Covid-19 has had a significant impact on society. Besides causing loss of life in large numbers, it has had a devastating effect on the economy. The Government has issued various notifications under the Disaster Management Act, 2005to mitigate loss of life due to the virus. One of the decisions taken by the Government for mitigation of loss of life has been the imposition of a lockdown throughout the country. All educational institutions have been closed during the lockdown and continue to remain closed during the initial stages of lifting of lockdown.The mode of imparting education has shifted online but students studying in residential colleges and schools haven't had access to residential facilities.
Despite this, schools and colleges have continued to demand residential fees from the students. This raises an important question. Are residential colleges and schools gaining an unfair benefit/advantage at the cost of the students by taking hostel fees at a time when students do not have access to the said hostels. Do students have any legal remedy to recover advance fees paid to colleges for services which they have not been able to avail on account of the lockdown. These are the significant questions which this article addresses.
APPLICATION OF DOCTRINE OF FRUSTRATION AND SEVERABILITY
It is important to understand the consequences of lockdown with respect to the contractual obligations imposed on residential schools/colleges. Contractual obligations require residential schools/colleges to provide food, education, residential facilities etc. in return for consideration in the form of fees. The imposition of lockdown makes it unlawful for residential schools/colleges to provide residential facilities to their students.
It is seen that a term of the contract relating to residential services is frustrated due to the imposition of lockdown. Such frustration of contract in circumstances mentioned hereinabove is provided for under Section 56 of the Indian Contract Act, 1972 (hereinafter "Contract Act").Section 56 of the Contract Act states that:
"An agreement to do an act impossible in itself is void.A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.
Where one person has promised to do something which he knew, or, with reasonable diligence might have known, and which the promisee did not know, to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise."
It is seen that the performance of a term of the contract has become unlawful in the present circumstances. Fulfillment of certain obligations required to be performed under the contract have, by reason of some event which the promisor could not prevent, become unlawful. Hence, the contract can be said to have become void to that extent. Severance of the contract in this manner is possible due to the doctrine of severability. The doctrine of severability has been explained by the Supreme Court in the case of Central Inland Water Transport Corporation Ltd. v Brojo NathGanguly wherein the Court held that:
"75. …. The agreement is, however, not always void in its entirety for it is well settled that if several distinct promises are made for one and the same lawful consideration, and one or more of them be such as the law will not enforce, that will not of itself prevent the rest from being enforceable. The general rule was stated by Wiles, J., in Pickering v. Ilfracombe Ry. Co. (at p. 250) as follows:
The general rule is that where you cannot severe the illegal from the legal part of a covenant, the contract is altogether void; but where you can severe them, whether the illegality be created by statute or by the common law, you may reject the bad part and retain the good."
The illegality can be severed in the present instance without any difficulty. The contractual obligations imposed on residential schools/colleges clearly consists of several distinct promises relating to educational and residential facilities. The contractual obligations relating to residential facilitiescan be severed from those relating to education without affecting the substratum of the contract. It is seen that colleges and schools themselves divide fees taken into categories such as residential and educational fees.
RESTITUTION OF UNJUST ADVANTAGE/BENEFIT– SECTION 65 OF CONTRACT ACT
The next question which arises is whether there is any legal provision or doctrine wherein benefit gained by a party under a contract which becomes void has to be returned to the party at whose expense such benefit was gained. The relevant principles in this regard are the twin principles ofrestitution and prevention of unjust enrichment.
The principle of unjust enrichmentrecognises that it would be unjust to allow theDefendant to retain a benefit at the Plaintiff's expense in certain cases. Such unjust benefit/enrichment justifies restitution. The theory of unjust enrichment forms the basis of the doctrine of restitution. It acts as a pre-requisite to restitution for there can be no restitution without unjust enrichment.These twin principles have been incorporated in the Contract Act.The relevant provision for the purposes of the present discussion is Section 65 of the Contract Act. Section 65 states that:
"When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it."
It would be useful to make reference to the judgment of the Calcutta High Court in the case of Ram Nagina Singh v. Governor-General in Councilat this point. The Court, while discussing Section 65 of the Contract Act, observed that:
"38. ….. S. 65 embodies & is an expression of the principle of restitution & of prevention of unjust enrichment."
Section 65 recognizes requirement of restitution when any person has received an advantage or benefit in certain circumstances, i.e. when an agreement is discovered to be void or when a contract becomes void. This is based on the reasoning that such advantage received by a person under a frustrated contract is an unfair and unjust advantage.
The said provision is squarely applicable to the existing circumstances.Residential colleges/schools which have taken advance fees with respect to residential facilities have received an advantage under a term of the contract which has become void. Hence, they are bound to restore such benefit.Further, the said principle is not contrary to the doctrine of severability as explained by the Rajasthan High Court in the case of Ganganagar Sugar Mills Ltd. v. MadanlalRamswaroopDhanmandiwherein the Court held that:
"17. In the cases like the one at hand doctrine of severibility can be invoked, viz. where the part of contract which is contrary to law is severable without affecting the substratum of the contract, then only that part of the contract may be held to be void and to the extent the term of contract is void, any party taking advantage referable to the void part of the term must return the same. Sec. 65 of the Contract Act does not enact contrary to this principle. It does not envisage that Sec. 65 can be invoked only when Contract is void in its entirety."
Hence, to the extent the term of the contract has become void,any benefit gained by residential schools/collegeswhich is referable to the void term, must be returned.
Further, the Supreme Court has reiterated that a college cannot charge a fee that is beyond the purpose of fulfilling the object of education in the case of Modern Dental College and Research Centre v. State of Madhya Pradesh (2016). The Court has consistentlyupheldthe view that education is not a business or trade but a service to society.
In so far as universities are concerned, such issues should be considered and addressed by the University Grants Commission (Hereinafter "UGC"). The University Grants Commission Act, 1956 (hereinafter "the Act"), makes it the responsibility of the UGC to maintain the standards of teaching and research. The observations of the Supreme Court in the case of Osmania University Teachers' Association v State of Andhra Pradeshemphasize this responsibility.The Court held that:
"30. …. The University Grants Commission has, therefore, a greater role to play in shaping the academic life of the country. It shall not falter or fail in its duty to maintain a high standard in the Universities."
Further, Section 12-A of the Act provides explicit power to the UGC to specify by regulations the matters in respect of which fees may be charged and the scale of fees if it is necessary to do so in public interest.The UGC should exercise said power in the present instance to prevent residential colleges/schools from charging residential fees by introducing necessary regulations in larger public interest. This responsibility gains further significance in light of observations made by the Karnataka High Court in the case of Sri Siddhartha Medical College Students' Parents Association v. Union of India.The Court held that:
"45. …. the power to specify the fees in respect of colleges as defined in Clause (b) of Section 12-A(1) of the UGC Act lies only with the UGC and none else."
It is seen that UGC's advisory to all universities dated 27th May 2020 failed to address this issue as well. The UGC will be well advised to discharge its statutory obligation by issuing a mandate to the universities, instead of compelling students to take resort to legal proceedings.
Similar action needs to be taken by the relevant Central/State boards which are responsible for regulating fees charged by residential schools.
The Authors are final year students at Jindal Global Law School. Views expressed are personal.