A three-judge bench of the Supreme Court, comprising Chief Justice VN Khare, Justice SB Sinha and Justice SH Kapadia, in a 2:1 majority judgement delivered on April 27 came down heavily on Delhi's private schools. The judgement refers to the Delhi School Education Act, 1973. Here are relevant extracts from the Act.
Clause 17 (3) Fees and other charges
The manager of every recognised school, shall before the commencement of each academic session, file with the Director a full statement of the fees to be levied by such school during the ensuing academic session, and except with the prior approval of the Director, no such school shall charge, during that academic session, any fee in excess of the fee specified by its manager in the said statement.
Clause 18 (1) School Fund
In every aided school, there shall be a fund, to be called the "School Fund" and there shall be credited thereto
(a) any aid granted by the Administrator,
(b) income accruing to the school by way of fees, charges or other payments, and
(c) any other contributions, endowments and the like.
Clause 18 (2)
The School Fund and all other fund, including the Pupils' Funds, established with the approval of the Administrator, shall be accounted for and operated in accordance with the rules made under this Act.
Clause 18 (3)
In every recognised unaided school, there shall be a fund, to be called the "Recognised Unaided School Fund", and there shall be credited thereto income accruing to the school by way of
(b) any charges and payments which may be realised by the school for other specific purposes, and
(c) any other contributions, endowments, gifts and the like.
Clause 18 (4)
(a) Income derived by unaided schools by way of fees shall be utilized only for such educational purposes as may be prescribed; and
(b) Charges and payments realised and all other contributions, endowments and gifts received by the school shall be utilised only for the specific purpose for which they were realised or received.
This implies that schools must utilise the fees collected, only for activities specifically relating to the heads under which they are collected. Presumably this leaves no room for a school to utilise any surplus from fees collected under a specific head for the expenditure under some other head. So in principle there is no scope for schools to increase the tuition or other fees with the aim of generating a suprlus to invest in starting new schools.
Clause 18 (5)
The managing committee of every recognised private school shall file every year with the Director such duly audited financial and other returns as may be prescribed, and every such return shall be audited by such authority as may be prescribed.
This is present in the original act and it is not something that has been freshly ordered by the Supreme Court in its judgement on April 27. If schools haven't been filing duly audited financial accounts each year, they have indeed been violating the Act.
Clause 28 (1) Power to make rules
The Administrator may, with the previous approval of the Central Government, and subject to the condition of previous publication, by notification, make rules to carry out the provisions of this act.
Clause 28 (2)
In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely:
(v) educational purposes for which the income derived by way of fees by recognised unaided schools shall be spent
To the best of my knowledge, nowhere in the Delhi School Education Act is it mentioned that surplus money generated by one school cannot be transferred to the parent society administering the school, which is what the Supreme Court has stated in its judgement.
Click here for a list of other posts on the Supreme Court's judgement and related issues.