Who should decide the fees charged by private schools?

How much should private schools charge as fees? The Delhi School (Verification of Accounts and Refund of Excess Fee) Bill, 2015 is the latest in the line of state legislations seeking to regulate fees in private schools. Already, Delhi, Maharashtra, Rajasthan and Tamil Nadu have passed similar regulations. Parents in states like Uttarakhand, Madhya Pradesh, Assam and Telangana too have been asking their governments to curb the high fees charged by private schools.

Attempts at regulating fee have always met fierce opposition from private schools, which argue that such laws infringe their autonomy. Others contend that high fees are a problem only in a few schools that cater to students from high-income backgrounds, so such regulations should not be uniformly imposed on all private schools. These debates have frequently found their way to the courts.

It is important to consider two questions.

1. Is it legal for the state to regulate fees charged by private institutions? 
2. If so, what factors should be kept in mind to ensure that the regulations are not merely populist?

Legal position

The constitutional basis for regulating the fees charged by private unaided educational institutions was considered by the Supreme Court in TMA Pai Foundation v. State of Karnataka (2002). The court laid down that states should devise appropriate machinery to ensure that there is no profiteering and capitation fees. However, a "reasonable surplus" to further education was permissible.

What this "reasonable surplus" has also been a subject of litigation. In Islamic Academy of Education v. State of Karnataka (2003), it was held that each institute could fix its own fees structure taking into consideration the need to generate funds for running it and providing necessary facilities for the students. The surplus so generated should be used to further the growth of that institution. Similarly, the Supreme Court in PA Inamdar (2005), affirming the TMA Pai ruling, allowed private institutions the freedom to devise their own fee structure which could be regulated to prevent profiteering and capitation fee.

It is important to note that these judgments largely dealt with fees regulation in higher and professional education institutions. In Modern School v. Union of India (2004), the issue of fees hikes in private schools in Delhi was considered by the Supreme Court. The court, upholding the right of unaided educational institutions to generate "reasonable surplus" for development and expansion, held that this autonomy should not lead to commercialisation of education. Further, the private schools should follow the principles of accounting used by non-profit organisations.

Two points emerge from these judgments.

• First, profiteering and charging of capitation fee are not permissible. Consequently, state regulation is warranted in the interest of keeping a check on both these activities. 
• Second, private schools are entitled to generate a reasonable surplus out of the fee charged. Thus some profits are permissible - as long as they are not excessive.

Different models of regulation

Tamil Nadu was the first state to enact a law for regulating fee charged by private schools in 2009. Under this law, a state-appointed committee determines whether the fee charged by each school is in accordance with prescribed factors. This law was challenged before the Madras High Court in 2010, which upheld it on the grounds that it did not prescribe a rigid fee structure but only invited the schools to submit the same so it may be verified. Rajasthan sought to emulate this model in 2012, although it has since run into legal complications. The Rajasthan High Court has flagged some issues with the uniform fee-fixation formula being used by the regulatory committee. The matter is still under litigation

Maharashtra enacted a different model, under which no attempt is made to fix the fees. Schools are required to get their fee structure approved by an executive committee comprising parents and teachers, failing which the decision is forwarded to a district-level committee. This law came into force at the end of 2014 and is yet to see proper implementation. It has run up against a fresh round of protests by private schools who are against the requirement to get their fee approved by parents.

So, how different is the Delhi bill? This bill prefers an indirect approach in regulating not the amount of fee but the way it is accounted for and utilised. It establishes a committee to verify financial returns of schools by ascertaining compliance with existing legal provisions on maintenance and utilisation of funds. It can direct refund of any excess fee collected and hear complaints from parents regarding non-refund of excess fee or misuse of school funds. The Bill has already attracted opposition from parent associations claiming that these provisions are insufficient to curb the problem. Arguably, the success of the bill will depend on the regularity and promptness with which the account verifications are carried out.

Some considerations for effective policy

Past experiences and current challenges suggest certain considerations that governments contemplating fee regulation should keep in mind. First, the state should clearly articulate the objectives behind regulating fee. It must be acknowledged that schools are free to set their fee structure and the state can only verify whether the fee charged is reasonable and does not amount to profiteering. In the interest of certainty and efficiency, it would be useful to define "profiteering", and "reasonable surplus" allowed to private schools.

Secondly, there is a need for transparency in private school finances. A series of ad hoc committees have investigated fee hikes in private schools in Delhi over the years and found many irregularities in the way schools manage their funds. In 2010, an investigation by Comptroller and Auditor General revealed that many prominent schools in the capital had been sitting on excessive surpluses, but were still raising their fee every year. Regulations must include strong provisions on accountability and transparency. The accounting standards for schools recommended by the Supreme Court in the Modern School case should be strictly enforced.

Lastly, it is crucial that a regulation strikes a balance between protecting the interests of students and parents, and preserving the autonomy of schools. A policy skewed towards either would not only be ineffective but also potentially illegal.

Shruti Ambast is a Research Fellow and and Akriti Gaur is a Junior Research Fellow at the Education Initiative, Vidhi Centre for Legal Policy. They had provided assistance to the Government of NCT Delhi on the Delhi School (Verification of Accounts and Refund of Excess Fee) Bill 2015 in its early stages.