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Indian Education – The Regulatory Maze. Form and Character of Not-for-Profit Entity. Trust, Society and Section 25 Company are recognized forms of ‘not-for-profit’ entities.

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Form and Character of Not-for-Profit Entity

  • Trust, Society and Section 25 Company are recognized forms of ‘not-for-profit’ entities.
  • Schools are however operated and managed by Trust and Society only, as section 25 company is not formally recognized by state Education Acts & Right of Children to Free and Compulsory Education Act, 2009 and Rules thereof (“RTE Act & Rules”). CBSE and ICSE recognize Section 25 Company as a charitable entity eligible for affiliation
  • The Trust/Society running the school should:
  • be of a non-proprietary character;
  • not vest control in a single individual or members of a family; and
  • operate in not-for-profit mode.
  • All higher education institutions to be run as a trust or a society. UGC (Establishment of and Maintenance of Standards in Private Universities) Regulations, 2003 allow a section 25 Company to run a private university
  • No dividends can be distributed and the surplus needs to be ploughed back into the educational institution


  • A Society is regulated by a Central Legislation - Societies Registration Act, 1860 (“SR Act”)
  • Minimum seven or more persons can form a society
  • Society working on an all India basis requires seven members from seven different states of India as part of the founder members
  • A society is required to be registered with the Registrar of Societies of the State where it is proposed to be set up

Public Charitable Trust

  • No Central Legislation regulating a Public Charitable Trust (“Public Trust”)
  • Charity being a State subject allows each state to legislate separate acts to govern and regulate charitable organizations in their respective states
  • Some states like Delhi, Haryana and Uttar Pradesh do not have any separate legislation governing the establishment and operation of a Public Trust. Public Trust settled in the states like Maharashtra, Gujarat, Rajasthan, Madhya Pradesh, Orissa, Andhra Pradesh, Kerala etc. having separate charity legislations needs additional registration under the respective state legislations.
  • Properties belonging to a registered trust are deemed to be vested in the trustees of the trust.

Legislative & Regulatory Environment in K12 Segment

Central Legislation

  • Education is a concurrent subject, the States are given autonomy by the centre for planning & administration
  • No school to be established without obtaining a certificate of recognition/no objection from the state government
  • Schools need to be compliant with both state education acts and affiliation bye-laws and committed to provide quality education

Delhi Education Act

  • Delhi School Education Act, 1963 and Delhi School Education Rules, 1973 (“Delhi Act and Rules”)
  • intimation in writing to the administrator of the Delhi of the intention to establish a school
  • Recognition is pre-condition for establishment of a school
  • Conditions for recognition, inter alia include that school should:
  • be set up by a society registered under the SR Act or a Public Trust, not run for profit to any individual, group of association of individuals or any other person
  • have adequate funds to ensure financial stability and regular payment of salaries and allowances to employees
  • have suitable accommodation and sanitation facilities
  • have a duly approved scheme of management
  • have teachers with prescribed qualifications
  • Compliances by Recognized School:
  • Filing of an annual statement of fees to be levied by the school during the academic session with the Director of Education, Delhi (“DoE”) before the commencement of each academic session - no fee in excess thereof can be charged without the prior approval of the DoE
  • Establishment of a Management Committee responsible for day-to-day management of the school
  • Filing audited financial and other prescribed returns annually with the DoE
  • Maintenance of a reasonable reserve fund not being less than ten (10) percent of the savings of the school
  • Shifting of a recognized school to a different locality or its transfer to a different trust, society or individual requires prior approval of the appropriate authority

CBSE Affiliation Bye-Laws

  • All K12 institutions need to be affiliated to an education board such as ICSE/CBSE/State boards
  • Applicability of CBSE Bye-Laws to Trust – Trust would need to make sure that, inter alia, the following broad rules are adhered to-
  • prior recognition of the State Govt. to the effect that the State Government has no objection to the establishment of the school
  • the Trust to have control over the capital expenditure of the school and the Management Committee should approve the budget/tuition fees
  • Ensure that the funds accruing from the school are spent for the benefit of the school and for its expansion
  • Safeguard the autonomy of the principal
  • Constitute Selection Committee
  • Copy of the accounts are submitted to CBSE every year
  • Fees charges commensurate with the facilities provided by the institution
  • No transfer or sale of property of the school by the Trust to another society/trust/management through agreement or sale deed. An explicit or implicit non-compliance of such requirement can lead to immediate withdrawal of the school’s affiliation by CBSE
  • Maintenance of a reserve fund by schools affiliated with CBSE that may range between Rs. 1 Lac if students upto 1000 to Rs. 100/- per student if the students exceed 1000.
  • Minimum Land Area Requirements
  • State Education Acts and the RTE Act & Rules provide flexibility of ownership or lease of land & infrastructure
  • the school should ordinarily have stipulated acres of land (usually ranging between 1 and 2 acres, depending on the Board and the areas in which the school is located), suitable buildings and proper playgrounds with adequate facilities
  • the land area for the schools seeking affiliation in Delhi NCR, Mumbai, Kolkata and Chennai range between ½ acre to 1 acre
  • CBSE allows a lease provided it is not less than 30 years. Lease for a term less than 30 years is permitted by the CBSE only in the case of a Government lease

Provisional Affiliation and Permanent Affiliation

    • provisional affiliation granted for a period of three (3) years subject to fulfilling all the norms and conditions of the CBSE Bye-Laws
    • Extension of provisional affiliation for a further period of three (3) years to five (5) years may be granted by CBSE
    • the unaided schools established by societies/trusts may apply for permanent affiliation after the expiry of period of provisional affiliation
    • preference may be given to such schools which have been provisionally affiliated with CBSE for a period of ten (10) years or more and satisfying all the conditions of CBSE Bye Laws
    • School Management Committee
    • the Management and day to day operations of schools to be vested with the Managing Committee of the school The Managing Committee to consist of not more than 21 members including ten specified members viz. two parents of students of the school, two teachers of the school, two members from a panel recommended by the Trust and approved by CBSE etc.
    • the members are appointed for a term of three (3) years
    • the Managing Committee, subject to the overall control of the Trust, inter alia, will –
  • supervise the activities of the school for its smooth functioning
  • propose to the Trust rates of tuition fees and other annual charges
  • - review the budget of the school presented by the principal
  • appoint/terminate/promote employees and teachers
    • Policy on Fee Fixation in Private Unaided Schools and Treatment of Profits of School(s)
    • no policy for fee fixation
    • the Supreme Court recognizes that fees charged should be reasonable and in accordance with facilities provided by institution
    • profits generated to be utilized for the running and development of the school itself and not to be diverted to any individual in the Trust or the school Management Committee
    • no capitation fee/voluntary donations for gaining admission or for any other purpose permitted by CBSE and ICSE
    • collection of fees in the name of the school and not the trust/society and all fees to be collected into a separate “Recognized Unaided School Fund”

Closure of an Existing School

  • Closure of a recognized school needs approval of the DoE and an application is required to be submitted along with a statement of justification for obtaining the approval for closing down an existing school. Pursuant to the grant of approval from DoE, the Management Committee of such school may surrender its affiliation obtained from CBSE or ICSE, as the case may be, for running such a school.

Right of Children to Free and Compulsory Education Act, 2009 (“Education Act”)

  • Education Act has made elementary education (i.e. from Class I to VIII) a fundamental right for children in the age group of 6-14
  • Compulsory recognition required by every school, other than a school established, owned or controlled by the government, from the District Education Officer
  • The certificate of recognition is valid for a period of three years from the date of issue
  • Non Compliance with the norms, standards and conditions within a period of three years of commencement of the Education Act shall lead to its closure
  • Continuation of recognition is subject to fulfillment of the following conditions:
  • Compulsory admission in class I or such pre-school class, as the case may be, to the extent of at least 25% of the strength of that class, by every unaided school, for children belonging to weaker section and disadvantaged group in the neighborhood and free and compulsory elementary education till its completion
  • Re-imbursement of expenditure so incurred by the school to the extent of per-child-expenditure incurred by the state, or the actual amount charged from the child, whichever is less
  • No capitation fee to be charged. Violation by any school is punishable with fine which may extend to ten times the capitation fee charged
  • No screening process of the child or his/her parents while admitting a child. Violation by any school is punishable with fine which may extend to Rs. 25,000/- for the first contravention and Rs. 50,000/- for each subsequent contravention
  • No denial of admission to any child for lack of age of proof
  • Child admitted cannot be held back in any class or expelled from school till the completion of elementary education
  • Norms for pupil-teacher ratio to be adhered
  • Adherence to the norms and standards pertaining to number of teachers; school building requirements; minimum number of working days/instructional hours in an academic year, etc
  • Non-compliance with prescribed norms and standards can lead to withdrawal of recognition

Legislative & Regulatory Environment in Higher Education

Central & State Legislations

  • University Grants Commission Act, 1956 (“UGC Act”)
  • only universities may award degrees.
  • University means a (i) university established or incorporated by or under a Central Act, or (ii) a State Act including private universities set up the state, and (iii) such Institution as may, in consultation with the University concerned be recognized by the UGC under the Recognition of College Regulations, 1974, and (iv) an institution deemed to be an university
  • UGC (Establishment of and Maintenance of Standards in Private Universities) Regulations, 2003
  • Private universities to be established by separate State legislations
  • Apply to all private universities irrespective of State where they are incorporated
  • Mandates compliance with the UGC Act and regulations
  • Specifies that guidelines for private universities with respect to minimum criteria in terms of programmes, faculty, infrastructural facilities, financial viability of the higher of UGC (or State Act) or professional council (such as AICTE) to be followed
  • State Private University Acts
  • Prescribe procedure for setting up of private universities
  • Most permit section 25 companies to set up private universities
  • Prescribe minimum eligibility criteria including land requirements
  • Haryana Private Universities Act, 2006 prescribes minimum of 10 or 20 acres of land depending on the location
  • Himachal Pradesh Private University (Establishment and Regulation) Act, 2006 prescribes approx. 12.5 acres
  • State Government constituted committee considers proposal and submits report to Government – looks into financial soundness and assets of the sponsoring body, back ground of the sponsoring body, its expertise and experience in the field of education, its general reputation etc.

State Government issues a letter of intent to the sponsoring body requiring it to:

  • - establish an endowment fund of minimum Rupees Three Crores
  • - construct a minimum of 10,000 square meters of covered area for administrative and academic purposes
  • The university is required to obtain accreditation from the National Council of Assessment and Accreditation (NAAC), Bangalore within three years of its establishment.
  • Exit options: dissolution of university requires approval with reasons for exit/ substituting of members of the parent society/trust.
  • UGC (Affiliation of Colleges by Universities) Regulations, 2009
  • Stand alone colleges providing courses affiliated to a University in terms of the UGC (Affiliation of Colleges by Universities) Regulations 2009
  • Affiliation of a college means recognition of such college by, association of such college with a university established under Central or State Acts
  • can impart instruction only in the subjects and courses/programmes in the faculties for which affiliation has been granted by the university
  • fees to be charged from the students shall be as per the fee structure approved by the university based on the norms of the UGC
  • eligibility criteria as prescribed in the regulations, or by the concerned professional council (AICTE, IMA, etc.), whichever is higher
  • undisputed ownership and possession of minimum 2 acres of land if located in metropolitan cities or 5 acres if located in other areas

Professional Colleges

  • All India Council for Technical Education (“AICTE”)
  • Professional courses such as MBA, MCA, Architecture, Hotel Management and Catering Technology, Pharmacy and Applied Arts & Crafts require AICTE approval
  • Minimum Requirements/Eligibility Criteria:
  • - Land requirements: 0.5 acres to 10 acres of a continuous block of land. Relaxation in minimum requirements for metros and institutions for women. Ownership of land or irrevocable Government lease is allowed for a minimum duration of thirty (30) years.
  • Minimum fund requirement with quantum ranging from Rupees Sixty Five Lacs to Rupees One Crore Thirty Five Lacs, depending on the course(s) applied for
  • Applies to foreign collaborations with Indian educational institution and foreign institutions offering courses independently under any mode of delivery system such as conventional/formal, non-formal and distance mode
  • Does not permit setting up of technical institutions under a franchise system
  • Applicant will be directed to create fixed deposit for a period of eight (8) years in favour of the AICTE, for an amount ranging from Rs. 12 lacs to Rs. 35 lacs, depending upon the category of technical institution to be set up and the course(s) proposed to be offered. Interest on the fixed deposit is created in favour of AICTE

Policy on Fee Fixation in Private Unaided Educational Institutions Imparting Higher and Technical Education and Judicial Assessment on Fee Fixation

  • Private unaided institutions are free to fix their fee structure subject however to approval of a State level committee or a standing committee of the UGC
  • Factors to be kept in mind while fixing fees would be the expenses incurred by the institution in the form of faculty payouts and other employee salaries, etc.
  • Institutions permitted to charge a reasonable surplus which may be used for the betterment of the institution
  • Charging of capital fees prohibited
  • Fees should be collected by institutions for one year at a time instead of charging for the entire course at one time
  • Fees fixed shall remain binding for a period of three years and may be revised thereafter

Legislative & Regulatory Environment in Higher Education – Open and Distance Learning (“ODL”)

Distance Education Council

  • set up under Indira Gandhi National Open University Act, 1985 and apex body for the ODL system in the country, responsible for promotion, coordination and maintenance of standards of the ODL system
  • Approval of the DEC mandatory for offering academic programmes through distance mode
  • At least fifty percent of the study material is required to be in self instructional format.
  • Faculty norms for Professional Programmes OUs and DEIs are required to follow the norms/guidelines of respective Professional Body and seek their approval, wherever applicable.
  • University/institution should havebodies like Planning Board/Academic Council/School Boards etc.for taking academic and administrative decisions. In case of professional/specific programmes norms/guidelines of the respective apex bodies are to be followed and approval/ recognition sought, whenever necessary.
  • The parent institution should clearly spell out the evaluation mechanism and procedure duly approved by the statutory bodies of the universities and make available qualified staff for the purpose.
  • The parent institution needs to earmark sufficient infrastructure as per the guidelines of the DEC and use office automation tools like communication technology as per the norms laid down by the DEC from time to time.
  • Franchising of study centres which is one of its major growth drivers would be strictly viewed and is practically barred.

Minimum Requirements

Procedure for Recognition

  • Submission of applicationalong with fee of Rs One lakh.
  • On-site assessment by DEC constituted committee which generally have a nominee of UGC and a nominee from AICTE for institutions with technical and professional programmes. Committee to be provided documentary evidence supporting claims made for recognition.
  • On the recommendations of the assessment committee, the DEC considers grant of recognition status to the institution.
  • The institution is required to give an undertaking that it will comply with the conditions of recognition prescribed by the DEC.
  • The recognition is valid for a period of three years unless specified otherwise by the DEC.

Mandatory Accreditation with DEC


Bills in Consideration

  • The National Commission for Higher Education and Research Bill, 2010 (“NCHER Bill”)
  • Establishment of NCHER as apex body - oversee functioning of universities and act as a facilitator for higher education and research
  • End of multiple regulatory bodies in higher education (UGC, AICTE, etc., will be subsumed in the NCHER)
  • covers imparting of higher education through both conventional or distance education systems
  • All new universities or institutions shall require express authorization from NCHER prior to commencing academic operation
  • Current practice of according status of Deemed University to be stopped
  • Greater degree of autonomy to universities to design their courses/ curriculum within a national curriculum framework developed by the NCHER
  • Registry of eminent academics eligible for appointment to the position of vice chancellors would be set up. Vice Chancellors can be appointed only from such registry
  • The Educational Tribunals Bill, 2010
  • Provides for establishment of State Educational Tribunals and a National Educational Tribunal to exercise powers and authority, inter alia, in relation to –
  • service matters of any teacher or any other employee of a higher educational institution;
  • matters relating to affiliation of any higher educational institution (not being an University) with the affiliating University;
  • matters relating to use of unfair practices, by any higher educational institution, which has been specifically prohibited under any other law for the time being in force;
  • any matter of affiliation between any higher educational institution (other than a University) and the affiliating University, where such University is a Central Educational Institution having powers of affiliation in two or more States

The Prohibition of Unfair Practices in Technical Educational Institutions, Medical Educational Institutions and Universities Bill, 2010

  • Seeks to prohibit unfair practices followed in technical and medical educational institutions including charging of capitation fees, admission of students without specified admission tests or specified merit criteria, non-provision of receipt for fees charged from the students, publishing misleading advertisements, withholding degree or diploma to coerce students to pay the desired fees, demanding donations, etc.
  • All offences under the proposed legislation, except charging of capitation fees, shall be non-cognizable offences
  • Transparency in the functioning of educational institutions

The Foreign Educational Institutions (Regulation of Entry and Operations) Bill, 2010

  • aims to regulate the entry and operations of foreign educational institutions imparting or intending to impart higher education in India
  • provide rules for award of degree, diploma and equivalent qualifications by such institutions
  • specifically excludes distance education from its purview
  • ‘Foreign Educational Institution’ (“FEI”) means any institution which has been offering educational services for a minimum of twenty years in its country of establishment and which offers/proposes to offer such services in India
  • Cover collaborations as well
  • Only FEIs notified as ‘foreign education providers’ (“FEP”) will be permitted to offer education in India
  • course or programme of study offered in India should be in conformity with the standards laid down by the concerned statutory authority and should be of quality comparable those offered by it in its main campus in its country of establishment
  • maintenance of a minimum corpus of Rs. 50 crores.
  • Upto 75% of revenue may be utilized for educational activities and the remaining has to be deposited in the corpus fund. Surplus revenue can only be used for growth and development of the educational institute
  • All FEIs required to comply with the provisions of the UGC Act
  • FEIs may also impart education leading to award of certificate or any other qualification not being a degree or diploma or equivalent qualifications - required to furnish a report of their activities to the UGC and comply with other provisions of the Bill
  • The National Accreditation Regulatory Authority for Higher Educational Institutions Bill, 2010
  • Provides for assessment of academic quality of higher education institutions, their programmes and infrastructure through mandatoryaccreditation by independent accreditation industries
  • Establishment of a statutory authority to monitor the functioning of independent accreditation agencies

Seema Jhingan, Partner

LexCounsel, Law Offices

C-10, Gulmohar Park,

New Delhi – 110049

Tel: +91-11-41662861

Fax: +91-11-41662862