Private Schools Permitted To Maintain Surplus Funds; Mere Surplus Doesn't Mean Profiteering: Delhi High Court

The Delhi High Court has reiterated that private unaided schools are legally permitted to maintain surplus funds and that the mere existence of a financial surplus cannot automatically be treated as “profiteering” or commercialisation.

“Mere availability of surplus funds with a private, un-aided, recognised school, howsoever large, cannot be the sole basis for the DoE to infer that the school is indulging in commercialisation or profiteering, and to thereby object to fee-hike by a school,” Justice Anup Jairam Bhambhani observed.

In its 120-page judgment, the bench further clarified that while the Directorate of Education (DoE) has regulatory powers under Delhi School Education (DSE) Act to check profiteering, it must also bear in mind that schools are entitled to generate and retain a reasonable surplus for growth, development and future expansion.

The observations were made while dealing with a batch of petitions filed by private unaided recognised schools challenging the DoE's rejection of their fee hike proposals and its regulatory framework governing fee fixation.

The Court observed that the DoE's role is limited to preventing “commercialisation” and “profiteering” and that schools enjoy substantial autonomy in financial and administrative matters under Article 19(1)(g) of the Constitution.

It added that the DoE's role is supervisory and limited to ensuring that schools do not exploit students through unreasonable fee structures.

“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...the availability of a reasonable surplus in the hands of a school is specifically contemplated under Rule 177(2)(e) of the DSE Rules, and a school cannot be expected to operate on a hand-to-mouth basis, with no surplus available in its hands,” it said.

It thus cautioned the authority against treating every surplus as evidence of profiteering.

Court said the aspect of commercialisation or profiteering can only be examined and determined by the DoE after conducting a full-dressed financial audit of a school by the prescribed authority in terms of section 18(5) of the DSE Act, based on duly audited financial and other returns that a school files before the DoE.

It lastly clarified that DoE is not empowered to demand that a school should maintain a different, parallel set of accounts (apart from what is required of a 'not-for-profit institution' under the Income-tax Act, 1961 and theICAI Guidance Note on how schools are to maintain their accounts.

Case title: DPS Vasant Kunj & Ors. v. GNCTD (and batch)

Case no.: W.P.(C) 7481/2017

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