Disaster Management Act, Epidemic Diseases Act cannot be used to regulate economic aspects of private contracts: Supreme Court

The Supreme Court on Monday allowed unaided schools in Rajasthan to collect yearly school fees from students as fixed under Rajasthan Schools (Regulation of Fee) Act, 2016 for the academic year 2019-20 but directed that a 15 percent reduction should be reflected for the facilities which were unutilised due to COVID-19 pandemic (Indian School, Jodhpur v. State Of Rajasthan)..The fees can be paid in six equal instalments before August 5, 2021, the Court further said. It also ordered that no student shall be debarred or his/ her examinations results withheld on account of non-payment of fees. .Importantly, the Court held that provisions of the Disaster Management Act, 2005 or Rajasthan Epidemic Diseases Act, 2016 cannot be invoked to interfere with private school fees which are governed by contracts between the parties concerned. State Authorities established under the 2005 Act cannot issue directions to private parties on economic aspects of legitimate subsisting contractual matters or transaction, the Court held. .A Bench of Justices AM Khanwilkar and Dinesh Maheshwari was hearing appeals by school management boards challenging the constitutional validity of the 2016 Act and the Rajasthan Schools (Regulation of Fee) Rules, 2017.The schools had contended that the Act and Rules violate their fundamental right guaranteed under Article 19(1)(g) of the Constitution of India..The school managements had also challenged the orders passed by the State authorities, particularly an order passed on October 28, 2020, regarding deferment of collection of school fees including reduction of fees limited to 70 per cent of tuition fees by schools affiliated with the Central Board of Secondary Education and 60 per cent from the schools affiliated with Rajasthan Board of Secondary Education, in view of reduction of syllabus by the respectiveBoards due to aftermath of pandemic (lockdown) from March 2020.Initially, the same was for 3 months but the decision was then made applicable till the opening of the schools with a direction that no student should be debarred for non-payment.The schools approached the High Court challenging the same which upheld the government orders. .The managements then appealed to the Supreme Court against the High Court verdict..In order to avoid multiplicity of proceedings (as school fee structure is linked to school — school wise) including uncertainty of legal processes by over 36,000 schools in determination of annual fee structure for the academic year 2020-21, the Court passed the following directions:(i) The appellants shall collect annual school fees from their students as fixed under the Act of 2016 for the academic year 2019-20, but by providing deduction of 15 per cent on that amount in lieu of unutilised facilities by the students during the relevant period of academic year 2020-21.(ii) The amount so payable by the concerned students be paid in six equal monthly instalments before 05.08.2021 as noted in our order dated 08.02.2021.(iii) The school Management shall not debar any student from attending either online classes or physical classes on account of non-payment of fees, arrears/outstanding fees including the installments, referred to above, and shall not withhold the results of the examinations of any student on that account.(iv) If any individual request is made by the parent/ward finding it difficult to remit annual fees for the academic year 2020-21 in the above terms, the school Management to consider such representation on case to case basis sympathetically.(v) The above arrangement will not affect collection of fees for the academic year 2021-22, as is payable by 124 the students of the concerned school as and when it becomes due and payable.(vi) The school Management shall not withhold the name of any student/candidate for the ensuing Board examinations for Classes X and XII on the ground of non-payment of fee/arrears for the academic year 202021, if any, on obtaining undertaking of the concerned parents/students..The Court held that the direction of the State government of October 28, 2020 was in conflict with the scheme of finalisation of fee structure under the 2016 Act. "By its very nature, the direction given by the State Government is in conflict with the scheme of finalisation of fee structure under the Act of 2016 and also the binding effect thereof for the specified period of three academic years on all concerned. Thus understood, the direction issued by the State Government in the form of order dated October 28, 2020 does not satisfy the twin tests of being consistent with the provisions of the Act; and also being necessary or expedient for carrying out the purposes of the Act, as the case may be," the Court held. .Importantly, the Court held that the Disaster Management Act, 2005 cannot be used by State authorities to issues directions to private parties on economics aspects relating to subsisting contracts. "Having regard to the purport of the Act of 2005, it is unfathomable as to how the State Authorities established under the stated Act can arrogate unto themselves power to issue directions to private parties on economic aspects of legitimate subsisting contractual matters or transactions between them inter se," the Court held. .There is no provision in the Act of 2005 which concerns or governs the subject of interdicting the school fee structure fixed under the 2016 Act, the Court added..Similarly, the reliance placed by the State on Rajasthan Epidemic Diseases Act of 2020 was also turned down by the Court. The State in this regard had cited Section 4 of the 2020 Act which lays down power to take special measures and specify regulations as to epidemic disease. The Court accepted that Section 4 confers power on State to regulate or restrict the functioning of offices, Government and private and educational institutions in the State. That, however, would be only in respect of manner of its use and its timings including to observe standard operating procedures to ensure that epidemic diseases do not transmit or spread on account of activities carried out by such institution, the Court said. "That power to regulate cannot be invoked to control the tariffs, fees or cost of goods and services and in particular economic aspects of contractual matters between two private parties or so to say school fees of private unaided schools," the Court made it clear. .Regarding the constitutional challenge, the Supreme Court upheld the conclusion of the High Court which had upheld the Constitutional validity of the Act and Rules. “These provisions as interpreted be given effect to, henceforth, in conformity with the law declared in this judgment. For the reasons mentioned hitherto, we hold that the High Court rightly concluded that the provisions of the Act of 2016 as well as the Rules of 2017 are intra vires the Constitution of 56 India and not violative of Articles 13(2) and 19(1)(g) of the Constitution,” the judgment said..The Court however read down Sections 4, 7 and 10 of the Act..[Read judgment]