New Green Field School vs. Government Of Nct Of Delhi

$~J-
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 24.02.2026
Judgment delivered on: 22.05.2026
+ W.P.(C) 7481/2017 & CM APPL. 30818/2017, CM APPL. 29247/2025

DELHI PUBLIC SCHOOL VASANT KUNJ AND ANR
..... Petitioners
Through:

versus

GOVT OF NCT OF DELHI AND ANR ..... Respondents

Through:

With

W.P.(C) Nos. 8071/2017, 8553/2017, 8970/2017, 10804/2017,
8231/2019, 11359/2017, 11445/2017, 14223/2021, 5786/2023,
8077/2018, 9586/2021, 10313/2018, 696/2019, 1144/2019,
1464/2019, 8073/2019, 1488/2019, 2745/2019, 3034/2019, 3041/2019,
3323/2019, 3847/2019, 3848/2019, 3853/2019, 3854/2019, 3855/2019,
3988/2019, 4010/2019, 4168/2019, 4178/2019, 4179/2019, 4576/2019,
4636/2019, 4659/2019, 4966/2019, 5309/2019, 5688/2019, 5820/2019,
5858/2019, 5868/2019, 5870/2019, 5873/2019, 5982/2019, 6358/2019,
5986/2019, 6000/2019, 6020/2019, 6156/2019, 6161/2019, 6225/2019,
6541/2019, 6543/2019, 6670/2019, 6673/2019, 6684/2019, 6707/2019,
7249/2019, 7724/2019, 8462/2019, 8559/2019, 9122/2019, 9444/2019,
9917/2019, 9923/2019, 10129/2019, 10130/2019, 10135/2019,
10136/2019, 11188/2019, 1311/2020, 11221/2019, 11275/2019,
11557/2019, 11595/2019, 11659/2019, 11973/2019, 12397/2019,
89/2020, 1104/2020, 1037/2020, 2013/2020, 5986/2020, 6053/2020,
6112/2020 12266/2021, 8243/2020, 10255/2020, 11570/2021,
13341/2021, 14916/2021, 14936/2021, 15086/2021, 1976/2022,
2095/2022, 2101/2022, 3219/2022, 3220/2022, 4605/2022, 6574/2022,
4606/2022, 6577/2022, 7506/2022, 7515/2022, 11095/2022,
11106/2022, 11110/2022, 11315/2022, 11653/2022, 11997/2022,
12003/2022, 12064/2022, 12232/2022, 12254/2022, 14284/2022,
15118/2022, 396/2023, 399/2023, 430/2023, 15119/2022, 15122/2022,
Signature Not Verified
Signed By:VIKAS
RAWAT
Signing
Date:22.05.2026 14:44

W.P.(C) 7481/2017 & connected matters Page 1 of 120

15754/2022, 15868/2022, 15872/2022, 16220/2022, 17102/2022,
17421/2022, 17462/2022, 599/2023, 1289/2023, 2202/2023,
2203/2023, 4034/2023, 4061/2023, 4318/2023, 4397/2023, 5211/2023,
5267/2023, 7111/2023, 7121/2023, 7574/2023, 7956/2023, 8246/2023

For Petitioners:-

Mr. Kamal Gupta, Mrs. Tripti Gupta, Mr. Sparsh Aggarwal, Mr.
Siddharth Arora, Advocates.
Mr. J.P. Sengh, Sr. Advocate with Mr. Pranav Rishi, Mr. Gaurav
Mishra and Ms. Sukriti Kamra, Advocates.
Ms. Diya Kapur, Sr. Advocate with Mr. Rishabh Sharma andMr.
Raghav Kumar and Ms. Ambica Sood, Advocates.
Mr. H.L. Tiku, Sr. Advocate with Ms. Yashmeet Kaur, Mr. Hitesh
Wadhwa and Mr. Rahul, Advocates.
Mr. Puneet Mittal, Sr. Advocate with Ms. Sakshi Mendiratta,
Advocates.
Mr. Pramod Gupta and Ms. Yogita and Yogita and Mr. Anushu,
Advocates.
Mr. Khagesh B. Jha with Ms. Jyoti Shokeen and Mr. Ankit Mann,
Advocates.
Mr. Divjyot Singh, Mr. Nipun Diwvedi and Mr. Prashant Kumar,
Advocates.
Mr. Arjun Garg, Advocate.
Ms. Gauri Puri, Advocate.
Ms. Apoorva Pandey and Ms. Soumya Singh, Advocates.
Mr. Hriman Dhaka, Advocate.
Mr. Pranav Gadi, Mr. Krishna Gaur, Ms. Pavi Maheshwari and Ms.
Ms. Shivani, Advocate.
Mr. Nitin Bhardwaj, Advocate.
Mr. Saurabh Chadda, Mr. Rohit Bhagat and Ms. Aprajita, Advocates.
Mr. Anurag Lakhotia and Mr. Udit Dwivedi, Advocates.
Mr. Vibhor Kush, Advocate.

For Respondents:-

Mr. Chetan Sharma, ASG, Mr. Sameer Vashisht, Standing Counsel,
GNCTD, Mr. Amit Gupta, Mr. Dhruv Rohtagi, Mr. Abhinav Sharma,
Mr. Chandrika Sachdev and Mr. Dhruv Kumar, Advocates.
Ms. Avni Singh, Panel Counsel for GNCTD with Mr. Gaurav,
Advocate.
Signature Not Verified
Signed By:VIKAS
RAWAT
Signing
Date:22.05.2026 14:44

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Mr. Tushar Sannu and Mr. Sourav Verma, Advocates in item No. 80.
Mr. Kamal Gupta and Mr. Sparsh Aggarwal, Advocates.
Ms. Shobhana Takiar, Standing Counsel with Mr. Kuljeet Singh and
Mr. Prateek Dhir, Advocates.
Mr. Puneet Mittal, Senior Advocate with Mr. Rupendra Pratap Singh,
Advocates.
Ms. Shikha Sharma Bagga, Advocate for respondent impleader.
Mr. Aranya Moulick and Ms. Namya Rishi, Advocates.
Mr. Anubhav Gupta, Panel Counsel.
Ms. Manika Tripathy, Standing Counsel for DDA and Mr. Ashutosh
Kaushik, Advocates.


HON’BLE MR. JUSTICE ANUP JAIRAM BHAMBHANI

J U D G M E N T
ANUP JAIRAM BHAMBHANI, J.

S. No. Particulars Page
No.
I. Overview
5
II. Submissions on behalf of the Schools
8
III. Submissions on behalf of the DoE & Parents’
27
Associations
IV. Re-Hearing as a consequence of promulgation of the
Delhi School Education (Transparency in Fixation
41
and Regulation of Fees) Act, 2025
V. Analysis, Discussion & Conclusions 42
VI. Answer to Point for Determination No. 2 49
VII. Answer to Point for Determination No. 4 79
VIII. Answer to Point for Determination No. 1 85
IX. Answer to Point for Determination No. 3 93
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X. Answer to Point for Determination No. 5 103
XI. Answer to Points for Determination Nos. 6, 7 & 8 114
XII. Summary of Decision 117

The present batch of cases illustrates with uncomfortable
clarity, how a public authority can persist in a course of action
that betrays studied indifference to both the letter of the law and
binding precedent.
There are instances, when upon conclusion of a prolonged and
full-dressed hearing, the court is left wondering whether there were at all
any issues that truly required adjudication, and which had not already
been decided earlier, in not one but several cases; and whether the entire
exercise conducted by the court was merely to re-articulate and reiterate
a settled legal position, since one of the parties had obstinately refused
to acknowledge and comply with that position. This batch of cases
presents one such instance.
2. At the end of an excruciatingly prolonged hearing, it turns-out that the
issues canvassed on behalf of the petitioner schools, and vigorously
contested by the Directorate of Education (‘DoE’) and certain parents’
associations, have been fully adjudicated and long-settled; but the sheer
recalcitrance on the part of the DoE to comply with the settled position
has compelled the schools to approach the court, yet again, since the DoE
has persisted in its follies, and has, in a sense, simply refused to accept
the law laid-down, not just by Co-ordinate Benches and by a Division
Bench of this court, but also more than once by Constitution Benches of
the Supreme Court.
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3. In the present batch of cases, the DoE has precipitated a huge round of
litigation only by reason of its plain refusal to obey the law as comprised
in the statute, and as authoritatively interpreted by the constitutional
courts.
I. O VERVIEW
4. The seed of the contention raised by the petitioner schools is that their
proposals for increasing fee from time to time have been arbitrarily and
unlawfully rejected by the DoE, thereby impinging on their right to run
private, un-aided, recognised schools with requisite financial autonomy;
and that the DoE’s actions have resulted in serious deleterious
consequences inter-alia leading to stagnation of development and
growth of their institutions.
5. After understanding the essence of the contestation between the parties,
this court had invited the parties to draw-up the points that, according to
them, arise for determination in the present batch of cases; and based on
the suggested points, vidé order dated 13.09.2023, this court had framed
the following points for determination:
“ POINTS FOR DETERMINATION

POINTS OF LAW :

1. Whether the orders/circulars/directions issued by the
Directorate of Education ( ‘ DoE ’ ) dealing with fee-hike proposals by
private, un-aided schools are in violation of principles of natural
justice, in that
1.1. these have been issued without affording an
opportunity of hearing to the schools;
1.2. these have been issued without making available
to the schools the recommendations for fee fixation made by
chartered accountants appointed by the DoE, which have
been relied upon by the DoE;
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1.3. these have been passed without issuing any show
cause notice to the schools in relation to the disallowances
that were proposed to be made by the DoE.

2. Whether the orders/circulars/directions are in excess of the
statutory powers of the DoE, in that
2.1. these are ultra vires the provisions of the Delhi
School Education Act, 1973 and/or the Delhi School
Education Rules, 1973;
2.2. these are in contravention of the law laid down by
the Supreme Court inter-alia in T.M.A. Pai Foundation &
Ors. vs. State of Karnataka & Ors.; P.A. Inamdar & Ors. vs.
State of Maharashtra & Ors.; Islamic Academy of Education
& Anr. vs. State of Karnataka & Ors.; Modern School vs.
UoI& Ors.; and by a Division Bench of this court inter-alia in
Delhi Abhivabhavak Maha Sangh & Ors. vs. Govt. of NCT of
1
Delhi & Ors. ;
2.3. these are beyond the DoE ’ s mandated role which
is to prevent profiteering or commercialisation by schools,
that is to say that the DoE may reject a fee-hike proposal only
after finding that the school is indulging in profiteering and/or
commercialisation;
2.4. these are beyond the regulatory functions of the
‘ ’
DoE as envisaged in the law.

3. Whether the directions issued and the disallowances made
by the DoE in relation to fee fixation are contrary to the provisions of
the Income Tax Act, 1961 and other taxation statutes, settled
accounting principles and guidance notes/practice directions issued
by the Institute of Chartered Accountants of India. More specifically,
whether school accounts are to be maintained on the
accrual/mercantile system of accounting or the cash system of
accounting.
4. Whether the DoE ’ s regulatory powers are different in
relation to schools that are not governed by a ‘ land-clause ’ or ‘ prior
approval clause ’ compared to those schools that are governed by such
clause.

POINTS ON SCHEME FOR FEE FIXATION :

5. Whether the orders/circulars/directions issued by the DoE
do not put in place a fair scheme for fee fixation, in that
‘ ’

1
Citations appear later in this judgment
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5.1. they do not allow a school to have a ‘reasonable
surplus’, to be applied for future growth, development and
expansion of the school, including for construction of school
buildings, or for addition or improvement of infrastructural
facilities, or for development/establishment of another
educational institution run by the same society/trust/body;
5.2. they do not allow a school to hike fee to meet
revenue expenditure (e.g., payment of salaries and allowances
etc.);
5.3. they direct that savings and income from previous
years retained by way of Contingency Reserve Fund,
Development Fund, Depreciation Reserve Funds, be applied
towards revenue expenditure, instead of being retained for
capital expenditure;
5.4. they do not allow a school to hike fee for
repayment of loans (and interest thereon) taken for
development of the school;
5.5. they do not allow a school to retain funds for
meeting statutory liabilities and obligations e.g., for payment
of gratuity, leave encashment, retiral benefits etc.; and treat
those monies as funds available for meeting revenue
expenditure;
5.6. they do not allow a school to charge ‘ earmarked ’
levies such as activities fee, smart-card fee, annual fee,
admission fee etc., as part of the fee payable by a student;
5.7. they do not allow a school to retain funds for
purchase of capital assets e.g., school buses, vehicles etc. for
use of students, staff and management of the school;
5.8. they do not allow fee collected to be applied
towards payment of salaries/remuneration of full-time
Chairman/Director/ Manager/ Consultant/Managing
Committee members;
5.9. they do not allow fee collected to be applied
towards payment of remuneration to a school ’ s employees at
rates higher than Government employees or more than
minimum wage;
5.10. they do not allow increase of more than 10% in
proposed budgetary expenses above the previous year ’ s
expenses;
5.11. they do not approve projected fee for an
Academic Session based on the statutorily audited balance
sheet of the school;
5.12. they add monies deposited pursuant to court
orders, lying under lien with the court, to the funds available
with a school for meeting revenue expenditure;
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5.13. they do not allow award of scholarships from
school funds, and direct that scholarships awarded be
recovered from the society/trust/body running the school;
5.14. they treat un-refunded caution money as part of
funds available with the school for meeting revenue
expenditure.

6. Whether the DoE is empowered to impose upon a school a
decision in relation to fee-hike that is contrary to the decision of the
school ’ s Managing Committee, taken by majority, on which
committee the DoE has its representatives.
7. Whether the DoE should be required to approve or reject
the statement of proposed fee submitted by a school in a time-bound
manner; and if so, within what time-line; and failing that, should the
proposed fee be deemed to have been approved.
8. Whether the fee-hike permitted by the DoE for a particular
Academic Session should be applicable from the first day of that
Academic Session; and not from the date of the order permitting the
increase. What should be the position in relation to fee-hike proposals
filed several years ago, that are still pending with the DoE.”

UBMISSIONS ON BEHALF OF THE SCHOOLS
II. S
6. The matter has gone through prolonged hearings, during which learned
counsel appearing for the various schools have articulated their
submissions on the issues involved at great length. The submissions
made on behalf of the petitioner schools may be summarised as follows:
6.1. The invariable refrain of all schools represented in the present
batch of cases is that they are private, un-aided, recognised
schools and have a fundamental right under Article 19(1)(g) of the
Constitution of India to run their own institutions as part of the
right “ to practise any profession, or to carry on any occupation,
trade or business ”, with significant autonomy, including
autonomy relating to their fee structures.
6.2. It has been submitted that under the Delhi School Education Act,
1973 (‘DSE Act’), the DoE’s regulatory powers in relation to
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fixation of fee are restricted only for preventing
‘ commercialisation ’ and ‘ profiteering ’; and unless there is a
finding that a particular school was indulging in such practices,
the DoE cannot interfere with a school’s fee structure.
6.3. It has further been argued that as per the wording and scheme of
Rule 177 of the Delhi School Education Rules, 1973 (‘DSE
Rules’) the income derived by an un-aided, recognised school
through the fee collected from students must first be applied
towards payment of salaries and other allowances to its
employees; and the remaining funds are to be allocated for
pension, gratuity and the school’s expansion and development
plans; and thereafter, the savings, if any , are permitted to be spent
for establishing other recognised schools under the umbrella of the
same society or trust, as detailed in the various sub-rules of Rule
177.
6.4. It has also been argued that a school is permitted to maintain a
reasonable surplus of upto 15% for the growth and development
of the institution; and retention of a reasonable surplus does not
constitute profiteering by the school.
6.5. It has also been the submission of the schools that the DoE has
made no effort, in any of the cases, to calculate whether the surplus
funds held by a school amounted to a reasonable surplus , which
is permissible in light of various judgments of the Supreme Court;
and without doing so, the DoE has proceeded to infer that the
schools were indulging in profiteering and commercialisation and
has thereby arbitrarily disallowed schools from raising their fee.
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7. In support of the foregoing submissions, the petitioner schools have
placed reliance on the following judicial precedents: T.M.A. Pai
2
Foundation & Ors. vs. State of Karnataka & Ors. ; P.A. Inamdar &
³
Ors. vs. State of Maharashtra & Ors. ; Islamic Academy of Education
4
& Anr. vs. State of Karnataka & Ors. ; Modern School vs. Union of
5
India & Ors. ; Cochin University of Science and Technology & Anr.
6

vs. Thomas P. John ; Indian School, Jodhpur & Anr. vs. State of
7

Rajasthan & Ors. ; Delhi Abhivabhavak Maha Sangh & Ors. vs.
8
Union of India (‘DAM-I’); Delhi Abhivabhavak Maha Sangh & Ors.
9
vs. Govt. of NCT of Delhi & Ors. (‘DAM-II’); Action Committee vs.
10
Directorate of Education & Ors. ; Ramjas School vs. Directorate of
11

Education ; Mahavir Sr. Model School & Anr. vs. Directorate of
12
Education; and Bluebells School International Kailash vs.
13
Directorate of Education .
8. Insofar as maintenance of their accounts is concerned, learned counsel
for the petitioner schools have argued, that their schools have been set-
up and are run either by a ‘society’ or a ‘trust’ working for a ‘charitable
purpose’, as per the relevant statutes; and have been granted

2
(2002) 8 SCC 481

3
(2005) 6 SCC 537

4
(2003) 6 SCC 697
5
(2004) 5 SCC 583
6
(2008) 8 SCC 82
7
(2021) 10 SCC 517
8
1998 SCC OnLine Del 809
9
2011 SCC OnLine Del 3394
10
2019 SCC OnLine Del 7591
11
2020 SCC OnLine Del 1776

12
2023 SCC OnLine Del 1587

13
2024 SCC OnLine Del 1017

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‘recognition’ in terms of Rule 50 of the DSE Rules; and that none of the
schools is being run as a ‘for-profit institution’.
9. It has been argued that since under section 2(15) of the Income-tax Act,
1961 (‘IT Act’) ‘charitable purpose’ is defined to include ‘education’, the
societies and trusts that run the schools are entitled to certain exemptions
under sections 11 and 12 of the IT Act. For this purpose, the books of
accounts of the society or trust are prepared in-line with what is
prescribed in section 12A(1)(b) of the IT Act read with Rule 17AA of
the Income-tax Rules, 1962 (‘IT Rules’).
10. It has been pointed-out furthermore, that schools are required to submit
returns to the DoE in terms of Rule 180 of the DSE Rules, and the books
of accounts of a school are prepared and audited on behalf of the Director
of Education in terms of Rule 50(xviii) read with Rule 180 of the DSE
Rules. This is done to enable the DoE to monitor the functioning of a
school for purposes of continuing the ‘recognition’ of the school under
the DSE Act. It has been submitted that this is different from the books
of accounts of the society or trust (that has set-up the school) which are
prepared under the IT Act, with the purpose of assessing the income of
the society or trust for taxation. It has been submitted that though there
is no conflict between the preparation of accounts under the DSE Act
and under the IT Act, the purpose of submission of the school’s returns
to the DoE is different from the purpose of submission of the society’s or
trust’s returns to the Income Tax Department.
11. In the above backdrop, learned counsel appearing for the petitioner
schools have explained that the procedure adopted by the DoE in
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scrutinising the fee-hike proposals submitted by private, un-aided,
recognised schools is the following:
11.1. As a practice which is contrary to the law, the DoE compels
schools to file their proposals seeking permission for increasing
their fee for an ensuing academic session, even though there is no
requirement in law for a school to seek prior approval for fee
increase at the commencement of an academic session ;
11.2. The DoE then engages a team of chartered accountants, who asks
for documents and other relevant information from schools to
justify the fee-hike;
11.3. Thereafter the DoE’s chartered accountants schedule meetings

with the schools for discussions of their fee-hike proposals and
prepare a report containing the chartered accountants’
recommendations, which report is submitted to the DoE; and
11.4. Invariably, the DoE adopts such report and rejects the fee-hike
proposals made by the schools.
12. It has been argued that the foregoing procedure adopted by the DoE is
completely illegal, since it is contrary to the provisions of the DSE Act
and the DSE Rules, apart from being violative of the principles of natural
justice for the following reasons:
12.1. No show-cause notice or other written communication is issued to
the schools before an order is passed by the DoE rejecting fee-hike
proposals submitted by the schools;
12.2. No hearing is granted by the Director of Education , who passes
the rejection order, at any stage; it being emphasised that the
discussion held by the DoE’s chartered accountants with a school
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while scrutinising the fee-hike proposal is not a substitute for a
hearing by the Director who passes the rejection order; and
12.3. The rejection orders passed by the DoE are one-sided and
unreasoned, so much so that typically they do not even record the
submissions made by a school during the meetings with the DoE’s
chartered accountants; and if at all any submissions are partly
recorded, they are summarily rejected.
13. In support of their submissions, learned counsel for the petitioner schools
have placed reliance on the following judicial precedents: Kothari
Filaments & Anr. vs. Commissioner of Customs (Port), Kolkata &
14
Ors. ; Reliance Industries Limited vs. Securities and Exchange Board
15

of India & Ors. ; Automotive Tyre Manufacturers Association vs.
16

Designated Authority & Ors. ; Bal Bharati Public School vs.
17

Directorate of Education ; Ramjas School ; and Mahavir Sr. Model
School .
14. It has also been pointed-out that though the judgment of the Supreme
Court in Modern School and connected matters imposes a duty on the
DoE to ensure that schools comply with the terms of allotment of land
to them by the government, that ruling does not purport to confer on the
DoE any additional powers beyond the powers vested in them under the
DSE Act. The argument is that the powers of statutory bodies are
derived, controlled and restricted by the statute which create them, and
by the rules and regulations framed thereunder. In support of this

14
(2009) 2 SCC 192 at paras 13-18
15
2022 SCC OnLine SC 979 at paras 47 & 51

16
(2011) 2 SCC 258

17
2019 SCC OnLine Del 6940 at paras 31-32 & 35-41

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submission, reliance has been placed by the schools on Sukhdev Singh
18
& Ors. vs. Bhagatram Sardar Singh Raghuvanshi & Anr.
15. More specifically, to illustrate the manner in which the DoE goes about
assessing the financials of a school, resulting in rejection of their fee-
hike proposals, learned counsel have explained the DoE’s view on
certain major heads of accounting, arguing that the DoE’s perspective is
wholly misconceived, baseless, and illegal. In particular, attention has
been drawn to the following heads of accounting and the manner in
which they are assessed by the DoE.

16. ONTINGENCY ESERVE UND : Counsel have explained that in almost
C R F
all the impugned orders, the DoE has treated the money retained by a
school in its Contingency Reserve Fund as part of the ‘funds available’
to the school, and has thereby rejected the school ’s proposal for
increasing its fee. It has been submitted that the rationalé for maintaining
a Contingency Reserve Fund is to provide a buffer or reserve for
unforeseen exigencies that the school may face; and such reserve
provides financial stability to a school and ensures that there is no
shortfall in the availability of funds if an exigency arises. It has been
pointed-out that Rule 177(2)(e) of the DSE Rules mandates that a school
must maintain a reasonable reserve fund of not less than 10% of its
savings (referred-to by some schools as the Contingency Reserve Fund);
however, the DoE ignores this provision and adds the money lying in the
contingency reserve fund of a school to the ‘funds available’ with the
school; and thereby rejects the school’s fee-hike proposal. The schools

18
(1975) 1 SCC 421

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have also referred to the reports of Justice Anil Dev Singh Committee,
in which the committee has opined that schools must maintain a
Contingency Reserve Fund equivalent to four months’ salary and
allowances of employees for any unforeseen contingencies.
17. It has been submitted that in certain other cases, the DoE has disallowed
a school from maintaining a Contingency Reserve Fund, observing that
since the fund was not maintained in the joint names of the Deputy
Director of Education and the Manager of the school, as per Form-II
appended to the Delhi Right of Children to Free and Compulsory
Education Rules, 2011 (‘Delhi RTE Rules’), the fund has not been
maintained as per the requirements of the rules. It has been argued that
the DoE’s objection that the Contingency Reserve Fund must be
maintained in the joint names of the Deputy Director of Education and
the Manager of a school is misconceived, since Form-II appended to the
Delhi RTE Rules is not applicable to a school established prior to the
enactment of the Right of Children to Free and Compulsory Education
Act, 2009 (‘RTE Act’). It has been pointed-out, that as per Rule 14, a
school established prior to the commencement of the RTE Act is deemed
to be recognised under section 18 of the RTE Act; and such a school is
only required to make a self-declaration in Form-1(A) appended to the
Delhi RTE Rules, which does not contain any condition that the
contingency reserve fund must be maintained in the joint names of the
Deputy Director of Education and the Manager of the school. It has
accordingly been argued that Form-II applies only to a school established
after the commencement of the RTE Act or to an unrecognised school.
Furthermore, it has been argued, that as per Rule 173 of the DSE Rules,
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every fund of the school is required to be kept “ in the name of the
school ”; and no provision of the DSE Rules envisages that the DoE
would have a lien on the funds collected by a private, un-aided,
recognised school; which would effectively be the consequence if the
Contingency Reserve Fund of a school is held jointly with the Deputy
Director of Education.
18. D EVELOPMENT F UND : Counsel have submitted that furthermore, the
DoE’s stand is that if the Development Fund maintained by a school is
not utilised, or if in the DoE ’ s opinion , the Development Fund is more
than what the DoE considers is the school’s requirement, the money
lying in the Development Fund is also to be treated as ‘funds available ’
with the school to meet its revenue expenditure like salaries, allowance,
etc. Reference in this regard has been made to impugned order dated
30.11.2018 that is subject matter of W.P.(C) No. 1464/2019 concerning
N.K. Bagrodia Public School, Ahinsa Marg, Sector-9, Rohini, New
Delhi, where the DoE has taken this view.
19. Counsel have explained, that the Development Fund maintained by a
school comprises the ‘development fee’ collected from students, which
is an ‘earmarked fee’ collected for purchase, upgradation and
replacement of fixed assets; and the fee so collected cannot be diverted
to meet revenue expenditure. It has been contended that any such
diversion would violate section 18(4)(b) of the DSE Act read with Rules
175 to 177 of the DSE Rules, as well as the verdict of the Supreme Court
19
in Modern School . Furthermore, it has been pointed-out, that by the

19
cf. para 25

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very nature and purpose of the fund, money is to be accumulated in the
Development Fund on a long-term basis, to be utilised by a school, as
and when required, for major developmental work, which the DoE
cannot object to.
20. It has been pointed-out, that an earlier proposal made by the DoE
directing schools to divert earmarked/designated/restricted funds, such
as Development Fund, towards the general fund for paying increased
th
salaries due to implementation of the 7 Central Pay Commission did
not receive the approval of the Hon’ble Lieutenant Governor of Delhi,
and was never officially issued by the DoE, which points to the
impermissibility of diversion of such funds.

EPRECIATION ESERVE UND
21. D R F : Furthermore, it has been pointed-out
that the DoE also counts the money lying in the Depreciation Reserve
Fund maintained by a school in the ‘funds available’ with the school,
which is entirely impermissible and illegal. It has been submitted that
maintaining a Depreciation Reserve Fund is a mandatory pre-condition
for charging development fee; it is a real, actual, capital fund, which
includes the depreciation charged by a school for multiple years; and
under section 18(4)(b) of the DSE Act read with Rule 176 of the DSE
Rules, it is impermissible to divert monies from the Depreciation
Reserve Fund to meet any revenue expenditure. It has been argued that
though the fund is maintained by schools in actual form, that is to say
backed by money in the bank , the DoE disallows deduction of the money
lying in the Depreciation Reserve Fund while calculating the ‘funds
available’, taking the position that the Depreciation Reserve Fund
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represents only a notional entry and it is not required to be backed by
actual money in the bank.
RATUITY EAVE NCASHMENT THER ETIREMENT ENEFITS
22. G , L E & O R B &

L IABILITIES : It has been submitted that gratuity and leave encashment
liabilities are statutory obligations, which a school must discharge as and
when required, independent of their depiction in financial statements, in
actuarial valuation reports, and irrespective of whether the money is kept
in bank fixed deposit receipts or in Life Insurance Corporation of India
(‘LIC’) policies. Counsel have pointed-out that even if such funds are
not invested with the LIC, the DoE cannot treat these funds as part of the
‘funds available’ with a school for payment of salaries and allowances.
It has been submitted that since schools do not have enough funds
available for fulfilling their gratuity and leave encashment liabilities,
they must be permitted to revise their fee structure from time-to-time
commensurate with the requirements for maintaining such funds.
23. It has been clarified, that under Rule 177(2) of the DSE Rules there is no
prescribed sequence or hierarchy amongst expenses and expenditures,
and each head of expense/expenditure holds equal importance.
24. It has also been submitted, that all else apart, the orders passed by the
DoE on fee-hike proposals are arbitrary and discriminatory, reflecting a
‘pick-and-choose’ approach, since in some cases the DoE has
disallowed schools from maintaining gratuity and leave encashment
funds, whereas in others the DoE has allowed a school to maintain
gratuity and leave encashment funds without counting those funds
towards ‘funds available’ with the school, but only with a condition that
the school must deposit the gratuity and leave encashment funds with the
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LIC or in some other plan-assets. It has been pointed-out that in its
reports, Justice Anil Dev Singh Committee had considered this aspect
and allowed the entire retirement benefit liability of a school to be
deducted from the ‘funds available’ with a school, without imposing any
precondition whatsoever, whether of depositing such money with the
LIC or otherwise, thereby acknowledging that the said liability is
statutory in nature and a school cannot escape it in any circumstances.
25. The petitioner schools have submitted that the objections raised by the
DoE and its chartered accountants are merely an attempt to artificially
inflate and show availability of non-existent funds with the schools; and
the fact is that salaries and allowances cannot be paid out of monies
specifically earmarked for payment towards gratuity, leave encashment,
and other retiral benefits and liabilities.
ARMARKED EVIES
26. E L : It has been submitted that section 18 of the DSE
Act read with Rules 175 to 177 of the DSE Rules does not impose any
restriction or condition on a school collecting ‘earmarked levies’ from
all students enrolled in the school; and no provision in the DSE Rules
mandates that earmarked levies can only be charged from some students.
Furthermore, it has been the schools’ submission that the provisions of
DSE Rules envisage charging of earmarked levies based on the nature,
purpose, and object of the levy and the service to be provided in return;
and an earmarked levy is not based on the number of students who avail
a service. Accordingly, it has been submitted that it is the purpose of a
levy, and not its nomenclature , that determines its character as an
earmarked levy. For instance, it has been argued, that ‘development fee’
is an earmarked levy intended specifically for the purpose of the future
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development of a school, which does not cease to be an earmarked levy
merely because it is collected from all students. It has been submitted
that the purpose or nature of earmarked levies is associated with the
running of the school, whether related to its curricular or extra-curricular
activities; and the nomenclature of a particular levy cannot be the
determining factor for its permissibility.
27. The submission has been, that in several instances, the DoE has included
the monies received towards earmarked levies in the ‘funds available’
with a school; while at the same time, the DoE has sought to prohibit
collection of those very earmarked levies by a school.

28. The petitioner schools have submitted that the DoE has faulted the

collection of earmarked levies, putting it at par with collecting capitation
fee, which is in the teeth of the definition of Capitation Fee under section
20
2(b) and section 13 of the RTE Act.
29. The petitioner schools have further submitted that section 13 of the RTE
Act is completely inapplicable and cannot be a basis to invalidate the
charging of earmarked levies, since that provision bars only such heads
of fee which have not been notified by a school in its fee structure. It has
been submitted however, that all earmarked levies charged by a school

20
2. Definitions.— In this Act, unless the context otherwise requires,—
(b) “ capitation fee” means any kind of donation or contribution or payment other
than the fee notified by the school;
13. No capitation fee and screening procedure for admission.—

(1) No school or person shall, while admitting a child, collect any capitation fee

and subject the child or his or her parents or guardian to any screening procedure.
(2) Any school or person, if in contravention of the provisions of sub-section (1),—
(a) receives capitation fee, shall be punishable with fine which may extend to ten
times the capitation fee charged;
(b) subjects a child to screening procedure, shall be punishable with fine which
may extend to twenty-five thousand rupees for the first contravention and fifty thousand
rupees for each subsequent contraventions.
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are duly included by the schools in their statement of fee filed under
section 17(3) of the DSE Act. It has further been pointed-out, that the
revenue collected against earmarked levies is duly reflected and
accounted-for as ‘income’ in the financial statements of a school and the
expenses incurred therefrom are also duly reflected.
30. Lastly, it has been submitted, that the DoE has deliberately
misinterpreted the phrase that schools must be run on a ‘no-profit no-
loss’ basis, despite courts having repeatedly defined and explained that
phrase in numerous decisions. It has been pointed-out that the phrase
does not mean that schools may not generate a reasonable surplus or
profit for the growth and expansion of the institution; and mere existence
of a surplus or profit does not in itself amount to ‘profiteering’ .
AYMENT OF EMUNERATION TO HAIRMAN ETC
31. P R C .: In relation to
schools paying remuneration for services rendered by a full-time
chairman, or by directors, managers, consultants, professionals and
managing committee members, learned counsel have submitted, that the
DoE disallows any payments being made to persons holding such posts
on the ground that since no such posts exist in government schools, such
posts in private schools can only be ‘honorary’ and no payment can be
made to persons holding such posts. Moreover, it is the DoE ’s stand that
the only paid posts that can be created in a private school are those which
exist in a government school.

32. Counsel have further submitted that on a conjoint reading of section 2(m)
of the DSE Act and Rule 59(2)(n) and Rule 91(1) of the DSE Rules, only
a ‘manager’ of an aided school is not entitled to any remuneration,
honorarium or allowance; but a private, un-aided school is entitled to
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pay all its officers and employees, commensurate with their
qualifications and merit, including its manager provided the manager is
not also the head of the school.
33. It has been submitted that the DoE’s disallowance of remuneration being
paid to persons holding the afore-mentioned posts is illegal, arbitrary,
mischievous and wholly without jurisdiction. Counsel have submitted
that there is no provision either in the DSE Act or the DSE Rules which
prohibits payments to well-qualified individuals employed by an un-
aided private school. In support of this submission, counsel have drawn
attention to report dated 14.06.2019 of Justice Anil Dev Singh
Committee in relation to Tagore International School, which report says
that there is no bar on payment of salary even to a trustee, if they are
21
properly qualified and are rendering useful service to the school. It has
also been pointed-out, that while disallowing the salary paid to
individuals holding the aforementioned posts in the impugned orders, the
DoE has nowhere said that such persons are not competent, or qualified,
or that they have not rendered useful services to the school
commensurate with the remuneration paid to them. Furthermore, it has
been argued that one possibly cannot compare the need for a private, un-
aided school to engage persons to manage the school with that of a

21
“ In this case, there is no direct transfer of funds from the school to the parent trust. What has happened is
that two of the Trustees have been paid salaries out of the school fund. The Ld. Counsel is right in contending
that there is no bar under the law on employment of a member of the Managing Committee (Trustee) in the
school. What has to be guarded is that the school funds may not go into the coffers of the persons who are
running the trust or the society. If the trustees are properly qualified and are paid remuneration which is
commensurate to their qualification and they are rendering useful services to the school, no objection can
be taken to payment of salary to them merely for the reason that they happen to be the trustees of the parent
trust. However, if it is found that the transfer of funds to the trust is being disguised as salary to the trustees
who render no service to the school, such payments would be considered as disguised transfers. ” (page 19
of the report)

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government school, since typically government schools are managed by
officers who are already on the rolls of the DoE, whereas private schools
have to set-up their own managements.
34. P AYMENT OF R EMUNERATION H IGHER THAN G OVERNMENT S CHOOLS :
Learned counsel for the petitioner schools have also raised the grievance,
that relying upon Rule 107 of the DSE Rules, the DoE objects if a
private, un-aided, recognised school pays remuneration to its employees
at a rate higher than what government schools are paying.

35. In this behalf, attention has been drawn to section 10(1) of the DSE Act,
which reads as follows :

10. Salaries of employees.— (1) The scales of pay and
allowances, medical facilities, pension, gratuity, provident fund and
other prescribed benefits of the employees of a recognised private
school shall not be less than those of the employees of the
corresponding status in schools run by the appropriate authority:
Provided that where the scales of pay and allowances,
medical facilities, pension, gratuity, provident fund and other
prescribed benefits of the employees of any recognised private school
are less than those of the employees of the corresponding status in the
schools run by the appropriate authority, the appropriate authority
shall direct, in writing, the managing committee of such school to
bring the same up to the level of those of the employees of the
corresponding status in schools run by the appropriate authority:
Provided further that the failure to comply with such direction
shall be deemed to be non-compliance with the conditions for
continuing recognition of an existing school and the provisions of
Section 4 shall apply accordingly.
(emphasis supplied)
36. Attention has also been drawn to Rule 107 of the DSE Rules, which is
also relevant for this issue, and reads as follows:

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107. Fixation of pay.–
(1) The initial pay of an employee, on first appointment, shall
be fixed ordinarily at the minimum of the scale of pay:
Provided that a higher initial pay, in the specified scale of
pay, may be given to a person by the appointing authority :
Provided further that no higher initial pay shall be granted in
the case of an aided school except with the previous approval of the
Director.
(2) The pay of an employee on promotion to a higher grade or
post shall be determined by the same rules as are applicable to the
employee of Government school.
(emphasis supplied)
37. Counsel have submitted, that on a plain reading of section 10(1) of the

DSE Act, it is clear that an employee of a recognised, private school
cannot be paid salary that is less than what an employee of a
corresponding status receives in a government school; but there is no bar
if a recognised, private school pays its employees more than what is
being paid in a government school. Furthermore, it has been argued that
Rule 107 of the DSE Rule cannot be read so as to supersede section 10;
and all that Rule 107 says is that the initial pay of an employee must
ordinarily be fixed at the minimum scale of pay.
22

38. Relying on the observations of the Supreme Court in T.M.A Pai,
counsel have argued that private schools are to be granted maximum
autonomy in the administration and management of their day-to-day
affairs, without any interference by the DoE. If private schools are
prohibited from paying their teachers and staff salaries higher than those
received by similarly placed employees in a government school, that

22
cf. paras 56 & 61

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may disincentivise excellence and reduce private schools to a level of
mediocrity and stagnation.
NORDINATE DELAY IN O PASSING ORDERS ON FEE HIKE PROPOSALS
39. I D E - :
Another grievance raised by the petitioner schools is that in several cases
the DoE passes orders, whether rejecting or accepting fee-hike
proposals, after inordinate delay of the schools having submitted their
statement of fee, which causes serious prejudice to the functioning of the
institutions.
40. Relying on the decision of the Supreme Court in Action Committee , the
petitioner schools have contended that schools cannot be expected to
wait ad-infinitum before the statement of fee submitted by them is
examined by the DoE, especially when there is no legal obligation upon
them to obtain prior approval from the DoE for increasing their fee at
the commencement of an academic session. It has been argued that the
inordinate delay on the DoE’s part to either accept or reject a fee-hike
proposal, in itself creates huge complications in the financial
management of the school, since it is nearly impossible for a school to
either levy or collect increased fee retrospectively.
41. T REATMENT OF ‘ LAND - CLAUSE ’ SCHOOLS : Coming next to the case of
private, un-aided, recognised that have a ‘land-clause’ in the allotment
letters by which they were allotted land, the petitioner schools have
explained, that a ‘land-clause’ is merely a contractual condition inserted
by the land-owning/land-administering agency while allotting land to a
school; and is therefore, at best, a contractual requirement imposed by a
third party saying that the school must take prior approval of the DoE
before increasing its fee. It has been argued however, that such
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requirement is not a statutory mandate imposed upon the school. It has
been submitted that the ‘land-clause ’must be read in harmony with the
statutory scheme of section 17(3) of the DSE Act and the mandate of
Article 19(l)(g) of the Constitution. It has been pointed-out, that in fact,
the typical ‘land-clause’ itself stipulates compliance with the DSE Act
and the DSE Rules.
42. In this context, attention has also been drawn to the decision of the
23
Division Bench of this court in DAM-II and of a Co-ordinate Bench in
Action Committee , where it has been held that section 17(3) of the DSE
Act strikes a balance between the right of a private, un-aided, recognised
school to collect fee and the statutory duty of the DoE to regulate the
same. It has been held, that while a school does have the right to fix a
reasonable fee structure and increase its fee, it can do so without prior
approval of the DoE only if the school files its full statement of fees with
the DoE before the commencement of an academic session. However,
the school must take prior approval from the DoE if it proposes to
increase its fee, during an ongoing academic session, beyond what is
declared in the statement of fees filed with the DoE. It has been observed
that the filing of the statement of fees by a school enables the DoE to
regulate the fees; and it is this ‘balance’ that renders the restriction
contained in section 17(3) on un-aided schools reasonable and
constitutionally valid under Article 19(l)(g). Thus, it has been argued that
a school as well as the DoE must comply with the ‘land-clause’ within

23
cf. paras 61-65

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the framework and discipline of the ‘balancing’ provision of section
17(3) and not de-hors that provision.
ECOVERY OF ARREARS OF FEE FOR COVID PERIOD
43. R -19 : Specifically in
relation to the period of the COVID-19 pandemic, the petitioner schools
have contested the DoE’s claim that recovering arrears of fee for that
period would be improper, submitting that this stand taken by the DoE
is baseless, and curtails a school’s right to receive fee for education
imparted, during the COVID-19 period, especially since simultaneously
the DoE also insists that a school must pay full arrears of salary to its
teachers for that period; and that a school must also implement the pay
commission recommendations for increased salaries; and manage
inflation, all of which is impossible without timely increase of fee.
ONTROLLING SCHOOLS THROUGH CIRCULARS COMMITTEE
44. C &
REPORTS
: On a broader argument, the schools have submitted that their
functioning must be governed by the provisions of DSE Act and DSE
Rules, and the law as laid down by the courts, and not by circulars or
committee reports issued from time-to-time by the DoE, which are
inconsistent with such statutory provisions and judicial pronouncements.
It has further been submitted that the DoE cannot interfere with the
schools’ fundamental right to maximum autonomy in managing and
administering their day-to-day affairs.
III. S UBMISSIONS ON B EHALF OF THE D O E & P ARENTS ’

A SSOCIATIONS
45. On the other hand, the DoE has vigorously challenged the contentions

raised by the petitioner schools. Learned counsel who have appeared on
behalf of the parents’ association have adopted and supplemented the
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submissions made by the DoE. For sake of brevity and convenience, the
submissions made on behalf of the parents’ association have been
subsumed in the DoE’s submissions. The summary of the submissions
made by the learned ASG on behalf of the DoE is the following:
45.1. The DoE has argued that as per the extant position of law, schools
are required to seek prior permission of the DoE before increasing
their fee at any point in time. Furthermore, it has been submitted
that in its judgment dated 19.01.2016 passed in Justice for All vs.
24
Govt. of NCT of Delhi & Ors. a Division Bench of this court
had directed the DoE to ensure strict compliance with the terms of
allotment signed by private, un-aided, recognised schools under
which land was allotted to them by the Delhi Development
Authority (‘DDA’) or other land-owning/land-administering
agencies. The DoE has submitted that the court has also
emphasized the need for regulatory oversight by the DoE in
matters relating to fee-hike, pointing-out that this issue is
intrinsically linked to the public-interest obligation of schools
arising from concessional allotment of land to them.
45.2. It has been submitted that in compliance of the aforesaid
judgment, vidé order dated 16.04.2016, the DoE had issued
directions to all private, un-aided, recognised schools situate on
government land with a condition in their allotment letters to seek
prior approval of the DoE before increasing their fee, to
mandatorily submit their proposals for any intended fee-hike for

24
2016 SCC OnLine Del 355
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the academic session 2016-2017, through online module latest by
31.05.2016. Thereafter, vidé order dated 03.06.2016, the DoE
constituted a panel of chartered accountants for a period of 01
year, to scrutinize the financial records and conduct inspections of
private, un-aided, recognised schools, particularly those which
were allotted land by the DDA, to verify the justifiability and
transparency of the proposals submitted for fee enhancement.
Subsequently, vidé order dated 20.07.2016, the DoE reaffirmed
and operationalized the authority of the empaneled chartered
accountants to carry-out special inspections of private, un-aided,
recognised schools on the terms enclosed with order dated
20.07.2016.
45.3. Also, vidé order dated 22.07.2016, the DoE directed special
inspections of 82 private, un-aided, recognised schools, which had
submitted proposals for fee increase for the academic session
2016-2017, with a further categorical direction that inspections
shall be conducted by qualified, independent chartered
accountancy firms duly empaneled by the DoE, to ensure
expertise, objectivity and neutrality during the scrutiny process.
45.4. It has also been submitted that a decision was taken by the DoE
that the inspection reports submitted by the chartered accountants
would be subject to review by the Project Management Unit
(‘PMU’) set-up by the DoE; thereby putting in place a layered
review mechanism, as part of a robust regulatory framework to
prevent any unjustified or arbitrary fee-hike by private, un-aided,
recognised schools. Vidé letter dated 31.08.2016, the DoE
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conveyed its intention to operationalize the PMU through M/s.
Ernst & Young LLP (‘E&Y LLP’); and on 31.08.2016 E&Y LLP
accepted the work-order and confirmed its engagement to provide
skilled manpower to the DoE on a hired basis for the said purpose.
45.5. It has been submitted by the DoE that the PMU mechanism was
set-up by the DoE to ensure financial transparency and for
safeguarding the interests of students and parents. By that
mechanism the recommendations of the chartered accountancy
firms’ as well as the school’s financial submissions (including
their audited financial statements and proposed budget for 2016-
2017) were subject to a second-level expert scrutiny by the PMU
comprising financial experts from E&Y LLP.
45.6. It has been argued that upon detailed examination and financial
review of the Inspection-cum-Audit Reports, the PMU rejected
the fee-hike proposals of several petitioner schools; and
recommended that no increase in fees should be allowed for the
session 2016-2017, since the total funds available with those
schools for Financial Year 2016-2017 were sufficient for their
purposes, even after accounting for all projected expenses.
45.7. The DoE has submitted, that additionally, vidé order 04.10.2016
the DoE also constituted a committee comprising senior officers
of the DoE and experienced accounts personnel from their
department, to provide for a third-level scrutiny, which committee
conducted a comprehensive assessment of the schools’ financial
documents and records. Upon meticulous evaluation, this
committee prima-facie found financial irregularities and
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deficiencies in the records of the petitioner schools, and also
observed that the schools possessed sufficient surplus funds to
meet their operational expenses for the academic session 2016-
2017 without necessitating any hike in tuition fee.
45.8. Accordingly, the proposals submitted by the schools for
enhancement of fee for the academic session 2016-2017 were
formally rejected by the Director (Education) after considering the
inspection-cum-audit reports submitted by the chartered
accountancy firms, the PMU review reports, and the findings
given by the internal committee constituted vidé order dated
04.10.2016.
45.9. Lastly it has been submitted by the DoE that the impugned orders
clearly show that principles of natural justice have been followed;
and ample opportunity of hearing was provided by the DoE to the
schools.
46. The specific response of the DoE to the individual points for
determination framed by this court is summarised in the following paras.
46.1. Response to Point for Determination Nos. 1 and 2: The DoE
has argued, that as per section 17(3) of the DSE Act read in
conjunction with Rule 180(3) and 190 of the DSE Rules, the DoE
has the authority to regulate fees and charges levied by private,
un-aided, recognised schools. Furthermore, it has been submitted
that this authority of the DoE has been reinforced by mandate
provided by the Supreme Court in Modern School in order to
prevent commercialisation of education.
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46.2. It has been submitted by the DoE that the team of chartered
accountants appointed by them plays a crucial role in evaluating
the financial aspects of the proposals for fee-hike submitted by
private, un-aided, recognised schools in terms of sections 18(3)
and 18(4) of the DSE Act read with Rules 172, 173, 174, 175, 176,
177, and 178 of the DSE Rules. The chartered accountants assess
the fee-hike proposals based on the principles of charging fee
under various heads as per earmarked levies as settled by Justice
Santosh Duggal Committee appointed by a Co-ordinate Bench of
this court, and by various notifications, circulars, and orders
issued by the DoE, and in light of the Generally Accepted
Accounting Principles (GAAP) as directed by the Supreme Court
in Modern School .
46.3. It has been submitted by the DoE, that as part of the process set-
up by them, all private, un-aided, recognised schools are provided
an opportunity to present their justifications and clarifications
regarding their fee-hike proposals before the DoE officers and the
PMU team. The communication issued by the Deputy Director
(Education) to the private, un-aided, recognised schools serves as
a notice to attend the hearing; and schools are obligated to
demonstrate the necessity for a fee-hike, complying with all
statutory and judicially laid-down requirements.
46.4. It has been argued by the DoE that in the event an order is made
rejecting a fee-hike proposal, a school is provided a one-month
window to rectify the defects and deficiencies outlined in the order
and to ensure compliance with the directives contained therein;
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and that therefore, there is a layered review mechanism in place,
as part of a robust regulatory framework to prevent any unjustified
or arbitrary fee-hike by private, un-aided, recognised schools.
46.5. It has been submitted by the DoE, that the law as clarified in
Modern School balances institutional autonomy with financial
discipline, by permitting reasonable surplus, while prohibiting
profiteering, by incorporating accepted accounting principles to
distinguish revenue expenses and capital expenditure; and
mandating prudent financial management. The DoE has also
argued that in the case of ‘land-clause’ schools, as per lease
conditions the development and expansion costs must be borne by
the society; thus, any fee-derived surplus cannot be diverted for
such purposes and must only be applied towards legitimate
educational needs.
46.6. Response to Point for Determination No. 3: It has been
submitted by the DoE that there are no criteria laid-down in the IT
Act, or in any other taxation statute, for determination of school
fee. Therefore, fee fixation by a school is to be carried-out on the
basis of Justice Santosh Duggal Committee Report, which was
duly accepted by the Supreme Court in Modern School , whereby
the Supreme Court held that the accounts of private, un-aided,
recognised schools should be prepared and maintained on the
principles contained in GAAP; and vidé its order dated
10.02.2005, the DoE has directed schools to follow the same. It
has further been submitted, that on 16.04.2016, the DoE had also
directed private, un-aided, recognised schools to follow
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‘Guidance Note dated 21.07.2005 on Accounting by Schools’
[GN(A) 21 (Issued 2005)] issued by the Institute of Chartered
Accountants of India (‘ICAI Guidance Note’) for preparation and
maintenance of their accounts, which note mandates that the
accounts of private, un-aided, recognised schools should be
maintained on ‘accrual’ basis.
46.7. Response to Point for Determination No. 4: It has been argued
by the DoE, that as per the provisions of the DSE Act and DSE
Rules, the regulatory powers of the DoE may vary depending on
whether or not a private, un-aided, recognised school is governed
by a ‘land-clause’ also known as ‘prior approval clause’.
According to the DoE, since private, un-aided, recognised schools
governed by a ‘land- clause’ are established on land allotted by a
governmental authority, they are subject to stricter regulatory
oversight, since land is allotted to these schools often at
concessional rates or with certain conditions attached to such
allotment, such as reserving a percentage of sets for economically
weaker section of students. It has been submitted, that the DoE
has the power to monitor these schools more rigorously, to ensure
that they comply with the conditions of land allotment, seat
reservation, and other statutory obligations. Insofar as private, un-
aided, recognised schools not governed by a ‘land-clause’ are
concerned, since such schools are not established on land allotted
under specific governmental conditions, these schools may have
more autonomy in certain respects; and the regulatory powers of
the DoE over these schools may still exist but in less stringent
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form in comparison to schools governed by a ‘land-clause’. It has
been argued on behalf of the DoE that they still have powers to
ensure that even private, un-aided, recognised schools not
governed by a ‘land-clause’ comply with statutory obligations
under the DSE Act and DSE Rules.
46.8. Response to Point of Determination No. 5 (including points 5.1
to 5.14): It has been argued on behalf of the DoE, that the DoE
ensures a fair and transparent fee fixation process by scrutinizing
fee statements and audited accounts based on uniform accounting
principles. While schools are permitted a reasonable surplus for
educational development, the DoE is empowered to prevent
profiteering and commercialisation. It has been argued by the
DoE, that insofar as expenditure towards expansion,
infrastructure, or building new institutions is concerned, as held
by the Supreme Court in Modern School , that cost must be borne
by the society and such cost cannot be factored into the
‘reasonable surplus’ held by a school.
46.9. It has been submitted by the DoE that the Supreme Court ruling
in Islamic Academy underscores the autonomy of private
educational institutions in determining their fee structure; but in
that case, the Supreme Court also highlights that ‘surplus’ must be
used solely for the benefit and improvement of the educational
institution, and it is imperative to avoid profiteering and charging
capitation fee.
46.10. It has been submitted that in T.M.A. Pai Foundation the Supreme

Court has reaffirmed the principle that there should be no charging
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of capitation fee or profiteering. However, it has been clarified by
the DoE that a ‘reasonable surplus’, intended to cover the cost of
expansion and facility enhancement does not tantamount to
profiteering.
46.11. It has been further submitted by the DoE that charging of
‘earmarked levies’ must comply with Justice Santosh Duggal
Committee framework i.e ., these must be user-based, purpose-
specific, and non-profiteering.
46.12. It has been further submitted, that Depreciation Reserve Fund is a
‘notice account’ and there is no requirement to maintain any ‘fixed
deposit account’ for that purpose. In view of the same, the DoE
has said that both revenue expenses and capital expenditures are
allowed from that account, on case-to-case basis.
46.13. The DoE has also argued, that private, un-aided, recognised
schools have failed to adhere to the principles governing
earmarked levies as laid down by Justice Santosh Duggal
Committee; and that earmarked levies must be collected only from
students availing a specific service. It has been submitted, that
earmarked levies are charges collected by educational institutions
for specific purposes and are expected to be utilized exclusively
for the purpose for which they are collected. It is the DoE’s
contention that charging fees outside of prescribed heads, or
generating surplus therefrom, amounts to profiteering and
commercialisation of education, and to indirect charging of
capitation fee.
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46.14. It has been submitted that as per Modern School and DoE’s order
dated 15.12.1999, development and expansion costs of a school
must be borne by the society; and school funds cannot be diverted
to repay society loans, nor can such liability be shifted to students.
Thus, fee-hike for loan repayment is impermissible.
46.15. The DoE submits, that it is a well-established legal principle that
statutory obligations take precedence over other financial
commitments. Therefore, it is the widely recognised
understanding, that funds designated for statutory liabilities
should not be considered part of the funds available for other
purposes, including for staff salaries and allowances. As per the
provisions of the DSE Rules, school funds allocated for statutorily
mandated gratuity and leave encashment liabilities should not be
excluded by the schools from funds available for any reason.
46.16. It has been argued by the DoE that the Supreme Court judgment
in Modern School emphasises that schools should not charge
separate fees for services that are part of their core educational
responsibilities. The DoE has contended that though the
acquisition and maintenance of school buses and vehicles may be
necessary for education, they should not be used as a means to
generate unreasonable surplus beyond what is necessary for
providing transportation services.
46.17. It has been submitted that the DSE Act and the DSE Rules provide
a clear definition of the Manager’s role in private, un-aided,
recognised schools. The DoE’s contention is that the Manager is
not considered an employee of the school; and is primarily
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responsible for managing the affairs of the school on behalf of the
Managing Committee. Therefore, the DSE Act and the DSE Rules
do not permit payment of any salary to the Manager; hence the
Chairman/Director/Manager/Consultant/ Managing Committee
members of a private, un-aided, recognised school cannot be
considered as employees of the school and cannot be paid
salary/remuneration from the school fund.
46.18. It has been submitted on behalf of the DoE, that the recruitment to
vacant posts in private, un-aided, recognised schools are to be
made in accordance with the recruitment rules notified by the
Administrator of the Government of NCT of Delhi, and in the
recruitment rules the scale of pay and the grade pay cannot exceed
the scale of pay and allowances paid to their counterparts in
government schools, as per section 10(1) of the DSE Act.
Therefore, according to the DoE, fee collected towards payment
of remuneration to employees of a school at rates higher than
government employees or more than minimum wage cannot be
permitted.
46.19. It has been argued, that there is no concept of 10% increase of
development fee every year if there is no need. It has been
contended that since imparting education is a charitable activity,
a school cannot be run for profit-making; hence, there cannot be a
mandatory 10% increase in development fee every year. That
being said, the DoE has submitted that there are cases in which
they have allowed increase of more than 10% in proposed
budgetary expenses above the previous year’s expenses.
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46.20. It has been argued, that every fee-hike proposal submitted by a
private, un-aided, recognised school under section 17(3) of the
DSE Act along with audited balance sheet has to undergo scrutiny,
examination, and evaluation to determine whether the fee
proposed by the school qualifies for enhancement in light of the
provisions of the DSE Act and the DSE Rules.
46.21. It has been submitted, that in usual circumstances , the DoE does
not add monies lying under lien pursuant to court orders to the
funds available with a school for meeting revenue expenses.
46.22. It has also been submitted on behalf of the DoE, that as per the
provisions of the DSE Act and the DSE Rules, and the guidance
provided by Supreme Court in Modern School , scholarships paid
to students in accordance with Rule 177 of the DSE Rules are
considered legitimate use of the school funds for educational
purposes; and there is no requirement for the scholarship
payments to be recovered from the society that has established
the school. However, it has been clarified by the DoE that where
there is non-compliance with the provisions of the DSE Act and
the DSE Rules, the DoE enforces corrective measures, including
by issuing orders for recovery from the society of the school funds
used to pay scholarships, as per the Supreme Court’s mandate.
46.23. The DoE has submitted that as per the provisions of Clause 18 of
Order No. F.DE/15(56)Act/2009/778 dated 11.02.2009, un-
refunded caution money is to be considered as part of the funds
available only to the extent of the non-refunded portion of caution
money as of the relevant financial year.
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46.24. Response to Point for Determination No. 6: It has been argued
on behalf of the DoE, that the mere presence of a nominee of the
Director of Education on a school’s Managing Committee does
not take away the authority of the DoE under section 17(3) of the
DSE Act for taking a decision with respect to a fee-hike proposal.
It has been further argued by the DoE, that the nominee of the
Director of Education is not an expert in accountancy; and the
financial affairs of a private, un-aided, recognised school need to
be scrutinized as per settled principles of accounting and in
accordance with section 17(3) of the DSE Act and Rule 177 of the
DSE Rules.
46.25. Response to Point for Determination No. 7: The DoE has
submitted that the scrutiny of fee-hike proposals along with
audited financial statements under section 17(3) of the DSE Act is
a structured and time-intensive process. Upon submission of a fee-
hike proposal, the DoE undertakes a detailed verification of the
documents through its PMU, followed by multiple rounds of
meetings, clarifications and a personal hearing being granted to
the school management, thereby ensuring a comprehensive
evaluation of the proposal in accordance with prescribed legal and
accounting principles.
46.26. It has been submitted, that the DoE takes a final decision to
approve or reject a proposed fee-hike based on the PMU’s
assessment, requiring a minimum period of about 06 months.
46.27. The DoE has
Response to Point for Determination No. 8:
argued that the decision to permit fee-hike for a specific academic
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session from a particular month of the year is justified. For
instance, the DoE’s order dated 29.06.2022 allowing the proposal
for fee increase for one of the petitioner schools for the academic
session 2019-2020 was made effective from 01.07.2022, rather
than from 01.04.2019, since there was delay in issuing the order
due to the Covid-19 pandemic, which resulted in the closure of
schools and of the offices of the DoE during the academic sessions
2020-2021 and 2021-2022. It has been submitted, that the decision
regarding fee enhancement for the academic session 2019-2020
could be finalized only in June 2020, after following the principles
of natural justice and affording the school an opportunity to be
heard.
47. Lastly, it has been submitted by the DoE that the regulatory framework
adopted by the DoE is fully consistent with the provisions of the DSE
Act and DSE Rules; and the law laid-down by the Supreme Court and
by this court. It is the DoE’s contention that the impugned orders neither
violate the principles of natural justice, nor transgress the statutory limits
of the DoE’s powers; and in fact the orders ensure transparency,
accountability and prevention of commercialisation of education.
Accordingly, it is the DoE’s contention that the challenges raised by the
petitioners are devoid of merit and are liable to be rejected.
IV. R E -H EARING AS A C ONSEQUENCE OF P ROMULGATION OF THE

D ELHI S CHOOL E DUCATION (T RANSPARENCY IN F IXATION AND
EGULATION OF EES CT
R F ) A , 2025
48. After all parties had been heard in the batch of matters, and while the

matter was reserved for judgment, the Legislative Assembly of the
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National Capital Territory of Delhi enacted and notified the Delhi School
Education (Transparency in Fixation and Regulation of Fees) Act 2025,
purporting to put in place a comprehensive regime on the subject.
49. By reason thereof, the matters were re-listed for hearing confined only
to the new law that had been promulgated. In the course of that hearing
however, in essence and substance, learned counsel appearing for all
parties submitted that the enactment of the new law would have no
bearing on the challenge to the various impugned orders that was
pending in the present batch of matters, since the new law, as framed,
was to apply prospectively whereas the DoE orders under challenge
related to the Academic Years 2016-17 to 2022–23.
50. Furthermore, this court was informed, that the new law was challenged
before the Supreme Court in SLP (C) No. 2602/2026; and, as recorded
in orders dated 02.02.2026 and 04.02.2026 passed in those proceedings,
the DoE has represented to the Supreme Court that the “ …… new law
will not be implemented at this stage for the Academic Year 2025–2026
…… ”.

V. A NALYSIS , D ISCUSSION & C ONCLUSIONS
51. After hearing learned counsel for the parties at inordinate length, this
court is of the view that almost all the contentions raised by the
contesting parties have already been substantially, if not completely,
answered by the Supreme Court and by various benches of this court in
their several judgments, as discussed below.
52. The law is abundantly clear. The judgments on the issue are consistent ,
except for one apparently discordant note by a Division Bench in its
judgment in Justice for All , which discordance also, in the opinion of this
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court, arises from a mis-interpretation by the DoE of what the Division
Bench has actually said, as is clarified below. Yet, when tested on the
touchstone of the clearly enunciated law, the actions of the DoE that are
under challenge in the present batch of petitions, are clearly flawed ; and
hopefully, a result only of bona-fidé misunderstanding of the law and of
all the court rulings .
53. As a sequitur to the above, and notwithstanding that several judicial
pronouncements have already addressed the issues raised by the parties,
this court deems it appropriate to further elucidate certain aspects of the
matter. The intent of this exercise is to provide a degree of specificity,
so as to facilitate the DoE in implementing the law in accordance with
the existing judicial precedents. The endeavour of this court is to resolve
any residual ambiguities that may have arisen in the course of applying
the relevant statutory provisions.
54. With the above preface, this court would proceed to address the points
for determination set-out in order dated 13.09.2023. It is however not
considered advisable to delve into every submission made by every
individual party, but to decide issues that are germane to all schools in
relation to their common grievances.
55. The first and most significant submission made on behalf of all the
petitioner schools, is that they are entitled to function freely as private,
un-aided, recognised schools in exercise of their fundamental right
guaranteed under Article 19(1)(g) of the Constitution, namely the right
“to practice any profession, or to carry on any occupation, trade or
business”; and that they are entitled to run their educational institutions
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with significant autonomy, in particular with the freedom to fix their own
fee structures.
56. The schools have contended that the DoE ’s regulatory powers under the
DSE Act are restricted only to preventing ‘ profiteering ’and
‘ commercialisation ’by schools; and absent any evidence of those
malpractices, the DoE cannot interfere with a school’s fee structure or
fee increase.
57. The schools have further contended that Rule 177 of the DSE Rules lays-
out in detail the manner in which the fee realized by a private, un-aided,
recognised school is to be utilized. It has been argued that as per the
scheme of Rule 177, the income generated by a school from fee collected
from students must first be applied towards payment of salaries and other
allowances to employees; and then the remaining funds must be
allocated for payment of pension, gratuity and towards the school’s
expansion and development plans, as well as for establishing other
recognised schools, as detailed in the various provisions of Rule 177.
58. It has been argued, that in Islamic Academy it has been held that a school
is permitted to have a reasonable surplus which may ordinarily vary
25
from 6% to 15% for the growth and development of the institution;
and that retention of a reasonable surplus does not constitute profiteering
by a school. It is the submission of the schools that before rejecting their
fee-hike proposals the DoE has made no effort, in any of the cases, to
calculate the reasonable surplus which the schools are entitled to hold;
and without doing so, the DoE has proceeded to infer that schools are

25
para 156
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indulging in profiteering and commercialisation, which is a factually
incorrect and baseless conclusion. It has been argued, that if the DoE had
conducted the exercise of objectively and rationally examining whether
a school was holding only a reasonable surplus, it would have found that
no part of the school fee collected has been accumulated in any manner
that is not permissible in law; and that the reasonable surplus held by the
schools has been applied only for permissible purposes.
59. It has been argued on behalf of the schools, that the DoE has been
calculating the ‘funds available’ with a school in a manner which is
violative of settled accounting principles and practices, in addition to
being in breach of the ICAI Guidance Note; apart from also being
otherwise incorrect and unlawful.
60. To evaluate the arguments made on behalf of the petitioner schools, it is
necessary to first notice the provisions of section 17 of the DSE Act,
which deals with the fee and other charges that a school may demand
and collect from students, and which reads as follows:

17. Fees and other charges.— (1) No aided school shall levy
any fee or collect any other charge or receive any other payment
except those specified by the Director.
(2) Every aided school having different rates of fees or other
charges or different funds shall obtain prior approval of the
prescribed authority before levying such fees or collecting such
charges or creating such funds.
(3) The manager of every recognised school shall, before the
commencement of each academic session , file with the Director a
full statement of the fees to be levied by such school during the
ensuing academic session , and except with the prior approval of the
Director, no such school shall charge, during that academic session ,
any fee in excess of the fee specified by its manager in the said
statement .
(emphasis supplied)
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61. Also relevant for purposes of the present discussion is section 18 of the
DSE Act, which establishes and defines the ‘School Fund’ and the
‘Recognised Unaided School Fund’, specifying the types of monies that
may be credited to these funds. Section 18 reads as under:
18. School Fund.— (1) In every aided school, there shall be a
fund, to be called the “School Fund”, and there shall be credited
thereto—
(a) any aid granted by the Administrator,
(b) income accruing to the school by way of fees, charges or
other payments, and
(c) any other contributions, endowments and the like.
(2) The School Fund and all other funds, including the Pupils’
Fund, established with the approval of the Administrator, shall be
accounted for and operated in accordance with the rules made under
this Act.
(3) In every recognised unaided school , there shall be a fund,
to be called the “ Recognised Unaided School Fund ”, and there
shall be credited thereto income accruing to the school by way of —
(a) fees,
(b) any charges and payments which may be realised by the
school for other specific purposes, and
(c) any other contributions, endowments, gifts and the like,
(4) (a) Income derived by unaided schools by way of fees
shall be utilised only for such educational purposes as may be
prescribed ; and

(b) charges and payments realised and all other
contributions, endowments and gifts received by the school shall be
utilised only for the specific purpose for which they were realised or
received.
(5) The managing committee of every recognised private
school shall file every year with the Director such duly audited
financial and other returns as may be prescribed, and every such
return shall be audited by such authority as may be prescribed .
(emphasis supplied)
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62. Furthermore, it is also necessary to notice certain Rules contained in
Chapter XIV (titled ‘School Fund’) of the DSE Rules, which relate to
the collection, maintenance, withdrawal and utilization of the monies
collected by a school, including maintenance of accounts. The relevant
rules read as follows:
173. School fund how to be maintained— (1) Every School
Fund shall be kept deposited in a nationalised bank or a scheduled
bank or any post office in the name of the school .
(2) Such part of the School Fund as may be approved by the
Administrator, or any officer authorised by him in this behalf, may be
kept in the form the Government securities.
(3) The Administrator may allow such part of the School Fund
as he may specify in the case of each school, (depending upon the size
and needs of the school) to be kept as cash in hand.
(4) Every Recognised Unaided School Fund shall be kept
deposited in a nationalised bank or a scheduled bank or in a post
office in the name of the school , and such part of the said Fund as
may be specified by the Administrator or any officer authorised by
him in this behalf shall be kept in the form of Government securities
and as cash in hand respectively:
Provided that in the case of an unaided minority school, the
proportion of such Fund which may be kept in the form of
Government securities or as cash in hand shall be determined by the
managing committee of such school.
174. Withdrawal from School Fund— Withdrawals from the
School Fund or Recognised Unaided School Fund, as the case may
be, shall be made jointly by the head of school and the manager of
such school, or jointly by the head of the school and by any duly
authorised member of the managing committee, where the head of the
school is also the manager of the school.

*

176. Collections for specific purposes to be spent for that
purpose—Income derived from collections for specific purposes
shall be spent only for such purpose .

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177. Fees realised by unaided recognised schools how to be
utilized— (1) Income derived by an unaided recognised schools by
way of fees shall be utilised in the first instance , for meeting the pay,
allowances and other benefits admissible to the employees of the
school :
Provided that savings , if any from the fees collected by such
school may be utilised by its managing committee for meeting capital
or contingent expenditure of the school, or for one or more of the
following educational purposes, namely:—
(a) award of scholarships to students;
(b) establishment of any other recognised school, or
(c) assisting any other school or educational institution, not
being a college, under the management of the same society or trust
by which the first mentioned school is run.
(2) The savings referred to in sub-rule (1) shall be arrived at
after providing for the following , namely :—
(a) pension, gratuity and other specified retirement and
other benefits admissible to the employees of the school;
(b) the needed expansion of the school or any expenditure of
a developmental nature ;
(c) the expansion of the school building or for the expansion
or construction of any building or establishment of hostel or
expansion of hostel accommodation;
(d) co-curricular activities of the students;
(e) reasonable reserve fund, not being less than ten per cent,
of such savings .
(3) Funds collected for specific purposes, like sports, co-
curricular activities, subscriptions for excursions or subscriptions
for magazines, and annual charges, by whatever name called, shall
be spent solely for the exclusive benefit of the students of the
concerned school and shall not be included in the savings referred
to in sub-rule (2).
(4) The collections referred to in sub-rule (3) shall be
administered in the same manner as the monies standing to the credit
of the Pupils Fund as administered.

*


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179. Aided schools to keep accounts of all income— (1)
Every aided school shall keep accounts of income from all sources
and of all expenditure in the form in which such accounts are
maintained immediately before the commencement of these rules.

(2) The accounts of the school shall be open to inspection by
the auditors and inspecting officers authorised by the Director, and
also by any officer authorised by the Comptroller and Auditor
General of India.

180. Unaided recognised schools to submit returns— (1)
Every unaided recognised private school shall submit returns and
documents in accordance with Appendix II .
(2) Every return or documents referred to in sub-rule (1),
st
shall be submitted to the Director by the 31 day of July of each year.
(3) The account and other records maintained by an unaided
private school shall be subject to examination by the auditors and
inspecting officers authorised by the Director in this behalf and also
by any officers authorised by the Comptroller and Auditor General of
India.
(emphasis supplied)

63. The foregoing statutory provisions have been subject of detailed
interpretation by the Supreme Court in several decisions, repeatedly . Of
those judgments, the ones that are most relevant for the issues at hand,
have been discussed hereinafter.
A NSWERS TO THE P OINTS FOR D ETERMINATION
64. Based on the aforesaid statutory landscape, this court would now
proceed to answer the points for determination that were framed vidé
order dated 13.09.2023. The points are being answered, not
chronologically, but in their logical sequence.
NSWER TO OINT FOR ETERMINATION O
VI. A P D N . 2
2. Whether the orders/circulars/directions are in excess of the
statutory powers of the DoE, in that
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2.1. these are ultra vires the provisions of the Delhi
School Education Act, 1973 and/or the Delhi School
Education Rules, 1973 ;
2.2. these are in contravention of the law laid down by
the Supreme Court inter-alia in T.M.A. Pai Foundation &
Ors. vs. State of Karnataka & Ors.; P.A. Inamdar & Ors. vs.
State of Maharashtra & Ors.; Islamic Academy of Education
& Anr. vs. State of Karnataka & Ors.; Modern School vs. UoI
& Ors.; and by a Division Bench of this court inter-alia in
Delhi Abhivabhavak Maha Sangh & Ors. vs. Govt. of NCT of
Delhi & Ors.;
2.3. these are beyond the DoE ’ s mandated role which
is to prevent profiteering or commercialisation by schools,
that is to say that the DoE may reject a fee-hike proposal only
after finding that the school is indulging in profiteering and/or
commercialisation;
2.4. these are beyond the ‘ regulatory ’ functions of the
DoE as envisaged in the law.
65. Point for Determination No. 2 has been conclusively dealt with by
multiple Benches of the Supreme Court, including by at least 02
Constitution Benches, in the verdicts discussed below.
66. In T.M.A. Pai Foundation an 11-Judge Constitution Bench of the
Supreme Court has dealt, at great length, with the issue of autonomy of
private educational institutions and the extent of permissible regulation
of such institutions. The relevant observations of the Supreme Court in
the case are as follows:
“ 3. In case of private institutions, can there be government
regulations and, if so, to what extent ?
“46. We will now examine the nature and extent of the
regulations that can be framed by the State, university or any
affiliating body, while granting recognition or affiliation to a private
educational institution.
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“47. Private educational institutions, both aided and unaided,
are established and administered by religious and linguistic
minorities, as well as by non-minorities. Such private educational
institutions provide education at three levels viz. school , college and
professional level. It is appropriate to first deal with the case of
private unaided institutions and private aided institutions that are not
administered by linguistic or religious minorities. Regulations that
can be framed relating to minority institutions will be considered
while examining the merit and effect of Article 30 of the Constitution.
*
Private unaided non-minority educational institutions
“50. The right to establish and administer broadly comprises
the following rights:
(a) to admit students;
(b) to set up a reasonable fee structure ;
(c) to constitute a governing body;
(d) to appoint staff (teaching and non-teaching); and
(e) to take action if there is dereliction of duty on the part of
any employees.
*
“53. With regard to the core components of the rights under
Articles 19 and 26(a), it must be held that while the State has the right
to prescribe qualifications necessary for admission, private unaided
colleges have the right to admit students of their choice, subject to an
objective and rational procedure of selection and the compliance with
conditions, if any, requiring admission of a small percentage of
students belonging to weaker sections of the society by granting them
freeships or scholarships, if not granted by the Government.
Furthermore, in setting up a reasonable fee structure, the element
of profiteering is not as yet accepted in Indian conditions. The fee
structure must take into consideration the need to generate funds to
be utilized for the betterment and growth of the educational
institution, the betterment of education in that institution and to
provide facilities necessary for the benefit of the students . ……
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“54. The right to establish an educational institution can be
regulated; but such regulatory measures must, in general, be to
ensure the maintenance of proper academic standards, atmosphere
and infrastructure (including qualified staff) and the prevention of
maladministration by those in charge of management. The fixing of
a rigid fee structure , dictating the formation and composition of a
governing body, compulsory nomination of teachers and staff for
appointment or nominating students for admissions would be
unacceptable restrictions .
“55. ….. There can be no doubt that in seeking affiliation or
recognition, the Board or the university or the affiliating or
recognizing authority can lay down conditions consistent with the
requirement to ensure the excellence of education. It can, for instance,
indicate the quality of the teachers by prescribing the minimum
qualifications that they must possess, and the courses of study and
curricula. It can, for the same reasons, also stipulate the existence of
infrastructure sufficient for its growth, as a prerequisite. But the
essence of a private educational institution is the autonomy that the
institution must have in its management and administration . There,
necessarily, has to be a difference in the administration of private
unaided institutions and the government-aided institutions. Whereas
in the latter case, the Government will have greater say in the
administration, including admissions and fixing of fees, in the case
of private unaided institutions, maximum autonomy in the day-to-
day administration has to be with the private unaided institutions .
Bureaucratic or governmental interference in the administration of
such an institution will undermine its independence. While an
educational institution is not a business, in order to examine the
degree of independence that can be given to a recognized educational
institution, like any private entity that does not seek aid or assistance
from the Government, and that exists by virtue of the funds generated
by it, including its loans or borrowings, it is important to note that
the essential ingredients of the management of the private
institution include the recruiting students and staff, and the
quantum of fee that is to be charged .
“56. An educational institution is established for the purpose
of imparting education of the type made available by the institution.
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Different courses of study are usually taught by teachers who have to
be recruited as per qualifications that may be prescribed. It is no
secret that better working conditions will attract better teachers.
More amenities will ensure that better students seek admission to that
institution. One cannot lose sight of the fact that providing good
amenities to the students in the form of competent teaching faculty
and other infrastructure costs money. It has, therefore, to be left to
the institution, if it chooses not to seek any aid from the
Government, to determine the scale of fee that it can charge from
the students . One also cannot lose sight of the fact that we live in a
competitive world today, where professional education is in demand.
We have been given to understand that a large number of professional
and other institutions have been started by private parties who do not
seek any governmental aid. In a sense, a prospective student has
various options open to him/her where, therefore, normally
economic forces have a role to play. The decision on the fee to be
charged must necessarily be left to the private educational
institution that does not seek or is not dependent upon any funds
from the Government .
“57. We, however, wish to emphasize one point, and that is
that inasmuch as the occupation of education is, in a sense, regarded
as charitable, the Government can provide regulations that will
ensure excellence in education, while forbidding the charging of
capitation fee and profiteering by the institution. Since the object of
setting up an educational institution is by definition “charitable”, it
is clear that an educational institution cannot charge such a fee as
is not required for the purpose of fulfilling that object. To put it
differently, in the establishment of an educational institution, the
object should not be to make a profit, inasmuch as education is
essentially charitable in nature. There can, however, be a
reasonable revenue surplus, which may be generated by the
educational institution for the purpose of development of education
and expansion of the institution .
*
“61. In the case of unaided private schools, maximum
autonomy has to be with the management with regard to
administration , including the right of appointment, disciplinary
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powers, admission of students and the fees to be charged . ….. There
is no compulsion on students to attend private schools. The rush for
admission is occasioned by the standards maintained in such schools,
and recognition of the fact that State-run schools do not provide the
same standards of education. The State says that it has no funds to
establish institutions at the same level of excellence as private
schools. But by curtailing the income of such private schools, it
disables those schools from affording the best facilities because of
a lack of funds . If this lowering of standards from excellence to a
level of mediocrity is to be avoided, the State has to provide the
difference which, therefore, brings us back in a vicious circle to the
original problem viz. the lack of State funds. The solution would
appear to lie in the States not using their scanty resources to prop up
institutions that are able to otherwise maintain themselves out of the
fees charged, but in improving the facilities and infrastructure of
State-run schools and in subsidizing the fees payable by the students
there. It is in the interest of the general public that more good quality
schools are established; autonomy and non-regulation of the school
administration in the right of appointment, admission of the students
and the fee to be charged will ensure that more such institutions are
established . The fear that if a private school is allowed to charge fees
commensurate with the fees affordable, the degrees would be
“purchasable” is an unfounded one since the standards of education
can be and are controllable through the regulations relating to
recognition, affiliation and common final examinations. ”
(emphasis supplied)
67. Just about a year later, a 5-Judge Constitution Bench of the Supreme
Court in Islamic Academy had the occasion to address the pointed
question as to whether, in light of the Supreme Court decision in T.M.A.
Pai Foundation , a private, un-aided educational institution is entitled to
decide its own fee structure. The relevant extracts of the observations of
the Supreme Court in Islamic Academy are the following:
“ 6. In view of the rival submissions the following questions
arise for consideration:
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(1) whether the educational institutions are entitled to fix their
own fee structure;
(2) ….. (4)
Question 1
“7. So far as the first question is concerned, in our view the
majority judgment is very clear. There can be no fixing of a rigid fee
structure by the Government. Each institute must have the freedom
to fix its own fee structure taking into consideration the need to
generate funds to run the institution and to provide facilities
necessary for the benefit of the students. They must also be able to
generate surplus which must be used for the betterment and growth
26
of that educational institution . In paragraph 56 of the judgment , it
has been categorically laid down that the decision on the fees to be
charged must necessarily be left to the private educational
institutions that do not seek and which are not dependent upon any
funds from the Government . Each institute will be entitled to have
its own fee structure. The fee structure for each institute must be fixed
keeping in mind the infrastructure and facilities available, the
investments made, salaries paid to the teachers and staff, future plans
for expansion and/or betterment of the institution etc. Of course there
can be no profiteering and capitation fees cannot be charged . It thus
needs to be emphasized that as per the majority judgment imparting
of education is essentially charitable in nature. Thus the
surplus/profit that can be generated must be only for the benefit/use
of that educational institution. Profits/surplus cannot be diverted
for any other use or purpose and cannot be used for personal gain
or for any other business or enterprise . …..
*
“156. While this Court has not laid down any fixed guidelines
as regards fee structure, in my opinion, reasonable surplus should
ordinarily vary from 6% to 15%, as such surplus would be utilized
for expansion of the system and development of education .

(emphasis supplied)

26
Reference being to para 56 of T.M.A. Pai Foundation
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68. Most pertinently, while dealing with Modern School the Supreme Court
has delineated the very same issues as have been raised before this court
in the present batch of petitions. The decision of the 3-Judge Bench of
the Supreme Court in Modern School requires a detailed, close and
careful reading, since in the opinion of this court, the issues raised in the
present petitions stand authoritatively considered and concluded by the
Supreme Court in the following paragraphs of Modern School :
“ 14. At the outset, before analysing the provisions of the 1973
27
Act , we may state that it is now well settled by a catena of decisions
of this Court that in the matter of determination of the fee structure
unaided educational institutions exercise a great autonomy as they,
like any other citizen carrying on an occupation, are entitled to a
reasonable surplus for development of education and expansion of
the institution . Such institutions, it has been held, have to plan their
investment and expenditure so as to generate profit . What is,
however, prohibited is commercialisation of education . Hence, we
have to strike a balance between autonomy of such institutions and
measures to be taken to prevent commercialisation of education.
However, in none of the earlier cases, this Court has defined the
concept of reasonable surplus, profit, income and yield, which are
the terms used in the various provisions of the 1973 Act .

“15. As far back as 1957, it has been held by this Court in the
case of State of Bombay v. R.M.D. Chamarbaugwala [AIR 1957 SC
699] that education is per se an activity that is charitable in nature.
Imparting of education is a State function. The State, however, having
regard to its financial constraints is not always in a position to
perform its duties. The function of imparting education has been to a
large extent taken over by the citizens themselves. In the case of Unni
Krishnan, J.P. v. State of A.P. [(1993) 1 SCC 645] looking to the above
ground realities, this Court formulated a self-financing
mechanism/scheme under which institutions were entitled to admit

27
Reference being to the Delhi School Education Act, 1973
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50% students of their choice as they were self-financed institutions,
whereas rest of the seats were to be filled in by the State. For
admission of students, a common entrance test was to be held.
Provisions for free seats and payment seats were made therein. The
State and various statutory authorities including the Medical Council
of India, University Grants Commission, etc. were directed to make
and/or amend regulations so as to bring them on a par with the said
Scheme. In the case of T.M.A. Pai Foundation v. State of Karnataka
[(2002) 8 SCC 481] the said scheme formulated by this Court in the
case of Unni Krishnan [(1993) 1 SCC 645] was held to be an
unreasonable restriction within the meaning of Article 19(6) of the
Constitution as it resulted in revenue shortfalls making it difficult for
the educational institutions. Consequently, all orders and directions
issued by the State in furtherance of the directions in Unni
Krishnan case [(1993) 1 SCC 645] were held to be unconstitutional .
This Court observed in the said judgment that the right to establish
and administer an institution included the right to admit students;
right to set up a reasonable fee structure; right to constitute a
governing body, right to appoint staff and right to take disciplinary
action . T.M.A. Pai Foundation case [(2002) 8 SCC 481] for the first
time brought into existence the concept of education as an
“occupation”, a term used in Article 19(1)(g) of the Constitution . It
was held by majority that Articles 19(1)(g) and 26 confer rights on
all citizens and religious denominations respectively to establish and
maintain educational institutions. In addition, Article 30(1) gives the
right to religious and linguistic minorities to establish and administer
educational institution of their choice. However, the right to establish
an institution under Article 19(1)(g) is subject to reasonable
restriction in terms of clause (6) thereof . Similarly, the right
conferred on minorities, religious or linguistic, to establish and
administer educational institution of their own choice under Article
30(1) is held to be subject to reasonable regulations which inter alia
may be framed having regard to public interest and national interest.
In the said judgment, it was observed (vide para 56) that economic
forces have a role to play in the matter of fee fixation. The
institutions should be permitted to make reasonable profits after
providing for investment and expenditure. However, capitation fee
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and profiteering were held to be forbidden. Subject to the above two
prohibitory parameters, this Court in T.M.A. Pai Foundation case
[(2002) 8 SCC 481] held that fees to be charged by the unaided
educational institutions cannot be regulated . Therefore, the issue
before us is as to what constitutes reasonable surplus in the context
of the provisions of the 1973 Act . This issue was not there before this
Court in T.M.A. Pai Foundation case [(2002) 8 SCC 481] .
“16. The judgment in T.M.A. Pai Foundation case [(2002) 8
SCC 481] was delivered on 31-10-2002. The Union of India, State
Governments and educational institutions understood the majority
judgment in that case in different perspectives. It led to litigations in
several courts. Under the circumstances, a Bench of five Judges was
constituted in the case of Islamic Academy of Education v. State of
Karnataka [(2003) 6 SCC 697] so that doubts/anomalies, if any,
could be clarified. One of the issues which arose for determination
concerned determination of the fee structure in private unaided
professional educational institutions . It was submitted on behalf of
the managements that such institutions had been given complete
autonomy not only as regards admission of students but also as
regards determination of their own fee structure. It was submitted that
these institutions were entitled to fix their own fee structure which
could include a reasonable revenue surplus for the purpose of
development of education and expansion of the institution. It was
submitted that so long as there was no profiteering, there could be no
interference by the Government. As against this, on behalf of the
Union of India, State Governments and some of the students, it was
submitted, that the right to set up and administer an educational
institution is not an absolute right and it is subject to reasonable
restrictions. It was submitted that such a right is subject to public and
national interests. It was contended that imparting education was a
State function but due to resource crunch, the States were not in a
position to establish sufficient number of educational institutions and
consequently the States were permitting private educational
institutions to perform State functions. It was submitted that the
Government had a statutory right to fix the fees to ensure that there
was no profiteering . Both sides relied upon various passages from
the majority judgment in T.M.A. Pai Foundation case [(2002) 8 SCC
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481]. In view of rival submissions, four questions were formulated.
We are concerned with the first question, namely, whether the
educational institutions are entitled to fix their own fee structure. It
was held that there could be no rigid fee structure. Each institute
must have freedom to fix its own fee structure, after taking into
account the need to generate funds to run the institution and to
provide facilities necessary for the benefit of the students. They
must be able to generate surplus which must be used for betterment
and growth of that educational institution. The fee structure must
be fixed keeping in mind the infrastructure and facilities available,
investment made, salaries paid to teachers and staff, future plans
for expansion and/or betterment of institution subject to two
restrictions, namely, non-profiteering and non-charging of
capitation fees. It was held that surplus/profit can be generated but
they shall be used for the benefit of that educational institution. It
was held that profits/surplus cannot be diverted for any other use or
purposes and cannot be used for personal gains or for other
business or enterprise . The Court noticed that there were various
statutes/regulations which governed the fixation of fee and, therefore,
this Court directed the respective State Governments to set up a
committee headed by a retired High Court Judge to be nominated by
the Chief Justice of that State to approve the fee structure or to
propose some other fee which could be charged by the institute.
“17. In the light of the judgment of this Court in the case of
Islamic Academy of Education [(2003) 6 SCC 697] the provisions of
the 1973 Act and the Rules framed thereunder may be seen.
……Therefore, Rule 175 indicates accrual of income whereas Rule
177 indicates utilisation of that income. Therefore, reading Section
18(4) with Rules 172, 173, 174, 175 and 177 on one hand and Section
17(3) on the other hand, it is clear that under the Act, the Director is
authorised to regulate the fees and other charges to prevent
commercialisation of education. Under Section 17(3), the school has
to furnish a full statement of fees in advance before the
commencement of the academic session. Reading Section 17(3) with
Sections 18(3) and (4) of the Act and the Rules quoted above, it is
clear that the Director has the authority to regulate the fees under
Section 17(3) of the Act .
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*
“20. We do not find merit in the above arguments. Before
analysing the rules herein, it may be pointed out, that as of today, we
have Generally Accepted Accounting Principles (GAAP) . As stated
above, commercialisation of education has been a problem area for
the last several years. One of the methods of eradicating
commercialisation of education in schools is to insist on every
school following principles of accounting applicable to not-for-
profit organisations/non-business organisations . Under the
Generally Accepted Accounting Principles, expense is different from
expenditure . All operational expenses for the current accounting year
like salary and allowances payable to employees, rent for the
premises, payment of property taxes are current revenue expenses.
These expenses entail benefits during the current accounting period.
Expenditure, on the other hand, is for acquisition of an asset of an
enduring nature which gives benefits spread over many accounting
periods, like purchase of plant and machinery, building, etc.
Therefore, there is a difference between revenue expenses and capital
expenditure . Lastly, we must keep in mind that accounting has a
linkage with law. Accounting operates within the legal framework .
Therefore, banking, insurance and electricity companies have their
own form of balance sheets unlike balance sheets prescribed for
companies under the Companies Act, 1956. Therefore, we have to
look at the accounts of non-business organisations like schools,
hospitals, etc. in the light of the statute in question.
“21. In the light of the above observations, we are required to
analyse Rules 172, 175, 176 and 177 of the 1973 Rules. The above
rules indicate the manner in which accounts are required to be
maintained by the schools. Under Section 18(3) of the said Act every
recognised school shall have a fund titled “Recognised Unaided
School Fund”. It is important to bear in mind that in every non-
business organisation, accounts are to be maintained on the basis
of what is known as “Fund-Based System of Accounting”. Such
system brings about transparency. Section 18(3) of the Act shows
that schools have to maintain Fund-Based System of Accounting .
The said Fund contemplated by Section 18(3), shall consist of income
by way of fees, fine, rent, interest, etc. Section 18(3) is to be read with
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Rule 175. Reading the two together, 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 with
utilisation 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 towards pension, gratuity,
reserves and other items of appropriations enumerated in Rule
177(2) and after such appropriation the balance (savings) shall be
utilised 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.
Therefore, Rule 177 shows that salaries and allowances shall come
out from the fees whereas capital expenditure will be a charge on the
savings. Therefore, capital expenditure cannot constitute a
component of the financial fee structure as is submitted on behalf
of the schools. 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 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
required to file a statement of fees which they would like to charge
during the ensuing academic year with the Director . In the light of
the analysis mentioned above, we are directing the Director to
analyse such statements under Section 17(3) of the Act and to apply
the above principles in each case. This direction is required to be
given as we have gone through the balance sheets and profit-and-loss
accounts of two schools and prima facie, we find that schools are
being run on profit basis and that their accounts are being
maintained as if they are corporate bodies. Their accounts are not
maintained on the principles of accounting applicable to non-
business organisations/not-for-profit organisations .
*
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“23. …… Under accounting principles, there is a difference
between appropriation of surplus (income) on one hand and transfer
of funds on the other hand. …… Therefore, reading Rules 172, 175
and 177, it is clear that appropriation of savings (income) is different
28
from transfer of fund. Under clause 8 , the management is restrained
from transferring any amount from Recognised 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 . In the
circumstances, there is no conflict between Rule 177 and clause 8.
*
“ Conclusion
27. In addition to the directions given by the Director of
Education vide Order No. DE.15/Act/Duggal.Com/203/99/23989-
24938 dated 15-12-1999, we give further directions as mentioned
hereinbelow:
(a) Every recognised unaided school covered by the
Act shall maintain the accounts on the principles of
accounting applicable to non-business organisation/not-for-
profit organisation .
In this connection, we inter alia direct every such
school to prepare their financial statement consisting of
balance sheet, profit-and-loss account, and receipt-and-
payment account.
(b) Every school is required to file a statement of fees
every year before the ensuing academic session under
Section 17(3) of the said Act with the Director. Such
statement will indicate estimated income of the school
derived from fees, estimated current operational expenses
towards salaries and allowances payable to employees in
terms of Rule 177(1). Such estimate will also indicate
provision for donation, gratuity, reserve fund and other
items under Rule 177(2) and savings thereafter, if any, in
terms of the proviso to Rule 177(1) .


28
of DoE Order dated 15.12.1999

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(c) It shall be the duty of the Director of Education
to ascertain whether terms of allotment of land by the
Government to the schools have been complied with . We are
shown a sample letter of allotment issued by the Delhi
Development Authority issued to some of the schools which
are recognised unaided schools. We reproduce herein clauses
16 and 17 of the sample letter of allotment:
“16. The school shall not increase the rates of tuition
fee without the prior sanction of the Directorate of Education,
Delhi Administration and shall follow the provisions of the Delhi
School Education Act/Rules, 1973 and other instructions issued
from time to time.
17. ……”
“28. We are directing the Director of Education to look into
letters of allotment issued by the Government and ascertain whether
they have been complied with by the schools. This exercise shall be
complied with within a period of three months from the date of
communication of this judgment to the Director of Education. If in a
given case, the Director finds non-compliance with the above terms,
the Director shall take appropriate steps in this regard . ”

(emphasis supplied)
69. Furthermore, we cannot lose sight of the fact that in P.A. Inamdar , while
dealing with the right provided under Article 30(1) of the Constitution to
establish and administer an educational institution, a Constitution Bench
of the Supreme Court has upheld the right of an institution to decide its
own fee structure. In this verdict the Supreme Court has drawn a clear
line of distinction between an institution devising its own fee structure
and an institution engaging in profiteering . This is what the 7-Judge
Bench had to say:
“ Q. 3. Fee; regulation of
139. To set up a reasonable fee structure is also a component
of “the right to establish and administer an institution” within the
meaning of Article 30(1) of the Constitution, as per the law declared
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in Pai Foundation [(2002) 8 SCC 481]. Every institution is free to
devise its own fee structure subject to the limitation that there can
be no profiteering and no capitation fee can be charged directly or
indirectly, or in any form (paras 56 to 58 and 161 [answer to Question
5(c)] of Pai Foundation [(2002) 8 SCC 481] are relevant in this
regard).
“ Capitation fees
140. …… The charging of capitation fee by unaided minority
and non-minority institutions for professional courses is just not
permissible. Similarly, profiteering is also not permissible . Despite
the legal position, this Court cannot shut its eyes to the hard realities
of commercialisation of education and evil practices being adopted
by many institutions to earn large amounts for their private or selfish
ends. If capitation fee and profiteering is to be checked, the method
of admission has to be regulated so that the admissions are based on
merit and transparency and the students are not exploited. It is
permissible to regulate admission and fee structure for achieving
the purpose just stated .
“141. Our answer to Question 3 is that every institution is
free to devise its own fee structure but the same can be regulated in
the interest of preventing profiteering . No capitation fee can be
charged. ”
(emphasis supplied)
70. In fact, basis the judgment of the Supreme Court in Modern School , a
group of schools acting under the banner of ‘Action Committee, Unaided
Private Schools of Delhi’ and other petitioners had approached the
Supreme Court by way of a review petition, seeking clarification as to
whether money could be transferred from the Recognised Unaided
School Fund of a particular school to another school set-up or operating
under the same society or trust. Answering this review in favour of the
schools, in its decision in Action Committee, Unaided Private Schools
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29
of Delhi & Ors. vs. Director of Education & Ors. the Supreme Court
observed as follows:
“ 20. S/Shri Soli J. Sorabjee and Salman Khurshid, learned
Senior Counsel appearing on behalf of the Action Committee and
other review petitioners, submitted that Clause 8 of the Order issued
by DoE dated 15-12-1999 is causing administrative difficulties which
needs to be clarified. This Court vide majority judgment has held that
Clause 8 is in consonance with Rule 177 of the Delhi School
Education Rules, 1973. Rule 177 has been quoted hereinabove.
Under Clause 8, DoE has stipulated that “no amount whatsoever
shall be transferred from the recognised unaided school fund of a
school to the society or the trust or any other institution”. According
to the learned Senior Counsel, a rider needs to be introduced in
Clause 8, namely, “except under the management of the same
society or trust” . Thus, according to the learned counsel, if the
suggested rider is added in Clause 8 then the Management would
have no grievance with the majority view. Thus, according to the
learned counsel, Clause 8 should be read as follows:
“No amount whatsoever shall be transferred from the recognised
unaided school fund of a school to the society or the trust or any
other institution except under the management of the same society
or trust.”
(emphasis supplied)
According to the learned counsel, if the suggested rider is
added to Clause 8 then it would subserve the object underlying the
1973 Act.
"21. There is merit in the argument advanced on behalf of the
Action Committee/Management. The 1973 Act and the Rules framed
thereunder cannot come in the way of the Management to establish
more schools. So long as there is a reasonable fee structure in
existence and so long as there is transfer of funds from one
institution to the other under the same management, there cannot
be any objection from the Department of Education .
*


29
(2009) 10 SCC 1

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“24. In this context it may be noted that in T.M.A. Pai
Foundation case [(2002) 8 SCC 481] and in Islamic Academy of
Education [(2003) 6 SCC 697] the principles for fixing fee structure
have been illustrated. However, they were not exhaustive. They did
not deal with determination of surplus and appropriation of
savings . In fact in the majority view of the present matter, this Court
has found that the above topics are not dealt with by the 1973 Rules
and therefore Clause 8 was found not to be beyond Rule 177 or in
conflict thereto as alleged. The additional directions given in the
judgment of the majority vide para 27 in Modern School [(2004) 5
SCC 583] do not go beyond Rule 177 but they are a part of gap-filling
exercise and discipline to be followed by the Management. For
example: every school shall prepare balance sheet and profit and loss
account. Such conditions do not supplant Rule 177. If reasonable fee
structure is the test then transparency and accountability are
equally important . In fact, as can be seen from reports of Duggal
Committee and the earlier Committee, excessive fees stood charged
in some cases despite the 1973 Rules because proper accounting
discipline was not provided for in 1973 Rules. Therefore, the further
directions given are merely gap fillers. Ultimately, Rule 177 seeks
transparency and accountability and the further directions (in para
27) merely bring about that transparency. Lastly, it may be noted that
the matter has come up to the Apex Court from public interest
litigation. Hence there is no merit in the above plea.
(emphasis supplied)
71. It is accordingly important that while assessing the surplus funds
available with a school, the DoE must also bear in mind that it is
permissible for a school to hold surplus funds, that may at some later
stage, be used to set-up another school or educational institution
operating under the management of the same society or trust.
72. A Division Bench of this court has also had the occasion to deal with a

petition filed by a parents’ association in DAM–II , in which the Division
Bench summarised and re-articulated the regulatory powers of the DoE
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as regards fixation of fee by schools. The relevant paragraphs of the
judgment in DAM–II read as follows:
“ 56. A conjoint reading of the judgments of the Supreme Court
in Modern School (supra) as well as review petitions in the case of
Action Committee Unaided Pvt. Schools (supra) would clearly
demonstrate that the three points formulated are answered as under:
1) DoE has the Authority to regulate the quantum of fee
charged by unaided schools under Section 17(3) of the 1973 Act.
It has to ensure that the schools are not indulging in profiteering .

2) The direction of DoE that no fees/funds collected from
parents/students shall be transferred from the Recognized Un-
aided Schools Fund to the society or trust or any other institution,
was valid. However, it could be transferred under the same society
or trust, which aspect is clarified in the review petition .

3) Recognized unaided schools were entitled to set up
Development Fund Account and could charge the students for the
same, but that should not exceed 15% of the annual tuition fee .

*
“61. Special Leave Petition against the aforesaid judgment
was dismissed by the Supreme Court. After all Section 17(3) of the
Act gives freedom to the unaided recognized schools to fix the fee at
the commencement of each academic session, file with the Director
a full statement of the fees as levied during the ensuing academic
session . This would be necessary to the Government when we
recommend the regulatory role of the Director to ensure that he fee
charged is not unreasonable. Likewise, the only other restriction is
that during the academic session, there should not be further
increase without the prior approval of the Director . Again, this
provision is made to check arbitrary increase in fee, time and again,
after the academic session has commenced. There may be
circumstances which may justify enhancement of fee even during
the academic session. However, the schools are required to justify
those circumstances for which prior approval is mandated .
According to us, this provision is in tune with the legal principle
stated by the Supreme Court in so many judgments, viz., autonomy
to the schools to fix their fee on the one hand and conferring
authority upon the DoE to regulate the quantum of fee with limited
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purpose to ensure that the schools are not indulging in profiteering .
The provision, thus, strikes a balance between the rights of the
schools on the one hand and duty cast upon the DoE on the other
hand. The only thing what is required at that stage is to We, therefore,
are of the opinion that Section 17(3) does not suffer from any vires or
arbitrariness and is not violative of Article 14 or 19(1)(g) of the
Constitution of India.
“62. With this, we revert back to the issues On Merits :
The clear legal position which emerges from the combined
reading of the judgments of the Supreme Court, directly on the issue
of revising tuition fee by Delhi schools under the Delhi Education Act,
and already stated in detail above, demonstrates that the schools
cannot indulge in commercialization of education which would
mean that the fee structure has to be kept within bound so as to
avoid profiteering. At the same time, “reasonable surplus” is
permissible as fund in the form of such surplus may be required for
development of various activities in the schools for the benefit of
students themselves. The guiding principle, in the process, is “to
strike a balance between autonomy of such institution and
measures to be taken in avoiding commercialization of education”.
The autonomy of the schools can be ensured by giving first right to
such schools to increase the fee. At the same time, quantum of fee
to be charged by unaided schools is subject to regulation by the DoE
which power is specifically conferred upon the DoE by virtue of
Section 17(3) of 1973 Act . This is specifically held by the Supreme
Court in Modern School (supra) and Action Committee Unaided
Private Schools (supra). Normally, therefore, in the first instance, it
is for the schools to fix their fee and/or increase the same which
right is conferred upon the schools as recognized in TMA Pai
(supra). The DoE can step in and interfere if hike in fee by a
particular school is found to be excessive and perceived as
“indulging in profiteering” . … … ”
(emphasis supplied)

73. It would therefore appear, that notwithstanding a series of authoritative
decisions by the courts, the question of fee fixation remained vexed,
which led to another 5-Judge Constitution Bench of the Supreme Court
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having to render a decision in Modern Dental College & Research
30
Centre & Ors. vs. State of Madhya Pradesh Ors. In Modern Dental
the Supreme Court yet again emphasised the right of an educational
institution to fix its own fee structure. The Supreme Court also observed
that the fee charged by an educational institution may vary from
institution to institution, depending upon the quality of education and
other facilities that are made available by a particular institution. In this
verdict, the following observations of the Supreme Court are instructive:
“ 71. We may again remind ourselves that though right to
establish and manage educational institution is treated as a right to
carry on “occupation”, which is the fundamental right under Article
19(1)(g), the Court in T.M.A. Pai Foundation [T.M.A. Pai Foundation
v. State of Karnataka, (2002) 8 SCC 481 : 2 SCEC 1] had also
cautioned such educational institution not to indulge in profiteering
or commercialisation. That judgment also completely bars these
educational institutions from charging capitation fee. This is
considered (sic, conceded) by the appellants themselves that
commercialisation and exploitation is not permissible and the
educational institutions are supposed to run on “no profit, no loss
basis”. No doubt, it was also recognised that the cost of education
may vary from institution to institution and in this respect many
variable factors may have to be taken into account while fixing the
fee. It is also recognised that the educational institutions may
charge the fee that would take care of various expenses incurred by
these educational institutions plus provision for the expansion of
education for future generation . At the same time, unreasonable
demand cannot be made from the present students and their parents.
For this purpose, only a “reasonable surplus” can be generated .
*
“75. To put it in a nutshell, though the fee can be fixed by
the educational institutions and it may vary from institution to
institution depending upon the quality of education provided by

30
(2016) 7 SCC 353

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each of such institutions, commercialisation is not permissible . In
order to see that the educational institutions are not indulging in
commercialisation and exploitation, the Government is equipped with
necessary powers to take regulatory measures and to ensure that
these educational institutions keep playing vital and pivotal role to
spread education and not to make money. So much so, the Court was
categorical in holding that when it comes to the notice of the
Government that a particular institution was charging fee or other
charges which are excessive , it has a right to issue directions to such
an institution to reduce the same.
*
“77. This Court also held that for fixing the fee structure,
the following considerations are to be kept in mind : (Modern School
case [Modern School v. Union of India, (2004) 5 SCC 583 : 2 SCEC
577], SCC p. 601, para 16)
(a) the infrastructure and facilities available ;
(b) investment made, salaries paid to teachers and staff ;
(c) future plans for expansion and/or betterment of
institution subject to two restrictions viz. non-profiteering
and non-charging of capitation fees .
31
We may hasten to add here itself that Section 9 of the 2007
Act takes care of the aforesaid parameters in abundance.
(emphasis supplied)
74. It may be mentioned here for sake of completeness, that in at least 04
other cases, dealt with by two separate Co-ordinate Benches of this court,
the same principle of fiscal autonomy for private, un-aided, recognised
schools has been upheld, holding that the scope for interference by the
DoE as the regulator is limited; and, in relation to fixation of fee, the
scope of interference is restricted only to cases of profiteering or

31
M. P. Niji Vyavasayik Shikshan Sanstha (Pravesh Ka Viniyaman Avam Shulk Ka Nirdharan) Adhiniyam,
2007
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commercialisation by a school (and of course, of charging of capitation
fee, which is not an issue raised in the present proceedings). These cases
32 33

are: Action Committee; Ramjas School; Mahavir Sr. Model
34
School; and Bluebells School International Kailash.
75. Interestingly, in Indian School the Supreme Court has viewed the same
issue through the lens of the executive power of the State under Article
162 of the Constitution. In that case, the Supreme Court has, yet again,
ruled that though the State has the power to regulate fixation of fee by
private, un-aided schools, such power can only be exercised in
circumstances where the school indulges in profiteering or
commercialisation; but short of that, the State cannot interfere in the
autonomy of a school to fix its own fee even under the cloak of Article
162 of the Constitution.
76. The relevant paragraphs of the judgment in Indian School may be
noticed below:
“ 117. As such, it is not open to the State Government to issue
directions in respect of commercial or economic aspects of legitimate
subsisting contracts/transactions between two private parties with
which the State has no direct causal connection, in the guise of
management of pandemic situation or to provide “mitigation to one”
of the two private parties “at the cost of the other”. This is akin to —
rob Peter to pay Paul. It is a different matter, if as a policy, the State

32
filed against this decision is pending before the Division Bench; in which the Division Bench has, by way
of an interim order, directed that “ … … none of the land clause Schools will proceed to collect the amount
constituting the interim fee hike… … ”
33
relates only to schools that are not subject to a ‘land-clause’ - cf. para 71; LPA No. 488/2022 filed against
the judgment was disposed-of vide order dated 20.01.2025 as barred by limitation; issue on merits was kept
open.
34
In para 16 of this judgment the court observes : “Thus, if there is no land clause, unaided schools are not
mandated to obtain prior approval from the DoE for modifying their fee structure, but are only expected to
submit a statement of fees as per Section 17(3).” However the issue whether schools with a ‘land clause’ are
required to take prior approval of the DoE has not been discussed or adjudicated in this case; and the
foregoing observation is therefore clearly an obiter-dictum .

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Government takes the responsibility to subsidise the school fees of
students of private unaided schools, but cannot arrogate power to
itself much less under Article 162 of the Constitution to issue
impugned directions (to school management to collect reduced school
fee for the concerned academic year). We have no hesitation in
observing that the asservation of the State Government of existence
of power to issue directions even in respect of economic aspects of
legitimate subsisting contracts/transactions between two private
parties, if accepted in respect of fee structure of private unaided
schools, is fraught with undefined infinite risk and uncertainty for the
State. For, applying the same logic the State Government may have
to assuage similar concerns in respect of other contractual matters
or transactions between two private individuals in every aspect of life
which may have bearing on right to life guaranteed under the
Constitution. That would not only open pandora’s box, but also push
the State Government to entertain demands including to grant
subsidy, from different quarters and sections of the society in the name
of mitigating measures making it financially impossible and unwieldy
for the State and eventually burden the honest tax payers — who also
deserve similar indulgence. Selective intervention of the State in
response to such demands may also suffer from the vice of
discrimination and also likely to impinge upon the rights of private
individual(s) — the supplier of goods or service provider, as the case
may be. The State cannot exercise executive power under Article 162
of the Constitution to denude the person offering service(s) or goods
of his just claim to get fair compensation/cost from the recipient of
such service(s) or goods, whence the State has no direct causal
relationship therewith.
“118. It is one thing to say that the State may regulate the
fee structure of private unaided schools to ensure that the school
management does not indulge in profiteering and
commercialisation, 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 “permissible”
school fees from its students . It is certainly not an essential
commodity governed by the legislation such as the Essential
Commodities Act, 1955 empowering the State to fix tariff or price
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thereof. In light of consistent enunciation by this Court including
the Constitution Bench, that 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. Ex consequenti, the
State Government also cannot exercise power under Article 162 of
the Constitution in that regard. ”
(emphasis supplied)

77. Upon a conspectus of the foregoing legal landscape, the powers of the
DoE to regulate fee fixation by a private, un-aided, recognised school,
may be summarised in the following terms:
77.1. Section 17(3) of the DSE Act requires every recognised school

(which would include every private, un-aided, recognised school)
to only submit a statement of fees to the DoE before the
commencement of each academic session. No prior approval of
the DoE is required in relation to the statement of fees so
submitted; nor does the school have to await permission of the
DoE before charging fees as per the statement of fees so
submitted. The DoE can only intervene if during an on-going
academic session , a private, un-aided, recognised school demands
fees in excess of what is stated in the statement of fees submitted
to the DoE before the commencement of that academic session.
That is to say, any mid-session increase in fees requires prior
approval of the DoE. In view thereof, the
orders/circulars/directions issued by the DoE to the extent they are
contrary to the aforesaid position are ultra-vires the provisions of
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the DSE Act and the DSE Rules. Point for determination No. 2.1
stands answered accordingly .
77.2. The DoE’s regulatory power over a private, un-aided, recognised
school in relation to fixation of fees is strictly ring-fenced . In view
of the Supreme Court precedents, notably T.M.A. Pai Foundation,
Islamic Academy, Modern School and P.A. Inamdar , a private, un-
aided, recognised school enjoys significant autonomy in fixing its
fees provided the school does not indulge in profiteering or
commercialisation and does not charge capitation fees . The DoE’s
authority to regulate fees does not extend to general interference
in the fee structure of a private, un-aided, recognised school. As
discussed above, the orders/circulars/directions under challenge in
the present proceedings do not align with the law enunciated by
the Supreme Court in the precedents hereinbefore cited, and are
therefore in contravention of the law laid down by the Supreme
Court. Point for determination No. 2.2 stands answered
accordingly .
77.3. For clarity, ‘profiteering’ has been defined as “taking advantage
of unusual or exceptional circumstances to make excessive
35

profits”. The DoE can only intervene if a private, un-aided,
recognised school is found to be indulging in profiteering or
commercialisation or is charging capitation fees; and not merely
because the school has surplus funds or wishes to increase its fees.
The DoE cannot block a fee increase declared by a school in the

35
Bluebells School International Kailash , para 49

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statement of fees filed before the commencement of an academic
session until such time that it finds that the increase amounts to
profiteering or commercialisation. Clearly therefore, the
orders/circulars/ directions under challenge go beyond the DoE’s
mandated role under the law. Point for determination No. 2.3
stands answered accordingly .
77.4. The utilisation of funds collected by a school from students is
governed by Rule 177 of the DSE Rules. The provisions regarding
utilisation of school funds do not give to the DoE any power to
interdict a fee fixation by a school; and misuse or misapplication
of funds by a school is a separate issue . The mere existence of
surplus funds in a school’s accounts, in and of itself, is no ground
for such intervention. The actions of the DoE complained-of in the
present proceedings exceed the DoE’s remit under the statute and
are therefore beyond its regulatory functions as envisaged in law.
77.5. To reiterate, the scheme of the DSE Act does not permit the DoE
to audit the accounts of a private, un-aided, recognised school at
the stage of fee fixation by a school under section 17(3) of the DSE
Act; but such audit is envisaged under section 18(5) of the DSE
Act, under which provision a school is liable to file with the DoE
its duly audited financial returns, which are liable to be audited by
such authority as may be prescribed by the DoE. What is
contemplated under section 18(5) of the DSE Act however is a
separate and subsequent step, where the audited financial and
other returns filed by a school with the DoE are liable to be
audited by the prescribed authority, and if the DoE finds evidence
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of profiteering or commercialisation or charging of capitation fee,
the DoE is entitled to take appropriate action against a particular
school in exercise of its powers under the DSE Act.
77.6. Rule 180 of the DSE Rules prescribes that the returns
contemplated in section 18(5) of the DSE Act shall be filed with
st
the DoE by the 31 day of July of each year in accordance with
Appendix II, further stipulating that the accounts and records of
the school shall be subject to examination by auditors and
inspecting officers authorised by the DoE and by the Comptroller
and Auditor General of India.
77.7. To be sure, the stage for conducting an audit under section 18(5)

of the DSE Act arises after the stage of filing of a statement of fee
by the school under section 17(3) of the DSE Act. In the opinion
of this court, a finding of profiteering or commercialisation by a
school can only be returned by the DoE after conducting an audit
under section 18(5) of the DSE Act based on the returns filed
under Rule 180 of the DSE Rules.
78. However, it is the admitted position that all the orders impugned by the
schools in the present batch of petitions have arisen from the schools
having sought prior approval for increasing their fee at the
commencement of an academic session, as DoE had directed the schools
to do, contrary to what is contemplated under section 17(3) of the DSE
Act. As has been held by this court, the law does not require a private,
un-aided, recognised school to seek any prior approval whatsoever for
increasing its fee except where a school proposes to increase its fee
during an ongoing academic session.
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79. It may further be observed, that a perusal of the impugned orders would
show that though there is passing reference in the orders that a given
school has indulged in profiteering or commercialisation, those
observations are only gratuitous rhetoric, arising from DoE’s flawed
understanding that schools are to follow accounting norms that are
different from those contained in the ICAI Guidance Note or otherwise
under the IT Act. These observations of profiteering or
commercialisation are not based on any definitive finding by the DoE
that a given school has indulged in profiteering or commercialisation.
80. Since in the present batch of matters, the DoE’s decision to reject the
fee-hike proposals made by the various schools, whether in whole or in
part, arises from a misconceived exercise , the DoE’s action is vitiated
and untenable in law. Such exercise could not have been the basis for the
DoE to disallow any fee-hike.
81. Furthermore, a perusal of the impugned orders also shows, that in each
of the impugned orders the DoE has set-out their assessment of the
financial books of individual schools; and the DoE has, in its own way,
computed what they say are ‘funds available’ with a particular school in
a given year. As discussed above, the DoE’s understanding of how funds
available with a school are to be calculated is flawed, since the DoE has
included certain heads of funds which cannot be added to the funds
available. Based on such calculation, the DoE has come to its own figure
of the estimated surplus funds available with a particular school; and has
thereby concluded that the school has sufficient funds for meeting the
expenses for the ensuing academic year.
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82. As held by a Co-ordinate Bench of this court in Mahavir Sr. Model
36
School , the mere availability of the surplus funds in the hands of the
school cannot, in and of itself, lead to the conclusion that the school has
indulged in profiteering or commercialisation of education. A school
may hold a certain quantum of surplus funds, and may put those funds
to justifiable use for the betterment, improvement and development of
the school, without that amounting to profiteering or commercialising.
To be sure, the observation of the Supreme Court in Islamic Academy ,
to the effect that a reasonable surplus in the hands of the educational
institution, “ … … should ordinarily vary from 6% to 15% ... … ” was not
an observation cast in stone, as is evident from the wording of that
observation itself:
“ 156. While this Court has not laid down any fixed guidelines
as regards fee structure, in my opinion, reasonable surplus should
ordinarily vary from 6% to 15% , as such surplus would be utilized
for expansion of the system and development of education. ”

(emphasis supplied)
83. For purposes of clear interpretation, it may also be noted that the

observation of the Supreme Court in Modern School , saying that “… …
we are of the view that the management of recognised unaided schools
should be permitted to charge development fee not exceeding 15%, of
37
the total annual tuition fee … … ” , was also made only in relation to
development fee that a school may charge and cannot be read as an
observation generally limiting the extent of surplus funds that a school
may hold .

36
cf. paras 29 to 31

37
cf. para 25

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84. It is astounding that the DoE’s manner of computing the funds available
with a school is wholly contrary even to the consistent pronouncements
of the courts, including those of the Supreme Court. This approach has
led to an erroneous and unsustainable determination by the DoE that a
given school possesses adequate funds, and that any proposal for a fee
increase would necessarily amount to profiteering or commercialisation.
It is also pertinent to observe, that were a school to maintain its accounts
in a manner inconsistent with what is prescribed for not-for-profit
institutions, the financial management of the school would run foul of
the provisions of the IT Act. In practical terms, such a position would
compel the school to maintain two distinct sets of accounts - one, for
compliance with the Income Tax laws, and another, for adherence to the
DSE Act. Needless to say, such a situation cannot be countenanced.
85. Indeed, the interpretation adopted by the DoE regarding the manner in
which a school is to utilise its funds not only runs contrary to the
provisions of the Income Tax laws but also falls foul of Rule 176 of the
DSE Rules itself, which prohibits the diversion of funds for purposes
other than those for which they are collected. The DoE’s view is
therefore, inconsistent both with established fiscal principles as well as
the very regulatory framework that the DoE is tasked to uphold. Point
for determination No. 2.4 stands answered accordingly .
VII. A NSWER TO P OINT FOR D ETERMINATION N O . 4

4. Whether the DoE ’ s regulatory powers are different in
relation to schools that are not governed by a ‘ land-clause’ or ‘ prior
approval clause ’ compared to those schools that are governed by
such clause.

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86. Much emphasis has been laid by the DoE on the judgment of the
Division Bench in Justice for All , to argue that the said judgment
empowers them to enforce the ‘land-clause’ by regulating fee-hike by
schools to ensure that schools do not indulge in profiteering and
commercialisation. It is the DoE’s contention that a school governed by
a land-clause must obtain prior approval from the DoE before effecting
any fee-hike at any stage of an academic year.
87. However, a plain reading of the said decision would show that nowhere
in that case has the Division Bench observed anything beyond what is
contained in the statutory provisions. The scope of regulation by the DoE
is summarized in para 17 of the Division Bench ruling in Justice for All ,
which is required to be noted:
“17. Thus it is clear that the schools cannot indulge in
profiteering and commercialization of school education. Quantum of
fees to be charged by unaided schools is subject to regulation by DoE
in terms of the power conferred under Section 17(3) of DSE Act,
1973 and he is competent to interfere if hike in fee by a particular
school is found to be excessive and perceived as indulging in
profiteering . So far as the unaided schools which are allotted land by
DDA are concerned, in the light of the decision of the Supreme Court
in Modern School v. Union of India (supra), we are clear in our mind
that they are bound to comply with the stipulation in the letter of
allotment . Para 28 of the majority judgment in Modern School v.
Union of India (supra) upholds the binding nature of the stipulation
in the letter of allotment issued by the DDA that the school shall not
increase the rate of tuition fees without the prior sanction of DoE .”
(emphasis supplied)
88. It is necessary to clarify that the 137 schools that are petitioners in the
present batch of matters are all private, un-aided, recognised schools.
However, some of the petitioner schools are situate on ‘private land’,
that is to say, on land that is privately owned by the school or by the body
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that owns the school; while other schools are situate on land allotted to
them by a land-owning/land administering agency of the government.
Furthermore, some of the schools to whom land has been allotted by
government hold the land on lease/license basis under letters of
allotment, some of which letters contain a covenant which requires the
school to seek prior permission of the DoE for fixing or increasing its
fee. Such covenant is commonly referred to as a ‘land-clause’.
89. Clearly therefore, the Division Bench has observed that schools cannot
be allowed to indulge in profiteering and commercialisation; that the
quantum of fee to be charged by the un-aided schools is subject to
regulation by DoE in terms of the power conferred under section 17(3)
of the DSE Act; and that the DoE is competent to interfere if the fee hike
is found to be excessive and the school is perceived as indulging in
profiteering .
90. Furthermore, the Division Bench has also said that in light of the
decision of the Supreme Court in Modern School , un-aided schools that
have been allotted land by the governmental agencies are bound to
comply with the terms of the allotment letter, which stipulation is
binding; and that schools cannot increase their tuition fee without prior
sanction of the DoE. In the opinion of this court, the observations of the
Division Bench are perfectly in consonance and accord with, and do not
detract from or augment, the provisions of section 17(3) of the DSE Act
nor of the land-clause. This is the clear inference that can be drawn from
the concluding para of Justice for All , where the Division Bench has
reiterated that the fee chargeable by an un-aided school is subject to
regulation by the DoE in terms of the power conferred under section
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17(3) of the DSE Act; and that the DoE is competent to interfere in a fee
increase, if it is found to be excessive and the school is perceived as
indulging in profiteering. As a matter of fact, in Justice for All the
Division Bench has relied upon the decision of the Supreme Court in
Modern School observing that schools are bound to comply with the
stipulation in their letter of allotment of land.
91. In the opinion of this court, para 27(c) of Modern School is being mis-
interpreted by the DoE to mean that it is the bounden duty of the DoE to
enforce the land-clause and demand that a private, un-aided, recognised
school must seek prior permission of the DoE before increasing its fee if
the school is situate on land allotted by governmental agency. In doing
so, the DoE loses sight of the fact that the direction of the Supreme Court
in that case is for the DoE “to look into letters of allotment" and
“ascertain” compliance with the land-clause - not enforce the land -
clause; and if the DoE finds non-compliance, to “take appropriate steps”
in that regard which steps would not imply that the DoE can overstep its
powers under the DSE Act and the DSE Rules.
92. Being an agency tasked with implementing the provisions of the DSE
Act, the DoE cannot overlook those provisions and instead begin
implementing the land-clause. Implementation of the land-clause is the
remit of the land-owning/land administering agency; and if the DoE
notices non-compliance with the land-clause, the proper course for the
DoE is to inform the land-owning/land administering agency about such
infraction, leaving it to that agency to take appropriate steps in that
regard.
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93. Also, on a plain reading of the land-clause referred-to in Modern School ,
it is clear that the very same clause also requires a school to “follow the
provisions” of the DSE Act. Furthermore, a clause contained in a letter
of allotment/lease/license, which is a contractual covenant between the
two parties, cannot amend the provisions of a statute, viz., the DSE Act.
Therefore, if the DSE Act only requires a school to give prior intimation
to the DoE about increase of fee at the beginning of the academic
session; and prior sanction of the DoE is only required if there is an
increase during an ongoing academic session, the land-clause cannot
impose an additional condition upon a school, which is in excess of what
the DSE Act requires.
94. Now, if there is dissonance between the wording of the land-clause,
which is only a contractual term between the land-owning/land
administering agency and the school and section 17(3) of the DSE Act,
which is a statutory provision, clearly the statutory provision must
prevail. Therefore, a school with a ‘land-clause’ in its allotment
letter/lease/license would also not require prior approval for increasing
its fee, except if it proposes to increase its fee mid-session, since a
contractual land-clause cannot operate to detract from or amend the
statutory provisions of the DSE Act and the DSE Rules.
95. To be abundantly sure, by embedding a land-clause in the allotment
letter or lease deed, the land-owning/land administering agency cannot
confer upon the DoE any additional powers to enforce an obligation
against a school in excess of the provisions of section 17(3) of the DSE
Act. Equally, the DoE cannot acquire any additional power to enforce
any additional obligations against a school, arising from the land-clause
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to which the DoE is not even a signatory. Clearly, it is section 17(3) that
must govern the relationship between the school and the DoE; and the
land-clause can at best only govern the relationship between the school
and the land-owning/land administering agency.
96. The correct construction of the land-clause, is one which harmonises the
wording of the land-clause with the wording of the section 17 of the DSE
Act - viz., that a school cannot increase its fee during an ongoing
academic session without prior sanction of the DoE. The first part of the
land clause must therefore be read so as to be in conformity with the
provisions of the DSE Act. In the opinion of this court, this is the correct
interpretation of the directions issued by the Supreme Court in Modern
School .
97. Ergo, the land-owning/land administering agency and the DoE must
operate within their own respective domains; and remain within the
remit of their respective powers under the separate statutes under which
they are created.
98. It may be stated for completeness, that breach of the land-clause may
entail consequences for a school at the hands of the land-owning/land
administering agency , but breach of the land-clause cannot result in
consequences for the school at the hands of the DoE .
99. In the opinion of this court, it is in fact possible to read the land-clause
in consonance with section 17(3) of the DSE Act, so as not to violate
either. The correct and meaningful reading of the land-clause is that the
requirement of prior sanction comprised in the land-clause arises only
when a school seeks to increase its fee mid-session, which is perfectly in
accord with the requirement contained in section 17(3).
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100. Accordingly, this court is of the view, that regardless of whether there
is or is not a land-clause in the terms of allotment of land to a private un-
aided, recognised school, the law does not require the school to take prior
permission or sanction of the DoE to increase its fee at the
commencement of an academic session; and the only requirement is that
a private, un-aided, recognised school must file its statement of fee with
the DoE before commencement of every academic session in terms of
section 17(3). In the opinion of this court, irrespective of whether a
school is governed by land-clause or prior approval clause or not, the
DoE’s regulatory powers under the DSE Act and the DSE Rules remain
the same. Point for determination No. 4 stands answered accordingly .
NSWER TO OINT FOR ETERMINATION O
VIII. A P D N . 1
1. Whether the orders/circulars/directions issued by the
Directorate of Education ( ‘ DoE ’ ) dealing with fee-hike proposals by
private, un-aided schools are in violation of principles of natural
justice, in that
1.1. these have been issued without affording an
opportunity of hearing to the schools;
1.2. these have been issued without making available
to the schools the recommendations for fee fixation made by
chartered accountants appointed by the DoE, which have
been relied upon by the DoE;
1.3. these have been passed without issuing any show
cause notice to the schools in relation to the disallowances
that were proposed to be made by the DoE.

101. It may be stated here that the specifics and particulars of the fee-hike

proposals submitted by the various petitioner schools, the years for
which such proposals were submitted, and the dates of their rejection by
the DoE, are irrelevant for the present consideration, since this court
proposes to deal only with the issue as to whether such proposals could
have been rejected without a show cause notice having been issued
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and/or without an opportunity of hearing before the DoE having been
granted to the schools.
102. It is the admitted position that in several of the cases in the present batch
of matters, the DoE did not issue to the concerned school a show-cause
notice and/or did not afford to the school an opportunity of hearing
before the Director of Education ; and without hearing, their fee-hike
proposals were rejected.
103. This very issue had come-up before a Co-ordinate Bench of this court in
Bal Bharati Public School , in which the Co-ordinate Bench held as
follows:
“ 31. Though several arguments were advanced by learned
Counsel appearing on both sides, as reflected hereinabove, regarding
the requirement of obtaining prior approval of the proposed hiking of
fees by the School, as well as the merits of the impugned decision, I
do not think it necessary to enter into the said submissions, or
examine their merit, as, in my view, the impugned Order cannot
sustain even on the ground of violation of the principles of natural
justice.
“ 32. The issue of whether an opportunity of personal hearing
could be read into a provision which does not, expressly, provide
therefor, has come in for judicial scrutiny in a number of cases, of
which one may refer, with advantage, to the judgement in Swadeshi
Cotton Mills v. U.O.I., (1981) 1 SCC 664, which contains the
following incisive exploration into the various facets of the principles
of natural justice and fair play and, in particular, the doctrine of audi
alteram partem: … …
*
“ 35. That the petitioner was not, in fact, heard, before the
impugned Order, dated 9th July, 2018, was passed, is an irrefutable
fact. Mr. Ramesh Singh, however, submits that, in the first place, the
scheme of the DSE Act did not require any such prior hearing to be
granted to the petitioner, before the passing of the impugned Order
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and, secondly, that the communication, dated 4th July, 2018,
effectively waived the opportunity of personal hearing , as extended
by the DOE on 30th June, 2018, and exhorted the DOE to take a
decision, on the matter, on merits. The two questions that arise for
consideration are, therefore, (i) whether the DSE Act, and the DSE
Rules, empowered the DOE to do away with the requirement of
prior hearing, before the passing of impugned Order dated 9th July,
2018 and (ii) whether the communication, dated 4th July, 2018,
from the petitioner, to the DOE passing the impugned order without
any opportunity of hearing to the petitioner, amounted to a waiver,
by the petitioner, of such opportunity .
“36. Both these issues, in my opinion, would be required to be
answered against the DOE, and in favour of the petitioner.
“37. The normal principle to be applied is against jettisoning
of the audi altertam partem requirement. The paragraphs, from
Swadeshi Cotton Mills (supra), extracted hereinabove, highlight the
importance of the said principle, as a cardinal principle of natural
justice and fair play of considerable vintage. It is noticed that the audi
alteram partem principle is devised by the court, to ensure that a just
decision was arrived at, and operates as a healthy check on abuse or
misuse of power and that, therefore, its reach should neither be
narrowed nor circumscribed. The said principle, it is further noted,
applies, equally, to administrative and quasi-judicial acts. Exclusion
of the principle is to be inferred only where such exclusion is to be
found, either specifically or by necessary implication, in the
provisions of the statute . In such cases, no doubt, the Court is
proscribed from ignoring the mandate of the legislature. In
examining, however, whether the statute excludes the audi alteram
partem principle, either expressly or by necessary implication, the
court is to be guided by (i) the language of the statute, (ii) the basic
scheme of the provision, (iii) the nature of the power, (iv) the purpose
of conferment of the power and (v) the effect of exercise of the power.
Urgency can be cited as a ground to avoid compliance with the audi
alteram partem rule, in the sense of grant of a prior opportunity of
hearing before taking of the decision, only where the situation is
emergent, and calls for immediate action, failing which imminent
danger, injury or hazard to paramount public interest can be foreseen.
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Other circumstances, in which the audi alteram partem principle, in
the form of a prior opportunity of hearing, may not be mandatory are
where considerations of public safety or public health are involved to
the extent that “the clearest case of public injury flowing from the
least delay is self-evident”. In all other circumstances, it would be
impermissible to do away with the requirement of a prior opportunity
of hearing, before taking of a decision, on the grounds of urgency. The
concept of “civil consequences” has also, significantly, been
explained, as covering “infraction of not merely property or personal
rights, but of civil liberties, material deprivation and non-pecuniary
damages and, in its comprehensive connotation, (covering)
everything that affects a citizen in his civil life”. Holistically seen, the
judgment cautions courts from excluding the requirement of a pre-
decisional hearing, even if it is to be minimal. It is only when “viewed
pragmatically, it would paralyse the administrative progress or
frustrate the need for utmost promptitude”, that the principle can be
jettisoned. Every effort has to be made to salvage the applicability of
the audi alteram partem principle, at the pre-decisional stage .
*
“ 39. The above observations are not intended to represent an
exhaustive delineation of all the issues that arise for consideration.
Needless to say, the petitioner would be entitled to place, before the
DOE , all materials justifying the proposed increase of fee for the
2017-2018 academic session, as already recovered by the petitioner.
The petitioner would also be entitled to contend that no prior
approval of the DOE was required, before the fees were so enhanced,
and to make submissions on the applicability, in this context, of the
judgment of the Supreme Court in Modern School (supra), on which
the DOE relies.
*
“ 41. Principles of natural justice are required to be applied in
a pragmatic, rather than a dogmatic, manner. The various
communications, addressed by the DOE to the petitioner, reveal,
clearly, that a mass of information, involving several documents,
had been requisitioned thereby. Even given the sheer volume of the
material sought from the petitioner, the petitioner ought to have
been extended an opportunity of personal hearing, in order to
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explain the said material, before the DOE proceeded, on its own, to
analyse the material in the manner it thought best. After all, the
records of the institution could best be explained by the institution
itself, irrespective of whether such explanation meets with the
approval of the authority, taking the ultimate decision, or not. Such
an opportunity, in the present case, has, clearly, not been extended,
by the DOE, to the petitioner, thereby vitiating the impugned Order,
dated 9th July, 2018, even on that score. ”
(emphasis supplied)
104. It is also the grievance raised by several petitioner schools that the DoE
did not make available to them the recommendations for fee fixation
made by the chartered accountants appointed by the DoE, even though
those recommendations were relied upon by the DoE in rejecting their
fee-hike proposals.
105. In a case concerning the very same issue raised by a private, un-aided,
recognised school, another Co-ordinate Bench of this court in Mahavir
Sr. Model School had this to say:
“ Understanding the impugned order : Unpacking the legal
issues at stake
23. This brings us to the grounds of challenge to the impugned
order. Schools have alleged breach of the principles of natural justice
due to denial of opportunity to respond to the allegations. This
principle of audi alteram partem is the cornerstone of procedural
fairness and is vital to ensure a just and equitable outcome in any
legal process. It has been contended that the impugned order was
issued without prior notice of proposed disallowances. There is no
convincing response to this contention. The court is of the view that
purported inconsistencies mentioned in the impugned order should
have been revealed to the schools before passing of the impugned
order, giving them adequate opportunity to respond. Adherence to this
principle would make the decision-making process fair, transparent
and would preclude bias or prejudice from influencing the outcome
of a case. Thus, DoE must ensure that the schools are provided all
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relevant material and information, including the basis for any
objections or concerns raised by the regulatory authorities, while
scrutinising the statement of fee. This would allow the schools to
present their stand in a meaningful way . That said, in the opinion of
the court, instead of remanding the matter back to DoE at this
juncture, it would be appropriate to evaluate the validity of the
impugned order on its own merits. ”

(emphasis supplied)
106. The very same issue was again raised by a private, un-aided, recognised
school before another Co-ordinate Bench of this court in Ramjas School
in which the court held :
“ 91. This Court also finds substance in the submission, of Mr.
Sunil Gupta, regarding infraction, by the DoE, of the principles of
th
natural justice. The Order, dated 26 December, 2016, of the DoE, is
completely silent, regarding the findings of the statutory inspection
committee , constituted under Rule 180 of the DSE Rules. For no
apparent reason, whatsoever, the DoE chose not to act on the said
report and, instead, invited comments from an independent team
“
of accountants and financial experts as a second level check ”. The
report, and the findings, of this “independent team”, consequent to
the said “ second level check” were never shared with the petitioner;
neither was the petitioner co-opted in the said proceedings, or
afforded any opportunity by the said “independent team”. The DoE,
however, apparently chose not to rest content even with the findings
of the said “ independent team”, but subjected those findings to
further analysis by a third committee, constituted vide Order dated
th
4 October, 2016 , “ comprising of senior officer and accounts
functionaries”. The justification for this “ third level check” is,
again, not forthcoming from the record . Needless to say, the
petitioner was not included in the deliberations, even by this
committee, or afforded any opportunity by it. The findings of this
“ third” committee were also never shared with the petitioner and,
in fact, have not even been placed on record before this Court .
Adverse findings, arrived against the petitioner, following such a
procedure, cannot sustain the scrutiny of law for an instant. There
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has been complete abandonment, by the DoE, of the most
fundamental principles of natural justice and fair play , while
th
passing the Order, dated 26 December, 2016 which has, as an
inexorable consequence, to perish. ”
(emphasis supplied)
107. This court is in complete and respectful agreement with the views

expressed by the Co-ordinate Benches in the aforesaid decisions; and
would also share the observations made in those cases.
108. Additionally, this court would also rely upon a decision of the
Constitution Bench of the Supreme Court in Gullapalli Nageswara Rao
38
vs. A.P. State Road Transport Corpn. , to highlight that it is imperative
that a hearing must be given to a noticed-party before the same person,
who is to decide the matter . In this case, the Constitution Bench has
emphasized the inefficacy of a process where one person hears, and
someone else decides a matter. The Supreme Court has very aptly
described this position as destructive of the concept of judicial hearing
and reducing the hearing to an empty formality, in the following words:
“31. The second objection is that while the Act and the Rules
framed thereunder impose a duty on the State Government to give a
personal hearing, the procedure prescribed by the Rules impose a
duty on the Secretary to hear and the Chief Minister to decide. This
divided responsibility is destructive of the concept of judicial
hearing . Such a procedure defeats the object of personal hearing.
Personal hearing enables the authority concerned to watch the
demeanour of the witnesses and clear-up his doubts during the
course of the arguments, and the party appearing to persuade the
authority by reasoned argument to accept his point of view . If one
person hears and another decides, then personal hearing becomes
an empty formality . We therefore hold that the said procedure
followed in this case also offends another basic principle of judicial
procedure.”
(emphasis supplied)

38
1958 SCC OnLine SC 49
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109. It does not require much debate to hold, that if the material on which
DoE’s decision was based, in particular, the recommendations of their
chartered accountants, was not made available to a school; and a school
was not granted a hearing before the Director of Education it would not
have been possible for the school to place before the DoE their point of
view or to persuade them to accept a given fee-hike proposal by offering
requisite justification for it. Such course of action adopted by the DoE
was clearly in the teeth of the principles of natural justice.
110. As a sequitur to the above, Point for Determination No. 1 is answered by
holding that the orders/circulars/directions issued by the DoE dealing
with fee-hike proposals submitted by private, un-aided, recognised
schools:
Without issuing any show cause notice to the schools in relation
to the disallowances that were proposed to be made by the DoE;
and/or
Without making available to the schools the recommendations for
fee fixation made by the chartered accountants appointed by the
DoE, which have been relied upon by the DoE;
and/or
Without affording an opportunity of hearing to the schools before
the Director of Education
are clearly in violation of the settled principles of natural
justice for any quasi-judicial or administrative action, and
therefore deserve to be set- aside. Point for determination No.1
stands answered accordingly .
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NSWER TO OINT FOR ETERMINATION O
IX. A P D N . 3
3. Whether the directions issued and the disallowances made
by the DoE in relation to fee fixation are contrary to the provisions
of the Income Tax Act, 1961 and other taxation statutes, settled
accounting principles and guidance notes/practice directions issued
by the Institute of Chartered Accountants of India. More specifically,
whether school accounts are to be maintained on the
accrual/mercantile system of accounting or the cash system of
accounting.

111. To answer the larger point raised by way of these points for
determination, to begin with it must be noticed, that in Modern School
the Supreme Court has squarely dealt with this issue, and has clearly held
that since schools are to be run as ‘not-for-profit’ establishments, their
accounts are to be maintained in accordance with the “Fund-Based
System of Accounting”, as mandated by section 18(3) of the DSE Act.
The Supreme Court has also observed that schools must follow the extant
GAAP and adhere to accounting principles suitable for ‘not-for-profit’
and non-business organizations. It has been held that under GAAP, there
is a clear distinction between ‘revenue expenses’ and ‘capital
expenditure’, whereby items of revenue expenses (such as teachers’
salaries, allowances, etc.) are to be included in the fee charged to
students; but items of capital expenditure (such as building fund,
39
depreciation fund, etc.) cannot be charged from students.
112. Furthermore, the ICAI Guidance Note inter-alia answers the above
queries in the following manner:
“ 2. …… It has, however, been found that the present system
of accounting and financial reporting followed in schools does not
adequately meet the accountability concerns of the donor-agencies,
including Government, and other stakeholders such as the parents of

39
Modern School, para 20, 21

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