Only-For-Profit Schools

Despite this aspirational demand, parents often cry foul over the ways of private schools. They allege the business models of private schools are shady. In four states바카라�Uttar Pradesh, Delhi, Andhra Pradesh and Karnataka바카라�disputes over exorbitant fees have reached high courts. Ashish Nar­edi, a representative of the Hyderabad Parents바카라� Association, reckons that just 바카라�10 to 12 per cent of the fees바카라� goes towards teachers바카라� wages, the most critical annual expenditure. He has calculated that even a two per cent hike in school fees of a mid-size private school is enough to translate into a 바카라�10 per cent salary hike for teachers바카라�. Much of the fee hikes, therefore, go into surpluses, he alleges. Citing a report by Anand Rathi and Company, Naredi, a businessman, has launched a video campaign to show that no business in India is as profitable as school education, with fast and high returns on investment (see graphic).

When norms that don바카라�t allow profit-making institutions in education were tested in the light of the Constitution, they were pretty much found to be correct. A Supreme Court verdict (in T.M.A. Pai Foundation versus the State of Karnataka and Others, 2002) held that education cannot be a profession or trade in the sense the words are used in Article 19(1)(g) of the Constitution. That is the primary article governing the right to 바카라�practise any profession, or to carry on any occupation, trade or business바카라�. Schools, therefore, must be a charitable activity regulated by the State.

So, how do private schools thrive then? For one, schools can have surpluses, if not profits. Not just in T.M.A. Pai, in two other landmark verdicts바카라�Islamic Academy of Education versus State of Karnataka, 2003 and Modern School versus Union of India, 2004바카라�the courts held that a private school should have 바카라�reasonable surplus바카라�. However, no surplus can be taken out of the institutions or invested elsewhere. That바카라�s how schools are supposed to be non-profit.

Most businesses raise money through equity, but since schools are meant to be non-profit, the equity model doesn바카라�t work for schools. That doesn바카라�t mean entrepreneurs aren바카라�t setting up schools. In many states, it바카라�s common for politicians to run schools. A two-way funding pattern has been the preferred model. A trust or society runs the school, while a company, which can be for-profit, owns all capital assets such as land and building. The company leases these assets permanently to the school trust. 바카라�This is a loophole. It allows for surplus to be taken out under the garb of lease fee to the company,바카라� says Vikas Khot, a legal consultant who assisted the court-appointed Justice Anil Dev Singh Committee, which went through the books of over 500 Delhi schools.

In Delhi, court-ordered audits have found private schools having huge surpluses. Under a policy initiated in the 1970s, Delhi schools have got institutional land at a concession on the recommendation of the Delhi government to the land allotment committee of the Delhi Development Authority (DDA). The first allotment took place on July 20, 1973, for a senior secondary school. Since the inception of the policy, 134 trusts have been allotted land for senior secondary schools. 바카라�That바카라�s the triangular nexus among politicians, bur­eaucrats and school trusts. That바카라�s why so many politicians own schools,바카라� says Ashok Agarwal, an advocate. Agarwal바카라�s plea for regulating school fees has led to major reforms, such as fee refunds.

In August 2004, DDA reversed its long-time policy of land allotment at throwaway prices. After the policy change, institutional land is now allotted through open auctions.

A 2011 report by the Auditor and Comptroller General (CAG) held that 25 top private schools in Delhi had begun charging parents illegally through fees to implement higher pay mandated by the government바카라�s Sixth Pay Commission. The fee hike was unjustified, it was held, because the schools didn바카라�t touch their available surpluses­바카라�pegged at up to 17 per cent. Some schools had transferred part of the money collected to management societies instead of utilising it for salary hike.

The CAG report indicted one school for inadequate provident fund deductions and contributions, while another was found to have more provident fund allocations than those on its rolls. It also found schools not sufficiently fulfilling the condition to serve poorer sections. The 25 schools aud­ited included Mother Divine, Air Force Bal Bharti, Mount Carmel, Sachdeva, ASN School, Sadhu Vaswani, St Mary, Ryan International, Birla Vidya Niketan, G.D. Salwan, Nat­ional Victor, Amity International, DPS-RK Puram, Ramjas Public School, G.D. Goenka, Convent of Jesus and Mary, Maharaja Agrasen, J.D. Tytler, Sardar Patel, Vasant Valley, St Xavier바카라�s, Frank Anthony, Modern School, Presentation Convent and Summer Fields School.

The CAG audit revealed how schools have found a way to channel funds out, thus circumventing the non-profit rule. Birla Vidya Niketan paid Rs 5.23 crore as rent to Birla Academy of Art and Culture, while Sardar Patel paid Rs 2.33 crore as usage charge to Gujarat Education Society. G.D. Goenka school was found to have offered Rs 4.10 crore as interest-­free loan to its parent society despite the school running a loan of Rs 6.33 crore, the CAG audit said. 바카라�That바카라�s the business model. That바카라�s how they make money,바카라� says Agarwal.

The Justice Anil Dev Singh Committee ordered 103 Delhi schools to refund Rs 104 crore to parents that they had illegally charged under various fee heads. In an affidavit filed before the Delhi High Court on September 6, 2017, to explain what it had done to implement the refund, the Delhi government stated that with nine per cent interest, the schools now owe Rs 164 crore. Of the 103 schools, 102 have challenged the order to refund fees. Only in 17 of those cases has the court stayed any coercive action. In 10 cases, schools have already refunded Rs 36 crore.