to appropriation of savings (income) from revenue account for meeting capiial expenditure of the school-Hence, there is no conflict between Rule 177 and the Order of Director-Delhi School Education Rules, 197 3- Rules 172, 175 and 177. Section 24(3)-Recognized unaided schools-Setting up of Development . G Fund Account-Entitlement of-Held: On account of increased cost due to inflation, Management entitled to. create Development Fund Account-For creation of such fund, management permitted to charge development fee not exceeding 15% of the total tuition fee. There was a fee hike in various schools in Delhi. Delhi Abibhavak II 668 r. MODERN SCHOOL v. U.0.1. 669 Mahasangh - a federation of parents filed public interest litigation before A the High Court impleading thirty unaided recognized public schools in Delhi on the ground that these schools are indulging in large scale commercialization ·or education since there was excess of income over expenditure under head tuition fee, the huge amount collected remained unspent and there is transfer of funds by the said schools to society/trust or B any other institution. Government appointed an inspection team which submitted a report High Court found irregularities in the management of accounts and directed that the tuition fees be utilized for payment of salaries of teachers and employees and also utilization of surplus under specific head of tuition C fees. It held that the Delhi School Education Act, 1973, and Delhi School Education Rules, 1973, framed thereunder prohibited transfer of funds from school to society/trust or to other schools run by same society/trust and appointed a Committee to examine economics of each of the recogniud unaided schools in Delhi. Aggrieved unaided recognized schools and action committee of unaided D private schools filed appeals in this Court. During pendency of the appeals, the Committee submitted its report. Director of Education accepted the same and issued directions under Section 23(4) read with Sections 18(4) and (S) of the Act to the effect that the Director of Education has authority to regulate quantum of fees charges by unaided schools; that fees/funds collected from E parents/students would not be transferred from the recognized unaided school fund to society or trust; and that the management is entitled to create Development Fund Account for which it is required to collect development fee not exceeding 10% of the total tuition fee. These directions are subject matter of the present appeals. Appellants-schools contended that the Government has no authority to regulate the fees payable by the students of unaided schools as indicated by Section 17(3) of the Act; that under Rule 177(1) income derived by unaided schools from fees shall be utilized firstly to meet salaries of employees and F the balance could be utilized to establish any other school or to assist any G other school or institution under the same management and as such the same being permitted by the legislature, the Director had no authority under clause (8) of the Order to restrain the school from transferring the funds from the Recognized Unaided School Fund to society/trust or any other institution and, therefore, clause (8) was in conflict with Rule 177; and that the Director has no authority to limit the development fees charged by the society/trust. H 670 SUPREME COURT REPORTS (2004] SUPP. 1 S.C.R. A Disposing of the appeals, the Court HELD: Per Kapadia J (For himself and V.N. Khare, CJ/): 1.1. The unaided educational institutions exercise a great autonomy in the matter of determination of the fee structure since like any other citizen B carrying on an occupation, they are entitled to a reasonable surplus for development of education and expansion of the institution. Such institutions have to plan their investment and expenditure so as to generate profit However, commercialization of education is prohibited. Hence, balance has to be struck between autonomy of such institutions and meas°:res have to be taken to prevent C commercialization of ~ducation. [684-F-G) 1.2. In the case of TMA Pai Foundation* this Court subject to the two prohibitory parameters that capitation fee and profiteering, was forbidden, held that fees to be charged by the unaided educational institutions cannot be regulated but there was no issue as to what constitutes reasonable surplus in D the context of the provisions of the Delhi School Education Act, 1973 before the Court Thereafter, as Union of India, State Governments and educational institutions understood the majority judgment in that case in different perspectives, five-judge bench was constituted in the case of Islamic Academy of Education** for clarification. With regard to the determination of the fee structure in private unaided professional educational institutions it was held E that there could be no rigid fee structure. Each institute must have freedom to fix its own fee structure, taking into account the need to generate funds to run the institution and to provide facilities necessary for the benefit of the students and not for any other use or for personal gains. [685-G-H; 686-A-B; E-F; H; 687-A) F 1.3. In the light of the judgment of this Court in the case of Islamic Academy of Education the provisions of 1973 Act and the Rules framed thereunder may be seen. The object of the Act is to provide better organization and development of school education in Delhi and for matters connected thereto. Section 18(3) states that in every recognized unaided school, there G shall be a fund cons~sting of income accruing to the school by way of fees, charges and contributions and under Section 18(4)(a) the income derived shall ·be utilized only for the educational purposes as may be prescribed by the rules. Rule 172(1) states that no fee shall be collected from any student by the trust/ society running any recognized school, whether aided or unaided; under subrule (2) fee shall be collected in the name of the school and under sub-rule H 173(4) every Recognized Unaided School Fund shall be deposited in a .· MODERN SCHOOL v. U.O:I. 671 nationalized bank. Under Rule 175, the accounts of Recognized Unaided A School Fund shall clearly indicate the income accruing to the school by way of fees, fine and income from rent, interest, development fees etc., which is accrual of income and Rule 177 refers to utilization of fees realized by unaided recognized school. Under Section 17(3), the school has to furnish a full statement of fees in advance before the commencement of the academic session. Therefore, reading Sections 18(4) and (4) with Rules 172, 173, 174, 175 and B 177 on one hand and section 17(3) on the other hand, it is clear that Director has the authority to regulate the fees under Section 17(3) of the Act and other charges to prevent commercialization of education. [687-B-F] *TMA Pai Foundation v. State of Karnataka, [2002) 8 SCC 481; C **Islamic Academy of Education v. State of Karnataka. (2003) 6 SCC 697 State of Bombay v. R.MD. Chamarbangwala, AIR (1957) SC 699 (199) 1 SCC 645 and Unni Krishnan, J.P. v. State of A.P. [1993) 1SCC645, referred to. Higher Education Law by David Palfreyman and David Warner Second Edition, referred to. D 2.1. In every non-business organization, like schools and hospitals, accounts are to be maintained on the basis of 'Fund Based System of Accounting'. Such system brings about transparency. Rules 172, 175, 176 and 177of1973 rules indicate the manner in which accounts are required to be maintained by the schools. Under Section 18(3) of the Act shows that E schools have to maintain Fund Based System of Accounting which shall consist of income by way of fees, fine, rent, interest etc. and shall form part of Recognized Unaided School Fund under Rule 175. Reading Section 18(3) with Rule 175, it is clear that each item of income shall be accounted for separately under the common head, namely, Recognised Unaided School Fund. Further, Rule 175 indicates accrual of income unlike Rule 177 which deals F with utilization of income. Rule 177 does not cover all the items of income mentioned in Rule 175. Rule 177 only deals with one item of income for the school, namely, fees. Rule 177(1) shows that salaries, allowances and benefits to the employees shall constitute deduction from the income in the first instance. That after such deduction, surplus if any, shall be appropriated G towards, pension, gratuity, reserves and other items of appropriations enumerated in Rule 177(2) and after such appropriation the balance (savings) shall be utilized to meet capital expenditure of the same school or to set up another school under the same management. Therefore, rule 177 deals with application of income and not with accrual of income. Rule 177 shows that salaries and allowances shall come out from the fees whereas capital H 672 SUPREME COURT REPORTS [2004) SUPP. 1 S.C.R. A expenditure will be a charge on the savings. [688-F-H; 689-A-CJ 2.2. Capital expenditure cannot constitute a component of the financial fees structure. It also shows that salaries and allowances are revenue expenses incurred during the current year and, therefore, they have to come out of the fees for the current year whereas capital expenditure/capital investments have B to come from the savings, if any, calculated in the manner indicated above. It is for this reason that under Section 17(3) of the Act, every school is requirCd to file a statement of fees which they would like to charge during the ensuing academic year with the Director. Having gone through the balance-sheets and profit and loss accounts of two schools and prima facie, it is found that schools C are being run on profit basis and that their accounts are being maintained as if they are corporate bodies. Therefore, it is directed that every recognized unaided school co,·ered by the Act shall maintain the accounts on the principles of accounting applicable to non-business organizations/not for profit organisations and file a statement of fees every year before the ensuing academic session under Section 17(3) of the said Act with the Director who D would analyse the statement under Section 17(3) of the Act applying the above stated principles. [689-A-D) 2.3. Under accounting principles, there is a difference between appropriation of surplus (income) on one hand and transfer of funds on the other hand. In the instant case, Rule 177(1) refers to appropriation.ofsavings E (income) and clause 8 of the Order of Director prohibits transfer of funds to any other institution or society. Further Rule 172 states that fee shall not be collected from the student by any trust or society but only for the school also supports the view. Therefore, reading Rules 172, 175 and 177, it is clear that appropriation of savings (income) is different from t!"ansfer offund. Under F clause 8, the management is restrained from transferring any amount from Recognized Unaided School Fund to the society or the trust or any other institution, whereas Rule 177(1) refers to appropriation of savings (income) from revenue account for meeting capital expenditure of the school. Therefore, tJtere is no conflict between Rule 177 and clause 8. (689-H; 690-A-CJ G 3. On account of increased cost due to inflation, the management is entitled to create Development Fund Account For creating such development fund, the management is required to collect development fees. In the instant case, pursuant to the recommendation of the Committee, the Director issued direction that development fees not exceeding 10% to 15% of total annual tuition fee shall be charged for supplementing the resources for purchase, H upgradation and replacement of furniture, fixtures and equipments and the MODERN SCHOOL v. U.0.1. 673 same shall be treated as Capital Receipt and be collected only if the school A maintains a depreciation reserve fund, which is appropriate. On going through the report of the Committee, one finds absence of non-creation of specified earmarked fund and further that depreciation has been charged without creating a corresponding fund. Therefore, the direction seeks to introduce a proper accounting practice to be followed by non-business organizations/notfor-profit organization. With this correct practice being introduced, B development fees for supplementing the resources for purchase, upgradation and replacements of furniture and fixtures and equipments is justified. Taking into account the cost of inflation between 15th December, 1999 and 31st December, 2003 the management of recognized unaided schools should be permitted to charge development fee not exceeding 15% of the total annual C tuition fee. [690-E-H; 691-A) 4. The interpretation placed on the provisions of the said 1973 Act is only to bring in transparency, accountability, expenditure management and utilization of savings for capital expenditure/investment without infringement of the autonomy of the institute in the matter of fee fixation. It is also to prevent D comQtercializatfon of education to the extent possible. (691-A-B) 5. The Director of Education would also ascertain whether terms of allotment of land by the Government to the schools have been complied with and in case of non-compliance, the Director would take appropriate steps. (692-B-C) E Per Sinha, J: (Dissenting): 1.1. In T.MA. Pai Foundation's* case this Court gave a new look to the concept of 'education' viz opening up of economy and concept of globalisation and held that establishment of a private educational institution ill a fundamental F right T.MA. Pai Foundation's case and Islamic Academy of Education's** case have merely forbidden profiteering. It would not be proper to impose any further restrictions in this behalf and interpret T.MA. Pai Foundation's case in a different way so as to take away some of the rights of the appellants which are recognized therein. [704-E; 705-F) G 1.2. The principles offixing fee structure of particular institutions have been illustrated in T.MA. Pai Foundation's case and Islamic Academy of Education's case but it must be borne in mind that those principles were laid down in absence of any statute operating in the field. Where, however, a statute operates in the field, regulation of education would be governed thereby. In H 674 SUPREME COURT REPORTS (2004] SUPP. l S.C.R. A the instant case, as the regulation of education is governed by a Legislative Act, the court cannot impose any other or further restrictions by travelling beyond the scope, object and purport thereof. (700-D-E] TMA. Pai Foundation and Ors. v. State of Karnataka and Ors., (2002] 8 SCC 481 and Islamic Academy of Education and Anr. v. State of Karnataka B and Ors., [20031 6 sec 697, followed. c Unni Krishnan, JP. v. State of A.P., (1993] 1SCC645, referred to. Black's Law Dictionary Fifth Edition; G.P. Singh Principles of Statutory Interpretation, Ninth Edition, 2004 pp. 120 - 122, referred to. 2. The need of the day is strict implementation and enforcement of the statute. Once the legislature has laid down an educational scheme, the jurisdiction of the court is merely to interpret the same. By reason of judicial direction this Court cannot override a statute or statutory rules governing the field and, thus, no dfrection can be issued contrary thereto or inconsistent D therewith except in some exceptional cases. This Court normally does not pass an order even in exercise of its jurisdiction under Article 142 of the Constitution which would be contrary to the law. [706-B-E] Government of West Bengal v. Tarun K. Roy and Ors., (2003) 9 SCALE E 671 and Jamshed Hormusji Wadia v. Board of Trustees, Port of Mumbai and Anr., (2004] 3 SCC 214, relied on. 3.1. Delhi School Education Act, 1973 and the Delhi School Education Rules, 1973, framed thereunder, provide for a complete code not only as regards regulation of education but also organisation and development thereof. F By reason of the provisions of the Act, school education, whether imparted in a government institution, a minority institution or an aided or unaided private institution, is sought to be regulated. The Act seeks to regulate education - necessary corollary whereof would be that education imparted in an individual institution may also be subjected to regulation. But any control or regulation over education or educational institution must be imposed only by a legislative G act and not by any executive instruction. (696-E, F] Union of India v. Naveen Jindal and Anr., (2004( 2 SCC 510, relied on. 3.2. In the instant case, pursuant to the directions issued by High Court as regards administration of a private institution as also fixation of fee, a H Committee was constituted. On the basis of the recommendations made by MODERN SCHOOL v. U.0.1. 675 the Committee, directions were issued purported to be in terms of sub-sections A (3) and (4) of Section 24 of the Act which is apparently beyond the scope and purport of the Act and the Rules as the directions thereunder can be issued only· for the purpose ofrectifying the defect and deficiencies found at the time of inspection or otherwise in the working of the school and n