Private un-aided schools require no prior government approval for fee-hike at academic session commencement.

The petitioners, comprising 137 private unaided recognized schools in Delhi, challenged various orders and circulars issued by the Directorate of Education (DoE) that rejected their fee-hike proposals.

The DoE asserted that schools situate on land allotted by government agencies (governed by a ‘land-clause’) must obtain prior approval before increasing fees.

In processing these proposals, the DoE empaneled Chartered Accountants to audit school accounts, frequently disallowing various accounting heads (e.g., Development Funds, Depreciation Reserves) and treating them as "available funds" to meet revenue expenditures like salaries.

The petitioner schools alleged these actions violated their fundamental right under Article 19(1)(g) and transgressed the statutory framework of the Delhi School Education Act, 1973 (DSE Act).

1. Whether the DoE’s orders are ultra vires the DSE Act and contravene the law laid down by the Supreme Court regarding the autonomy of private unaided schools.

2. Whether the DoE’s regulatory powers differ between schools governed by a ‘land-clause’ and those that are not.

3. Whether the DoE violated principles of natural justice by rejecting fee proposals without affording a personal hearing or sharing the audit reports relied upon.

4. Whether school accounts must be maintained on an accrual/mercantile system and if the DoE can dictate the utilization of specific funds for revenue expenditure.

Section 17(3) of the DSE Act, which mandates schools to file a statement of fees before an academic session but requires "prior approval" only for mid-session hikes.

T.M.A. Pai Foundation v. State of Karnataka, establishing the "maximum autonomy" of unaided institutions in fee fixation.

Modern School v. Union of India, which balanced such autonomy against the DoE’s power to prevent "profiteering/commercialization" through Fund-Based Accounting.

The ICAI Guidance Note (2005) and GAAP, emphasizing that "accrual basis" accounting is scientifically superior and mandatory for not-for-profit entities.

The principle of audi alteram partem as applied per Gullapalli Nageswara Rao v. APSRTC, holding that he who hears must decide.

The court reasoned that the DoE fundamentally misinterpreted its regulatory role, mistakenly assuming that the "land-clause" grants it power to override Section 17(3) of the DSE Act; the court clarified that a contractual lease condition cannot supplant a statute.

Regarding accounting, the court found the DoE’s practice of adding capital reserves (like Depreciation or Development Funds) to "funds available" for revenue expenses was legally untenable and commercially imprudent, as it forced schools to violate Rule 176 of the DSE Rules, which prohibits diversion of earmarked funds.

The court held that the DoE’s rejection of fee hikes based on the mere existence of a surplus was flawed, as Islamic Academy allows a "reasonable surplus" (6-15%) for growth.

Procedurally, the DoE as a quasi-judicial authority failed to provide show-cause notices or personal hearings before the Director, rendering the orders void for violating natural justice.

The DoE may only intervene if it determines "profiteering" through a formal audit under Section 18(5) after the session begins.

The court directed that: (i) schools must maintain accounts on an accrual basis per ICAI/GAAP norms; and (ii) for mid-session hikes, the DoE must decide within two months or it shall be deemed approved.

To protect parents from retroactive burdens, the court ordered that proposed fee increases shall only apply prospectively from the April 2027 academic session, with no recovery of past arrears allowed.