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Larson And Toubro In... v. All-India Council Fo...
Factual and Procedural Background
Larsen & Toubro Ltd. (“L&T”), a major engineering company, established the Larsen & Toubro Institute of Technology in 1983. Admission is limited to children of L&T employees who have completed at least five years of confirmed service, and the Institute charges no tuition fee. The Government of Maharashtra originally permitted the Institute to function on conditions that included a fee-free regime and 34% reservation for backward classes.
On 4 February 1993, this Court delivered its judgment in Unni Krishnan, J.P. v. State of A.P. (1993 1 SCC 645), framing a regulatory scheme for professional and technical colleges. Pursuant to that judgment, the All-India Council for Technical Education (AICTE) issued two 1994 regulations governing fees, admissions, and approval of new institutions.
The Institute could not conform to the Unni Krishnan scheme and requested an exemption from the Government of Maharashtra and AICTE so that it could continue its existing, employee-exclusive model without losing recognition or affiliation. When AICTE declined, the petitioner filed the present writ petition before the Supreme Court of India.
Legal Issues Presented
- Whether the Larsen & Toubro Institute of Technology should be exempted from the admission and fee norms prescribed in Unni Krishnan and the 1994 AICTE Regulations.
- Whether the Court should waive the requirement that the Institute be run by a public or charitable trust, given adverse income-tax consequences suffered by the company.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Unni Krishnan, J.P. v. State of A.P. (1993 1 SCC 645) | Laid down a regulatory scheme for admissions, fee structure, and management of professional and technical colleges, including a preference for institutions run by public/charitable trusts. | The Court analysed whether the Institute’s unique, employee-exclusive and fee-free model conflicted with the objectives of Unni Krishnan, eventually finding it compatible and granting limited exemption from specific requirements. |
Court's Reasoning and Analysis
The Court noted that the Institute is a polytechnic, not an engineering college, and caters exclusively to children of L&T employees, many from lower employee echelons. Key factors underpinning the Court’s reasoning were:
- No Commercial Exploitation: The Institute charges no tuition fee and admits students strictly on academic merit, thereby avoiding the “teaching-shop” evil targeted in Unni Krishnan.
- Limited and Defined Beneficiary Class: Only children of long-serving employees are eligible, which the Court found consistent with the employer’s welfare objectives and not inimical to public interest.
- Compliance with Social-Justice Requirements: The Institute follows the Government of Maharashtra’s 34% reservation for backward classes.
- Regulatory Oversight Retained: While exempting the Institute from certain AICTE norms, the Court mandated continued application of all other AICTE regulations and State technical-education rules, subject to annual reporting and inspection.
- Trust Requirement Waived on Tax Grounds: The mandatory trust structure under Unni Krishnan was dispensed with because Section 40-A(9) of the Income-tax Act, 1961, denies full deduction for company payments to such trusts. The Court instead required a separate account for all Institute receipts and expenditures, leaving room for future modification if tax laws change.
Holding and Implications
Writ Petition DISPOSED OF with directions.
Practical consequences include:
- The Institute may continue its existing admission policy limited to children of eligible L&T employees without charging tuition, provided it maintains merit-based selection and the 34% reservation for backward classes.
- AICTE and the State Government retain inspection powers, and the Institute must file annual statements detailing applications, admissions, employee-status of parents, and merit lists.
- The requirement to operate through a public/charitable trust is waived for this Institute alone, subject to creation and maintenance of a separate accounting system.
- The decision is tailored to the Institute’s unique facts and does not create a broad precedent for other institutions.
B.P Jeevan Reddy, J.— Larson and Toubro Limited, a public limited company, is a leading engineering concern in this country. It has got a large workforce required for its various projects. In the year 1983, it set up Larson and Toubro Institute of Technology. For establishing and running the Institute, a trust called “Larson and Toubro Staff and Welfare Trust” was constituted. Because of certain legal complications, it is stated, the Institute is being run directly by the Company, dispensing with the trust. The Institute imparts instruction in a four-year diploma course — sixty seats in Diploma in Mechanical Engineering and sixty seats in Diploma in Electrical Engineering. According to the copy of the prospectus filed in this writ petition, the admission is open only to children of the employees of Larson and Toubro group of companies. It is further required that the employee should have put in a minimum period of five years of service as confirmed employee on Ist July of the year of admission to enable his child to claim the eligibility. The admission is made purely on the basis of merit determined on the basis of marks obtained in the Secondary School Certificate Examination of the Maharashtra State Board of Secondary Education or an equivalent examination. The minimum marks are fifty per cent in the case of general candidates and forty-five per cent in the case of backward class students. Thirty-four per cent of the seats are stated to be reserved in favour of backward classes. It is further stated before us by Shri K.K Venugopal, learned counsel for the petitioners that no fee whatsoever is charged or collected from the students or from their parents for admission and/or instruction in the said Institute. It is stated that as a matter of fact, the Government of Maharashtra had granted permission for starting this Institute in the year 1983 subject to the specific conditions that (1) no fee shall be charged from any student of the said institution; (2) the parents of the students must be Indian nationals; (3) the father/mother must be in service of the Company for at least five years; (4) that government rules regarding reservation of thirty-four per cent of seats for backward classes are followed, and (5) that only where no candidates are available in the backward class category, that those seats will be filled up by open category candidates. It is stated that these conditions are being implicitly and faithfully followed by the Institute.
2. On 4-2-1993 this Court delivered judgment in Unni Krishnan, J.P v. State of A.P (1993) 1 SCC 645 inter alia framing a scheme governing admission to professional colleges, which expression includes colleges imparting technical education. The idea behind the scheme was to put an end to the financial and other irregularities which had become rampant in these institutions, converting most of these institutions into teaching shops. The idea was to regulate admission to these colleges. Fifty per cent of the seats are to be filled purely on the basis of merit (who shall pay only a nominal fee) and the other fifty per cent being treated as “payment seats”, the admission to which seats also was to be on the basis of merit. On review petitions being filed by several persons, they were entertained only to the limited extent of providing a certain percentage of seats for non-resident Indians. It was directed that five per cent of the seats shall be reserved for non-resident Indian students. It appears that the petitioner was one of the review petitioners therein though it was not one of the writ petitioners in the batch of writ petitions disposed of on 4-2-1993.
3. In pursuance of the judgment in Unni Krishnan (1993) 1 SCC 645, the All-India Council for Technical Education framed two sets of regulations under All-India Council of Technical Education Act, 1987, viz., AICTE (Norms and Guidelines for Fees and Guidelines for Admissions in Professional Colleges) Regulations, 1994 dated 20-5-1994 and AICTE (Grant of Approval for starting new Technical Institutions, Introduction of Courses or Programmes and Approval of intake capacity of seats for the Courses or Programmes) Regulations, 1994 dated 31-10-1994. These regulations have been framed consistent with and in furtherance of the scheme and directions contained in the judgment aforesaid.
4. Since the petitioner-Institute could not fit itself into the said scheme, it applied for exemption and for appropriate orders both from the Government of Maharashtra and from the AICTE. The request was to permit it to continue according to its present scheme and, at the same time, not to refuse or withdraw the recognition and affiliation granted by the Government and the Council. Since the Council expressed its inability to accede to the said request, the present writ petition was filed.
5. It would be seen from the facts stated above that this Institute is not an engineering college but only a polytechnic, which means that primarily it will cater to the children of comparatively lower echelons of the employees of the Company. It is confined to the children of the employees alone and that too employees who have put in a minimum of five years of confirmed service on 1st July of the relevant year of admission. No fee is charged either for admission or for imparting instruction. (The admission to hostel is, of course, a different matter and for which charges are levied, to which no objection can be taken.) Admissions are being made exclusively on the basis of merit with reference to the marks in the qualifying examination, viz., the marks obtained in SSC Examination conducted by the Maharashtra State Board of Secondary Education or any other equivalent examination. No outside student is being admitted. The idea is to train the students keeping the requirements of the Company in mind and to absorb them ultimately in Company service to the extent feasible. It is thus obvious that the purpose for which this Institute has been started and is being maintained and run are in no way inconsistent with the underlying purpose and object sought to be achieved by the scheme enunciated in Unni Krishnan (1993) 1 SCC 645 and the regulations framed by the AICTE. We are, therefore, inclined to allow the Institute to function as at present, i.e, subject to the several conditions mentioned hereinbefore. In all other respects, the regulations framed by All-India Council for Technical Education shall apply as also the relevant rules and regulations, if any, made by the Education and Employment Department (including the office of Director of Technical Education, Bombay), Government of Maharashtra. It is made clear that the conditions imposed by the Maharashtra Government while permitting the Institute to be started, referred to above, shall continue to be observed. It shall be open to the Government of Maharashtra and All-India Council for Technical Education to inspect, call for records and information and take all other steps to ensure that the Institute is adhering to the above conditions. For this purpose, the Institute shall send each year, to both the Government and the Council, a statement of particulars of students who had applied for admission and those who had been granted admission. The statement shall contain the full particulars of the students along with the particulars of their parents (in service of the Company), their service particulars, the marks obtained by each applicant and an integrated merit list and a separate merit list of the students belonging to backward classes.
6. At the same time, we wanted to ensure that the Institute is run by a public/charitable trust as required by one of the clauses of the scheme in Unni Krishnan (1993) 1 SCC 645. It was, however, explained to us by Shri Venugopal that initially the Company had established a trust for the purpose of running the said Institute but it had to dispense with the said trust because the amount paid by the Company into the said trust was not being allowed as a deduction in the assessment of the Company under the Income Tax Act. It is explained that by virtue of insertion of sub-section (9) in Section 40-A of the Income Tax Act by Finance Act, 1984 (with retrospective effect from 1-4-1980) the amounts paid by the Company into the trust were held not deductible as permissible expenditure by the Income Tax Department and for this reason the trust had to be dispensed with. With a view to satisfy ourselves as to the position of law obtaining in this behalf, we requested Shri J. Ramamurti, Senior Advocate, to assist us and tell us whether it would be possible for the Company to claim full deduction for the amounts paid into the trust established, or to be established, for running the said Institute. Shri Ramamurti and Shri Venugopal have taken us through the relevant provisions of the Income Tax Act. We find that by virtue of sub-section (9) of Section 40-A, it may not be possible for the Company to claim such full deduction. Even if the said trust is recognised for the purpose of Section 80-G, the deduction can be only to the extent of fifty per cent of the amount paid into the trust. In the circumstances, we dispense with the said condition in the case of this Institute alone subject to the following further conditions, viz., the Company shall open, if not already opened, a separate account concerning the petitioner-Institute. All the expenditure incurred on the Institute and any other receipts by the said Institute shall be entered therein as also the particulars of the application of the said amounts. If there is any change in law relevant in this behalf, it shall be open to the Government of Maharashtra, AICTE or any other interested person to apply to this Court for appropriate modification.
7. We are grateful to Shri J. Ramamurti for gladly assisting us in the matter.
8. The writ petition is disposed of with the above directions. No costs.
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