Supreme Court Re-defines the Fiscal Powers of Fee Regulatory Committees:
Statutory Authority Mandatory for Corpus-Fund Levies

Introduction

The Supreme Court’s judgment in The State of Kerala v. The Principal, KMCT Medical College (2025 INSC 518) addresses a long-standing tussle between the State of Kerala, self-financing medical colleges and Non-Resident Indian (NRI) students over an executive order that diverted a portion of NRI fees into a State-controlled corpus fund for Below Poverty Line (BPL) students. The case consolidates multiple appeals that challenged:
(i) Government Order (MS) No. 107/2018 (06-06-2018) which operationalised the corpus fund,
(ii) directions of the Admission and Fee Regulatory Committee (AFRC) coercing colleges to remit ₹5 lakh per NRI seat to the corpus, and
(iii) Kerala High Court’s mixed relief—quashing the GO yet freezing the fund with joint operation by State and colleges.

Key questions before the Supreme Court were:
• Does the AFRC possess legal authority—statutory or derived from precedent—to siphon a part of approved fees to a corpus fund?
• If the levy is ultra vires, who is entitled to the money already collected—the colleges, the students, or the State?
• How should scholarships for economically weaker students be funded pending legislation?

Summary of the Judgment

• GO Quashed: The Court upheld the High Court’s decision striking down GO 107/2018 for want of legislative backing.
• AFRC Power Curtailed: AFRC may scrutinise reasonableness of fees but cannot divert any part of it for other purposes unless authorised by statute.
• No Refund to NRIs: NRI students must pay the full fee approved by AFRC; amounts already paid towards corpus are not refundable.
• Colleges May Retain Amounts: Sums earlier earmarked for the corpus revert to respective colleges but must be substantially used to subsidise BPL students; colleges act as “trustees”.
• State’s Next Step: Court invites Kerala to enact proper legislation if it wishes to operate a central corpus or similar scheme.
• Time-bound Directions: State must release blocked corpus within three months; colleges must refund/adjust excess amounts taken from BPL students within same period.

Analysis

Precedents Cited & Their Influence

1. P.A. Inamdar v. State of Maharashtra (2005) 6 SCC 537
   • Recognised a permissible 15% NRI quota charging higher fees.
   • Suggested that money “should” benefit weaker section students but did not create an enforceable machinery; any regulation pending legislation left to State-appointed committees only to prevent misuse of quota.
   • Supreme Court now clarifies that Inamdar’s transitional mandate does not extend to levying or appropriating fees.
2. Islamic Academy of Education v. State of Karnataka (2003) 6 SCC 697
   • Directed constitution of AFRC-type committees to verify fee proposals.
   • Empowered committees solely to curb profiteering/capitation.
   • The present judgment treats this as the outer limit of committee powers.
3. Modern Dental College & Research Centre v. State of Madhya Pradesh (2016) 7 SCC 353
   • Upheld regulatory scrutiny of private-college fees provided it avoids rigid price-fixing.
   • Court relies on this to reiterate that fee autonomy and reasonable surplus remain intact.
4. Najiya Neermunda v. Kunhitharuvai Memorial Charitable Trust (2021) 5 SCC 515
   • Earlier round from Kerala directing AFRC to reconsider fee proposals; confirms continuing judicial oversight.

Legal Reasoning

• Lack of statutory foundation: Article 265 principle—no tax or fee without authority of law—implicitly applied. Sections 8A & 11 of Kerala Medical Education Act, 2017 empower AFRC only to determine fee, not re-appropriate it.
• Ultra vires executive action: GO 107/2018 was subordinate legislation that tried to impose an expropriatory levy. Without a charging section in the parent Act, it violates the doctrine of ultra vires.
• Separation of Powers: Designing welfare schemes (e.g., a scholarship corpus) is squarely within legislative domain; executive cannot create a quasi-tax merely by order.
• Balancing Autonomy and Equity: By letting colleges keep the money yet earmarking it for BPL subsidies, the Court preserves institutional autonomy while safeguarding students’ equitable access.
• Trusteeship Approach: Colleges become trustees of the disputed amount until legislation intervenes, echoing equitable doctrines to prevent unjust enrichment.

Impact of the Judgment

1. National Precedent on Fee Diversion: Any State or committee that wishes to channel a slice of tuition fees into a central scholarship pool must first enact explicit legislation. Expect other States with similar executive schemes to revisit their legal basis.
2. AFRCs across India: Their remit is now judicially confined; while they may vet for profiteering, they cannot impose levies, surcharges or corpus contributions.
3. Legislative Spur: Kerala—and potentially other States—must draft nuanced Acts balancing fee-autonomy, transparency, and social justice (scholarships, cross-subsidy mechanisms, audit obligations).
4. Institutional Governance: Colleges can plan finances with greater certainty, knowing that corpus-style deductions need a statutory wrapper. However, courts have signalled strict scrutiny to ensure BPL subsidies are honoured.
5. Students’ Litigation Strategy: NRIs lose refund hopes; yet BPL students gain enforceable benefits against colleges if subsidies lapse, armed with this judgment.

Complex Concepts Simplified

• Corpus Fund: A dedicated pool of money earmarked for a specified purpose—in this case, scholarships—distinct from the institution’s general revenue.
• Capitation Fee: An illegal, profit-oriented lump-sum demanded for admission, beyond legitimate tuition and expenses.
• Expropriatory Levy: A compulsory extraction of money by the State (tax, fee, cess). Constitution requires clear statutory backing (Article 265).
• Ultra Vires: Latin for “beyond the powers.” An action taken with no legal authority is void.
• Reasonable Surplus: Profit margin allowed to private educational institutions for reinvestment—not personal enrichment.
• Trusteeship (in this context): When colleges hold funds not entirely for their own benefit but for a mandated social objective; fiduciary obligations apply.
• NRI Quota: Up to 15% seats that may be filled by Non-Resident Indians or their wards, generally at higher fee levels.

Conclusion

The Supreme Court has drawn a clear constitutional line: fee-review is permissible, fee-diversion is not—unless the legislature says so. While applauding Kerala’s welfare intent, the Court underscored that noble objectives cannot bypass the constitutional architecture of taxation and executive power. By simultaneously protecting college autonomy and BPL students’ interests, the judgment crafts a pragmatic interim solution and invites legislative action for a sustainable framework. Future disputes over educational finance will now hinge on express statutory design rather than executive improvisation, marking a significant doctrinal advance in India’s education jurisprudence.