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In a landmark judgment on April 12, 2012, the Supreme Court upheld the constitutional validity of the provision in the Right to Education Act, 2009 that makes it mandatory for all schools (government and private) except private, unaided minority schools to reserve 25% of their seats for children belonging to “weaker section and disadvantaged group”.  The verdict was given by a three-judge bench namely Justice S.H. Kapadia (CJI), Justice Swatanter Kumar and Justice K.S. Radhakrishnan.  However, the judgment was not unanimous.  Justice Radhakrishnan gave a dissenting view to the majority judgment. According to news reports (here and here), some school associations are planning to file review petitions against the Supreme Court order (under Article 137 of the Constitution, the Supreme Court may review any judgment or order made by it.  A review petition may be filed if there is (a) discovery of new evidence, (b) an error apparent on the face of the record, or (c) any other sufficient reason). In this post, we summarise the views of the judges. Background of the petition The 86th (Constitutional Amendment) Act, 2002 added Article 21A to the Constitution which makes it mandatory for the State to provide free and compulsory education to all children from the age of six to 14 years (fundamental right).  The Parliament enacted the Right of Children to Free and Compulsory Education Act, 2009 to give effect to this amendment. The Act provides that children between the ages of six and 14 years have the right to free and compulsory education in a neighbourhood school.  It also lays down the minimum norms that each school has to follow in order to get legal recognition.  The Act required government schools to provide free and compulsory education to all admitted children. Similarly, aided schools have to provide free and compulsory education proportionate to the funding received, subject to a minimum of 25%. However, controversy erupted over Section 12(1)(c) and (2) of the Act, which required private, unaided schools to admit at least 25% of students from SCs, STs, low-income and other disadvantaged or weaker groups.  The Act stated that these schools shall be reimbursed for either their tuition charge or the per-student expenditure in government schools, whichever is lower.  After the Act was notified on April 1, 2010, the Society for Unaided Private Schools of Rajasthan filed a writ petition challenging the constitutional validity of this provision on the ground that it impinged on their right to run educational institutions without government interference. Summary of the judgment Majority The Act is constitutionally valid and shall apply to (a) government controlled schools, (b) aided schools (including minority administered schools), and (c) unaided, non-minority schools.  The reasons are given below: First, Article 21A makes it obligatory on the State to provide free and compulsory education to all children between 6 and 14 years of age.  However, the manner in which the obligation shall be discharged is left to the State to determine by law.  Therefore, the State has the freedom to decide whether it shall fulfill its obligation through its own schools, aided schools or unaided schools.  The 2009 Act is “child centric” and not “institution centric”.  The main question was whether the Act violates Article 19(1)(g) which gives every citizen the right to practice a profession or carry out any occupation, trade or business.  However, the Constitution provides that Article 19(1)(g) may be circumscribed by Article 19(6), which allow reasonable restriction over this right in the interest of the general public.  The Court stated that since “education” is recognized as a charitable activity [see TMA Pai Foundation vs State of Karnataka (2002) 8 SCC 481] reasonable restriction may apply. Second, the Act places a burden on the State as well as parents/guardians to ensure that every child has the right to education.  Thus, the right to education “envisages a reciprocal agreement between the State and the parents and it places an affirmative burden on all stakeholders in our civil society.”  The private, unaided schools supplement the primary obligation of the State to provide for free and compulsory education to the specified category of students. Third, TMA Pai and P.A. Inamdar judgments hold that the right to establish and administer educational institutions fall within Article 19(1)(g).  It includes right to admit students and set up reasonable fee structure.  However, these principles were applied in the context of professional/higher education where merit and excellence have to be given due weightage.  This does not apply to a child seeking admission in Class I.  Also, Section 12(1)(c) of the Act seeks to remove financial obstacle.  Therefore, the 2009 Act should be read with Article 19(6) which provides for reasonable restriction on Article 19(1)(g).  However, the government should clarify the position with regard to boarding schools and orphanages. The Court also ruled that the 2009 Act shall not apply to unaided, minority schools since they are protected by Article 30(1) (all minorities have the right to establish and administer educational institutions of their choice).  This right of the minorities is not circumscribed by reasonable restriction as is the case under Article 19(1)(g). Dissenting judgment Article 21A casts an obligation on the State to provide free and compulsory education to children of the age of 6 to 14 years.  The obligation is not on unaided non-minority and minority educational institutions.  Section 12(1)(c) of the RTE Act can be operationalised only on the principles of voluntariness, autonomy and consensus for unaided schools and not on compulsion or threat of non-recognition.  The reasons for such a judgment are given below: First, Article 21A says that the “State shall provide” not “provide for”.  Therefore, the constitutional obligation is on the State and not on non-state actors to provide free and compulsory education to a specified category of children.  Also, under Article 51A(k) of the Constitution, parents or guardians have a duty to provide opportunities for education to their children but not a constitutional obligation. Second, each citizen has the fundamental right to establish and run an educational institution “investing his own capital” under Article 19(1)(g).  This right can be curtailed in the interest of the general public by imposing reasonable restrictions.  Citizens do not have any constitutional obligation to start an educational institution.  Therefore, according to judgments of TMA Pai and PA Inamdar, they do not have any constitutional obligation to share seats with the State or adhere to a fee structure determined by the State.  Compelling them to do so would amount to nationalization of seats and would constitute serious infringement on the autonomy of the institutions. Rights guaranteed to the unaided non-minority and minority educational institutions under Article 19(1)(g) and Article 30(1) can only be curtailed through a constitutional amendment (for example, insertion of Article 15(5) that allows reservation of seats in private educational institutions). Third, no distinction can be drawn between unaided minority and non-minority schools with regard to appropriation of quota by the State. Other issues related to the 2009 Act Apart from the issue of reservation, the RTE Act raises other issues such as lack of accountability of government schools and lack of focus on learning outcomes even though a number of studies have pointed to low levels of learning among school children.  (For a detailed analysis, please see PRS Brief on the Bill).

These are challenging times for chit fund operators. A scam involving the Saradha group allegedly conning customers under the guise of a chit fund, has raised serious questions for the industry. With a reported 10,000 chit funds in the country handling over Rs 30,000 crore annually, chit fund proponents maintain that these funds are an important financial tool. The scam has also sparked responses from both the centre and states: the Finance MinistryMinistry of Corporate Affairs and SEBI have all promised to act and the West Bengal Assembly has passed The West Bengal Protection of Interest of Depositors in Financial Establishments Bill, 2013, with Odisha and Haryana considering similar legislation. What is a chit fund? A chit fund is a type of saving scheme where a specified number of subscribers contribute payments in instalment over a defined period.  Each subscriber is entitled to a prize amount determined by lot, auction or tender depending on the nature of the chit fund.   Typically the prize amount is the entire pool of contribution minus a discount which is redistributed to subscribers as a dividend. For example, consider an auction-type chit fund with 50 subscribers contributing Rs 100 every month. The monthly pool is Rs 5,000 and this is auctioned out every month.  The winning bid, say Rs 1000, would be the discount and be distributed among the subscribers. The winning bidder would then receive Rs 4,000 (Rs 5,000 – 1,000) while the rest of subscribers would receive Rs 20 (1000/50).  Winners cannot enter the auction again and will be liable for the monthly subscription as the process is repeated for the duration of the scheme.  The company managing the chit fund (foreman) would retain a commission from the prize amount every month.  Collectively, the subscribers to a chit fund are referred to as a chit group and a chit fund company may run many such groups. What are the laws governing chit funds? Classifying them as contracts, the Supreme Court has read chit funds as being part of the Concurrent List of the Indian Constitution; hence both the centre and state can frame legislation regarding chit funds.  States like Tamil Nadu, Andhra Pradesh and Kerala had enacted legislation (e.g The Kerala Chitties Act, 1975 and The Tamil Nadu Chit Funds Act, 1961) for regulating chit funds. Chit Funds Act, 1982 In 1982, the Ministry of Finance enacted the Chit Funds Act to regulate the sector.  Under the Act, the central government can choose to notify the Act in different states on different dates; if the Act is notified in a state, then the state act would be repealed[i].  States are responsible for notifying rules and have the power to exempt certain chit funds from the provisions of the Act.  Last year the central government, notified the Act in Arunachal Pradesh, Gujarat, Haryana, Kerala and Nagaland. Under the Act, all chit funds require previous sanction from the state government.  The capital requirement for establishing chit funds is Rs 1 lakh and at least 10% of profits should be transferred to a reserve fund.  The amount of discount (i.e. the bid) is capped at 40% of the total chit fund value.    States may appoint a Registrar who would be responsible for regulation, inspection and dispute settlement in the sector. Any grievances over decisions made by the Registrar can be subject to appeals directed to the state government. Chit fund managers are required to deposit the entire value of the chit fund (can be done in 50% cash and 50% bank guarantee) with the Registrar for the duration of the chit cycle. Prize Chits and Money Circulation Schemes (Banning) Act, 1978 The Prize Chits and Money Circulation Schemes (Banning) Act, 1978 defines and prohibits any illegal chit fund schemes (e.g. schemes where auction winners are not liable to future payments).  Again, the responsibility for enforcing the provisions of this Act lies with the state government. Reports suggest that the government is discussing amendments to this Bill in the wake of the chit fund scam. West Bengal Protection of Interest of Depositors in Financial Establishments Bill, 2013 Last month the West Bengal Assembly passed the West Bengal Protection of Interest of Depositors in Financial Establishments Bill, 2013. This was a direct response to the chit fund scam in West Bengal. While not regulating chit funds directly, the Act regulates and restricts financial establishments to curb any unscrupulous activity with regards to deposits.  Chit funds are specifically included under the definition of deposits. The state government will appoint a competent authority to conduct investigations. What is the role of RBI and SEBI? The Reserve Bank of India (RBI) is the regulator for banks and other non banking financial companies (NBFCs) but does not regulate the chit fund business. While chit funds accept deposits, the term ‘deposit’ as defined under the Reserve Bank of India Act, 1934 does not include subscriptions to chits. However the RBI can provide guidance to state governments on regulatory aspects like creating rules or exempting certain chit funds. As the regulator of the securities market, SEBI regulates collective investment schemes.  But the SEBI Act, 1992 specifically excludes chit funds from their definition of collective investment schemes. In the recent case with Sarada Group, the SEBI investigation discovered that Sarada were, in effect, operating a collective investment scheme without SEBI’s approval.


[i] The central act repeals the Andhra Pradesh Chit Funds Act, 1971; the Kerala Chitties Act, 1975, the Maharashtra Chit Funds Act, 1974’, the Tamil Nadu Chit Funds Act, 1961 (applicable in Chandiragh and Delhi), the Uttar Pradesh Chit Funds Act, 1975,  Goa, Daman and Diu Chit Funds Act, 1973 and Pondicheery Funds Act, 1966.