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Rustom Kerawalla Foundation v. State of Maharashtra

Civil Appeal · 2017 INSC 705Decided 3 Aug 2017
Civil Appeal No. 3696 of 2017
Justice Adarsh Kumar Goel · Justice Uday Umesh Lalit

Background

Vibgyor High School (run by the Rustom Kerawalla Foundation) in Mumbai raised its fees, prompting parents to complain to the State Education Department about alleged profiteering. The Deputy Director of Education disallowed Rs. 2.5 crore/year in claimed building-rent expenses from the fee calculation, while allowing other expenses: a decision upheld by the Bombay High Court. The School and Foundation appealed to the Supreme Court, arguing the land/building lease arrangement (routed through a sister company, KARE Edumin Pvt. Ltd., whose only directors were the Foundation's own trustees) justified the full market-rate rent being counted toward fee-setting.

Decision Breakdown

The Supreme Court held that because the underlying land had been allotted to the Foundation's affiliated trust by a government housing authority (MHADA) at a steep discretionary discount rather than through open competition, this amounted to a form of public "aid", meaning the School could not treat the full market-rate rent (computed via valuers) as legitimate expenditure for fee-fixing purposes under Section 4 of the Act. The Court found the rent claim was inflated because it was based on the locational/market value of land obtained cheaply through non-competitive, discretionary allotment, and ruled that only a reasonable return on what was actually invested in land and buildings (about Rs. 35 lakhs), or the claimed rent, whichever is lower, could be counted. The matter was remanded to the State Government to recompute permissible fees within three months on this basis, with status quo continuing in the meantime; related transfer petitions were discharged without being heard on merits since the appellants did not press them.

Lesson Learnt

An educational institution that benefits from publicly-allotted land or assets at concessional rates cannot claim full market-rate expenses (like rent) when justifying high fees: such benefits carry a "public character" that limits how much can be passed on to students as fees.

Official source (sci.gov.in)View Judgment (PDF)

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