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CASE NO.: Appeal (civil)  2699 of 2001

PETITIONER: Modern School

RESPONDENT: Union of India & Ors.

DATE OF JUDGMENT: 27/04/2004

BENCH: CJI V.N. KHARE & S.H. KAPADIA.

JUDGMENT: J U D G M E N T

WITH

CIVIL APPEAL No.2700 OF 2001

The Action Committee Unaided Private Schools & Ors.      Versus Director of Education, Delhi & Ors.      

WITH

CIVIL APPEAL No.2701 OF 2001

New Era Public School            Versus Union of India & Ors.    

WITH

CIVIL APPEAL No.2702 OF 2001

Mahavir Senior Model School      Versus Govt. of NCT of Delhi & Anr.     

WITH

CIVIL APPEAL No.2703 OF 2001

Mater Dei School & Ors.                          Versus Director of Education, Delhi & Ors.      

WITH

CIVIL APPEAL No.2704 OF 2001

Carmel Convent School & Ors.             Versus

Director of Education, Delhi & Ors.      

WITH

CIVIL APPEAL Nos.2705-2706 OF 2001

St. Xavier’s School etc.                

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Versus Director of Education, Delhi & Ors.      

WITH

CIVIL APPEAL No.2707 OF 2001

Apeejay Public School & Ors.             Versus Delhi Abibhavak Mahasangh & Ors.         

WITH

CIVIL APPEAL No.2708 OF 2001

Bluebells Public School                  Versus Union of India & Ors.                    

WITH

CIVIL APPEAL No.2709 OF 2001

D.A.V. Public School & Ors.              Versus Director of Education, Delhi & Ors.      

AND

CIVIL APPEAL No.2710 OF 2001

Mount Carmel School Society & Anr.       Versus Director of Education, Delhi & Ors.      

KAPADIA, J.

       In this batch of civil appeals, following three points arise  for determination:\027  (a)     Whether the Director of Education has the  authority to regulate the quantum of fees  charged by un-aided schools under section  17(3) of Delhi School Education Act,  1973?

(b)     Whether the direction issued on 15th  December, 1999 by the Director of  Education under section 24(3) of the Delhi  School Education Act, 1973 stating inter  alia that no fees/funds collected from  parents/students shall be transferred from  the Recognised Un-aided Schools Fund to  the society or trust or any other institution,  is in conflict with rule 177 of Delhi School  Education Rules, 1973?

(c)     Whether managements of recognised  unaided schools are entitled to set-up a  Development Fund Account under the  provisions of the Delhi School Education  Act, 1973?

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Since the aforestated three points arise in all the civil  appeals the same are taken up together and disposed-of by this  common judgment.

INTRODUCTION:

In modern times, all over the world, education is big  business.  On 18th June, 1996, Professor G. Roberts \026 Chairman  of the Committee of Vice-Chancellors and Principals  commented: "The annual turnover of the higher education  sector has now passed the #10 billions mark.  The  massive increase in participation that has led to  this figure, and the need to prepare for further  increases, now demands that we make  revolutionary advances, in the way we structure,  manage and fund higher education."

In the book titled ’Higher Education Law’ (Second  Edition) by David Palfreyman and David Warner, it is stated  that in modern times, all over the world, education is big  business.  On account of consumerism, the students all over the  world are restless.  That schools in private sector which charge  fees may be charitable provided they are not run as profit- making ventures.  That educational charity must be established  for the benefit of the public rather than for the benefit of the  individuals.  That while individuals may derive benefits from  an educational charity, the main purpose of the charity must be  for the benefit of the public.

At the outset, we hasten to clarify that although we are in  agreement with the authors, quoted above, we do not wish to  generalize and in the Indian context we may state that there are  good schools which even today run keeping in mind laudable  charitable objects.

The basic question before us has been succinctly put  earlier by this Court in Unni Krishnan, J.P. & Ors. v. State of  A.P. & Ors. [(1993) 1 SCC 645] in following terms:\027 "196.           Even so, some questions do arise \027  whether cost-based education only means running  charges or can it take in capital outlay?  Who pays  or who can be made to pay for establishment,  expansion and improvement / diversification of  private educational institutions?  Can an individual  or body of persons first collect amounts (by  whatever name called) from the intending students  and with those monies establish an institution \027  an activity similar to builders of apartments in the  cities?  How much should the students coming in  later years pay?  Who should work out the  economics of each institution?  Any solution  evolved has to take into account all these variable  factors. But one thing is clear: commercialization  of education cannot and should not be permitted.   The Parliament as well as State Legislatures have  expressed this intention in unmistakable terms.   Both in the light of our tradition and from the  standpoint of interest of general public,  commercialization is positively harmful; it is  opposed to public policy.  As we shall presently  point out, this is one of the reasons for holding that  imparting education cannot be trade, business or  profession.  The question is how to encourage

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private educational institutions without allowing  them to commercialize the education?  This is the  troublesome question facing the society, the  Government and the courts today."

FACTS:

Delhi Abibhavak Mahasangh, a federation of parents  association moved the Delhi High Court by writ petition  No.3723 of 1997 challenging the fee hike in various schools in  Delhi.  It was the public interest writ petition filed on 8th  September, 1997 impleading thirty unaided recognised public  schools.  The grievance of the Mahasangh was that recognized  private unaided schools in Delhi are indulging in large scale  commercialization of education which was against public  interest.  That commercialization has reached an alarming  situation on account of failure of the Government to perform its  statutory functions under Delhi School Education Act, 1973  (hereinafter for the sake of brevity referred to as "the Act").    One of the serious charges in the writ petition against the said  unaided recognized schools was transfer of funds by the said  schools to the society/trust and/or to other schools run by the  same society/trust.  In this connection, it was alleged that there  was excess of income over expenditure under the head ’tuition  fee’ and further interest free loans of huge amount have been  taken from parents for giving admissions to the children.  It was  also alleged that huge amounts collected remained unspent  under the head ’building fund’.  On the other hand, before the  High Court, it was submitted on behalf of the schools that the  above increase in fees, annual charges, admissions fees and  security deposit was justified on account of increase in the  expenses and in particular salaries of teachers in compliance of  recommendations of 5th Pay Commission.   

The key issue before the High Court, therefore, was \026  whether unaided recognized schools were indulging in  commercialization of education?  The High Court found from  the reports submitted by the inspection teams appointed by the  Government that there were irregularities in the management of  the accounts.  Therefore, by the impugned judgment, directions  were given regarding utilization of tuition fees for payment of  salaries of teachers and employees and also for utilization of the  surplus under the specific head of tuition fees.   By the  impugned judgment, the High Court declared that the said Act  and the Rules framed thereunder prohibited transfer of funds  from the schools to the society/trust or to other schools run by  the same society/trust.  By the impugned judgment, the High  Court appointed a committee headed by Ms. Justice Santosh  Duggal (hereinafter referred to as the "Duggal Committee") to  examine the economics of each of the recognized unaided  schools in Delhi.  Being aggrieved, the unaided recognized  schools and the Action Committee of Unaided Private Schools  have come by way of appeal to this Court.  During the  pendency of the civil appeals, the Duggal Committee submitted  its report which has been accepted by the Government of  National Capital Territory of Delhi (Directorate of Education),  consequent upon which the Director of Education has issued  directions to the managing committees of all recognized  unaided schools in Delhi under section 24(3) read with section  18(4) & (5) of the Act, which directions are the subject matter  of the civil appeals herein.

ANALYSIS OF DELHI SCHOOL EDUCATION ACT, 1973:

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       The Act is enacted to provide for development of school  education in Delhi and for matters connected thereto.  Section  2(v) defines "school property" to mean all movable and  immovable property belonging to, or in possession of, the  school including land, building, playground, hostel, cash,  reserve funds, investments and bank balances.  Section 2(x)  defines "unaided minority school" to mean a recognised  minority school which does not receive any aid.  Section 4 inter  alia states that no school shall be recognised unless it has  adequate funds to ensure regular payment of salary and  allowances to its employees.  Section 17(3) inter alia states that  every recognised school shall file before the commencement of  each academic session with the Director a full statement of fees  to be levied during the following academic session and no  school shall charge during that academic session any fees in  excess of the fees specified in such statement.  Section 18(4)(a)  inter alia states that income derived by unaided schools by way  of fees shall be utilized only for prescribed educational  purposes.  Similarly, under section 18(4)(b), charges and  contributions received by the school shall be utilized only for  the specific purpose for which they were received.   Under  Section 24(3), the Director is empowered to give directions to  the management to rectify defects in the working of the school.

       At this stage, we quote hereinbelow rules 172, 175, 176  and 177 of Delhi School Education Rules, 1973 (hereinafter for  the sake of brevity referred to as "the 1973 Rules"):\027 "172.    Trust or society not to collect fees, etc.,  schools to grant receipts for fees, etc., collected by  it.\027 (1)     No fee, contribution or other charge  shall be collected from any student by the trust or  society running any recognised school; whether  aided or not.           (2)     Every fee, contribution or other charge  collected from any student by a recognised school,  whether aided or not, shall be collected in its own  name and a proper receipt shall be granted by the  school for every collection made by it.

175. Accounts of the school how to be  maintained.\027 The accounts with regard to the  School Fund or the Recognised Unaided School  Fund, as the case may be, shall be so maintained as  to exhibit clearly the income accruing to the school  by way of fees, fines, income from building, rent,  interest, development fees, collections for specific  purposes, endowments, gifts, donations,  contributions to Pupils’ Fund and other  miscellaneous receipts, and also, in the case of aided  schools, the aid received from the Administrator.

176.    Collections for specific purposes to be spent  for that purpose.\027 Income derived from  collections for specific purposes shall be spent only  for such purpose.

177.    Fees realized by unaided recognised  schools how to be utilized. \027(1) Income derived  by an unaided recognised school by way of fees  shall be utilized in the first instance, for meeting  the pay, allowances and other benefits admissible  to the employees of the school:

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       Provided that savings, if any from the fees  collected by such school may be utilized 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."          We also quote hereinbelow clause (7) and clause (8) of  the Order dated 15th December, 1999 issued by the Director  under Section 24(3) of the Act in terms of the Duggal  Committee report:\027 "7.     Development fee, not exceeding ten per  cent, of the total annual tuition fee may be charged  for supplementing the resources for purchase,  upgradation and replacement of furniture, fixtures  and equipment.  Development fee, if required to be  charged, shall be treated as capital receipt and shall

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be collected only if the school is maintaining a  Depreciation Reserve Fund, equivalent to the  depreciation charged in the revenue accounts and  the collection under this head alongwith and  income generated from the investment made out of  this fund, will be kept in a separately maintained  Development Fund Account.

8.      Fees/funds collected from the  parents/students shall be utilized strictly in  accordance with rules 176 and 177 of the Delhi  School Education Rules, 1973.  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."          ARGUMENTS: On behalf of the schools, it has been urged that under  above rule 177(1), income derived by unaided schools from  fees shall be utilized firstly to meet salaries of employees and  the balance could be utilized to establish any other school or to  assist any other school or institution under the same  management and, therefore, the legislature intended to permit  societies/trusts to utilize such savings to meet capital/contingent  expenditure or to meet one or more educational purposes which  included establishment of any other school under the same  management.  That rule 177 is a very sensible provision of law.   That on account of such provision, societies/trusts have been  able to expand their educational institutions.  That because of  this provision, educational societies/trusts are able to establish  other schools in Delhi under the same management.  It was  submitted that if transfer of funds is prohibited as mentioned in  clause 8, it would make big industrial houses to open up  schools for the rich classes sacrificing the interest of the middle  and lower middle classes, which would be against public  interest.  It was further submitted that clause 8 was in conflict  with rule 177(1)(b), which permits the management to establish  any other recognized school and, therefore, clause 8 was bad in  law and of no legal effect.  It was urged on behalf of the  management that in the impugned judgment the High Court had  erred in holding that tuition fees should be ordinarily utilized  for payment of salaries and if incidental surplus remained, it  could be used for other educational purposes but that would not  empower the management to levy higher tuition fees.  It was  submitted on behalf of the management that the Government  has no authority to regulate the fees payable by the students of  unaided schools as indicated by section 17(3) of the Act which  required the management only to submit to the Director a full  statement of fees leviable during the ensuing academic session.   In this connection, section 17(3) was contrasted with section  17(1) and section 17(2) of the Act, which empower the  Government to regulate the fees payable by the students of  aided schools.  It was next submitted that the society/trust was  entitled to charge and regulate development fees without any  limit and that the Director has no authority to limit such  development fees as purported to have been done under clause  (7) of the order dated 15th December, 1999.

FINDINGS:         The first point for determination is \026 whether the  Director of Education has the authority to regulate the fees of  unaided schools?  

       At the outset, before analyzing the provisions of 1973  Act, we may state that it is now well settled by catena of

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decisions of this Court that in the matter of determination of the  fee structure the unaided educational institutions exercises 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  commercialization of education. Hence, we have to strike a  balance between autonomy of such institutions and measures to  be taken to prevent commercialization 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 1973 Act.   

As far back as 1957, it has been held by this Court in the  case of State of Bombay v. R.M.D. Chamarbaugwala reported  in [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. (supra), looking to the above ground realities, this  Court formulated a self-financing mechanism/scheme under  which institutions were entitled to admit 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 Medical Council of  India, University Grants Commission etc. were directed to  make end or amend regulations so as to bring them on par with  the said Scheme.  In the case of TMA Pai Foundation v. State  of Karnataka reported in [(2002) 8 SCC 481], the said scheme  formulated by this Court in the case of Unni Krishnan (supra)  was held to be an unreasonable restriction within the meaning  of Article 19(6) of the Constitution as it resulted in revenue  short-falls making it difficult for the educational institutions.   Consequently, all orders and directions issued by the State in  furtherance of the directions in Unni Krishnan’s case (supra)  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. TMA  Pai Foundation’s case 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,  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 and  profiteering was held to be forbidden.  Subject to the above two

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prohibitory parameters, this Court in TMA Pai Foundation’s  case 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 the TMA Pai Foundation’s case.   

The judgment in TMA Pai Foundation’s case 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 reported in  [(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 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 TMA Pai  Foundation’s case.  In view of rival submissions, four  questions were formulated.  We are concerned with 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 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.  

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In the light of the judgment of this Court in the case of  Islamic Academy of Education (supra) the provisions of 1973  Act and the rules framed thereunder may be seen. The object of  the said Act is to provide better organization and development  of school education in Delhi and for matters connected thereto.   Section 18(3) of the Act states that in every recognized unaided  school, there shall be a fund, to be called as Recognized  Unaided School Fund consisting of income accruing to the  school by way of fees, charges and contributions.   Section  18(4)(a) states that income derived by unaided schools by way  of fees shall be utilized only for the educational purposes as  may be prescribed by the rules.  Rule 172(1) states that no fee  shall be collected from any student by the trust/society running  any recognized school; whether aided or unaided.  That under  rule 172(2), every fee collected from any student by a  recognized school, whether aided or not, shall be collected in  the name of the school.  Rule 173(4) inter alia states that every  Recognized Unaided School Fund shall be deposited in a  nationalized bank.  Under rule 175, the accounts of Recognized  Unaided School Fund shall clearly indicate the income accruing  to the school by way of fees, fine, income from rent, income by  way of interest, income by way of development fees etc.  Rule  177 refers to utilization of fees realized by unaided recognized  school.  Therefore, rule 175 indicates accrual of income  whereas rule 177 indicates utilization 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 authorized to regulate  the fees and other charges to prevent commercialization 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 section  18(3)&(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.

The second point for determination is \026 whether clause  (8) of the Order passed by the Director on 15th December 1999  (hereinafter referred to as "the said Order") under section 24(3)  of the Act is contrary to rule 177?   

It was argued on behalf of the management that rule 177  allows the schools to incur capital expenditure in respect of the  same school or to assist any other school or to set up any other  school under the same management and consequently, the  Director had no authority under clause (8) to restrain the school  from transferring the funds from the Recognized Unaided  School Fund to the society or the trust or any other institution  and, therefore, clause (8) was in conflict with rule 177.

We do not find merit in the above arguments.  Before  analyzing the rules herein, it may be pointed out, that as of  today, we have Generally Accepted Accounting Principles  (GAAP).  As stated above, commercialization of education has  been a problem area for the last several years.  One of the  methods of eradicating commercialization of education in  schools is to insist on every school following principles of  accounting applicable to not-for-profit organizations/ non- business organizations.  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

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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 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  organizations like schools, hospitals etc. in the light of the  statute in question.

In the light of the above observations, we are required to  analyse rules 172, 175, 176 and 177 of 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 organization, 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 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 utilization  of income.  Rule 177 does not cover all the items of income  mentioned in rule 175.  Rule 177 only deals with one item of  income for the school, namely, fees.  Rule 177(1) shows that  salaries, allowances and benefits to the employees shall  constitute deduction from the income in the first instance.  That  after such deduction, surplus if any, shall be appropriated  towards, pension, gratuity, reserves and other items of  appropriations enumerated in rule 177(2) and after such  appropriation the balance (savings) shall be utilized to meet  capital expenditure of the same school or to set up another  school under the same management.  Therefore, rule 177 deals  with application of income and not with accrual of income.   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 fees 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 organizations/not-for- profit organizations.

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As stated above, it was argued that clause 8 of the order  of Director was in conflict with rule 177.  We do not find any  merit in this argument.   Rule 177(1) refers to income derived by unaided  recognized school by way of fees and the manner in which it  shall be applied/utilized.  Accrual of income is indicated by rule  175, which states that income accruing to the school by way of  fees, fine, rent, interest, development fees shall form part of  Recognized Unaided School Fund Account.  Therefore, each  item of income has to be separately accounted for.  This is not  being done in the present case.  Rule 177(1) further provides  that income from fees shall be utilized in the first instance for  paying salaries and other allowances to the employees and from  the balance the school shall provide for pension, gratuity,  expansion of the same school, capital expenditure for  development of the same school, reserve fund etc. and the net  savings alone shall be applied for establishment of any other  recognized school under rule 177(1)(b).  Under accounting  principles, there is a difference between appropriation of  surplus (income) on one hand and transfer of funds on the other  hand.  In the present case, rule 177(1) refers to appropriation of  savings whereas clause 8 of the order of Director prohibits  transfer of funds to any other institution or society.  This view  is further supported by rule 172 which states that no fee shall be  collected from the student by any trust or society.  That fees  shall be collected from the student only for the school and not  for the trust or the society.  Therefore, one has to read rule 172  with rule 177.  Under rule 175, fees collected from the school  have to be credited to Recognized Unaided School Fund.   Therefore, reading rules 172, 175 and 177, it is clear that  appropriation of savings (income) is different from transfer of  fund.  Under clause 8, the management is restrained from  transferring any amount from Recognized Unaided School  Fund to the society or the trust or any other institution, whereas  rule 177(1) refers to appropriation of savings (income) from  revenue account for meeting capital expenditure of the school.   In the circumstances, there is no conflict between rule 177 and  clause 8.  

The third point which arises for determination is \026  whether the managements of recognised unaided schools are  entitled to set up a Development Fund Account?   

In our view, on account of increased cost due to inflation,  the management is entitled to create Development Fund  Account.  For creating such development fund, the management  is required to collect development fees.  In the present case,  pursuant to the recommendation of Duggal Committee,  development fees could be levied at the rate not exceeding 10%  to 15% of total annual tuition fee.  Direction no.7 further states  that development fees not exceeding 10% to 15% of total  annual tuition fee shall be charged for supplementing the  resources for purchase, upgradation and replacement of  furniture, fixtures and equipments.  It further states that  development fees shall be treated as Capital Receipt and shall  be collected only if the school maintains a depreciation reserve  fund.  In our view, direction no.7 is appropriate.  If one goes  through the report of Duggal Committee, one finds absence of  non-creation of specified earmarked fund.  On going through  the report of Duggal Committee, one finds further that  depreciation has been charged without creating a corresponding  fund. Therefore, direction no.7 seeks to introduce a proper  accounting practice to be followed by non-business

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organizations/not-for-profit organization.  With this correct  practice being introduced, development fees for supplementing  the resources for purchase, upgradation and replacements of  furniture and fixtures and equipments is justified.  Taking into  account the cost of inflation between 15th December, 1999 and  31st December, 2003 we are of the view that the management of  recognized unaided schools should be permitted to charge  development fee not exceeding 15% of the total annual tuition  fee.

To sum up, the interpretation we have placed on the  provisions of the said 1973 Act is only to bring in transparency,  accountability, expenditure management and utilization of  savings for capital expenditure/investment without infringement  of the autonomy of the institute in the matter of fee fixation.  It  is also to prevent commercialization of education to the extent  possible.

CONCLUSION:

In addition to the directions given by the Director of  Education vide order DE.15/Act/Duggal.Com/ 203/99/23989- 24938 dated 15th December, 1999, we give further directions as  mentioned hereinbelow:\027 (a)     Every recognized unaided school covered by the Act  shall maintain the accounts on the principles of  accounting applicable to non-business organization/not- for-profit organization;  

In this connection, we inter alia direct every such  school to prepare their financial statement consisting of  Balance-sheet, Profit & Loss Account, and Receipt &  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);

(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 recognized unaided schools.  We  reproduce herein clauses 16 & 17 of the sample letter of  allotment:\027 "16.    The school shall not increase the rates of tuition  fee without the prior sanction of the Directorate of  Education, Delhi Admn. and shall follow the  provisions of Delhi School Education  Act/Rules,1973 and other instructions issued from  time to time.

17.     The Delhi Public School Society shall ensure that  percentage of freeship from the tuition fee as laid  down under rules by the Delhi Administration,  from time to time strictly complied.  They will  ensure admission to the student belonging to

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weaker sections to the extent of 25% and grant  freeship to them."   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 of the  above terms, the Director shall take appropriate steps in  this regard.

All civil appeals stand disposed of in terms of the above  judgment, with no order as to costs.