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October 07, 2017

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STARTING A SCHOOL: SOME KEY CONSIDERATIONS


- Saurya Bhattacharya, Partner [ Cyril Amarchand Mangaldas ]

Saurya Bhattacharya

“Education is an ornament in prosperity and a refuge in adversity”
- Aristotle

There is no doubt that in a country as diverse as India, the need for education is paramount – it needs to act as an ornament as well as a refuge. It is part of the critical social sector that needs greater focus from private players.

Private studies indicate that the Indian education sector (at present pegged at USD 100 billion or higher) is expected to grow to USD 180 billion by 2020. This statistic itself, along with the sector’s proverbial recession-proof nature, makes it lucrative. Therefore, we discuss in this series some of the key legal and regulatory considerations for anyone who wishes to set up or invest in primary or higher education in India.

Setting up a School


In this piece, we restrict the discussion to recognized, regulated, and brick and mortar schools that carry a student at least till the tenth standard, to the exclusion of the many schools that either end by the eighth standard (for lack of affiliation with a board) or continue without affiliation.

Before establishing a legal entity or a vehicle that would carry out the activities, it is advisable to first determine what affiliation the proposed school would seek. Hereunder, we will illustratively look at certain features of three nationally prominent boards:

(i) Council for Indian School Certificate Examinations (“CISCE”);

(ii) Central Board of Secondary Education (“CBSE”); and

(iii) International Baccalaureate (“IB”).

All the above have their own independent guidelines that an applicant school has to comply with to receive affiliation, and thereafter, retain affiliation. Some of the key features of each are provided below, with a clear noting that even the CISCE and CBSE, though closer in intent, are not identical.

 

CISCE

The CISCE affiliation process is governed by the CISCE Rules for Affiliation (“CRA”). A key feature is that the school should be run by a registered society; a trust; or a not-for-profit company (“NFPC”). The CRA expressly states that a school must not be run for profit. Any change in the composition or ownership of the society, trust, or NFPC running the school has to undergo an approval process with the CISCE. The school would have to have at least 2,000 square meters of land. If not owned, the land should be under registered lease of at least five years, renewable up to thirty years. The CISCE grants provisional affiliation for a period of up to five years. Permanent affiliation would follow only if the conditions of the CRA are followed by the school. The grounds for suspension and withdrawal of affiliation are numerous, which range from specific to those with wide amplitude, illustratively:

(i) Financial irregularities;

(ii) Indulging in any activities prejudicial to the interest of the CISCE; or

(iii) Any other matter that the CISCE considers sufficiently serious for delisting/de-affiliation.

CBSE


The affiliation process with the CBSE is governed by its Affiliation Bye-Laws (“ABL”). It contains a wider cross-section of institutions that could be considered for affiliation with the CBSE, e.g., government and government-aided schools, schools run directly by government departments like Defence and Railways, and of course, private unaided schools. A private unaided school would have to be run by an educational, charitable, or religious society; a trust; or an NFPC. The ABL requires any surplus funds available to be reinvested for the purposes of the school and not be channeled to any person. It also prohibits the transfer or sale of the school by the society, trust, or NFPC (as the case may be). The landholding requirements are also more stringent, with the typical range being between one and two acres. These depend on the location of the school and the category of affiliation. If leased, the land lease would have to be for a period of thirty years. Affiliation itself is of three categories: ‘A+’, standing for permanent affiliation; ‘A’, standing for provisional affiliation for schools with at least two acres of land; and ‘B’, standing for provisional affiliation for schools with not less than 1.5 acres of land. Provisional affiliation itself is for a period of three years, extendable by the CBSE for justifiable grounds for another three to five years. The grounds for suspension or withdrawal of affiliation of a school are many, with some common features with the CRA and some additional grounds, for instance:

As a substitute for physical schools Digital Education is yet to find acceptance

(i) Financial irregularities;

(ii) Transfer of property or sale of the school; or

(iii) Non-fulfilment of norms for protection of women against sexual harassment at workplace.

The ABL also has a concept of downgrading of permanent affiliation to provisional affiliation.

IB

The IB has Rules for Candidate Schools (“RCS”). It states that the school must be duly registered as a legal entity under local law, either for profit or not-for-profit, privately or publicly funded. Therefore, it seems to maintain arm’s-length from any transaction pertaining to transfer or change in control of the school (as long as it is capable of providing the relevant educational services). The IB essentially restricts itself to providing qualifying schools with program curricula and assessment. The schools continue to function as independent organizations, free to follow their own governance on a wide array of subjects, including admission, faculty, and students. There is a periodic assessment (typically every five years) that the IB carries out to check for continued compliance of its standards by the school. A school should have been in existence for at least three years before being authorized by the IB. The grounds for termination of IB candidacy are also limited and include the following:

(i) Non-compliance with the RCS;

(ii) The school ceases to be a registered legal entity; or

(iii) The school has gone through major changes in its organizational and/or governance structure that result it in being essentially a different school from that which was granted candidacy.

 

Comparative Notes

As is evident, the least stringency in terms of legal structure as well as external regulation is afforded by the IB. It permits a for-profit structure. Between the CISCE and the CBSE, the latter has more detailed requirements. As a corollary, in certain aspects it is stricter than the CISCE.

 

Other Points of Interest

Geographical Location: Other than the affiliation, the legal vehicle that manages/sponsors the school would be governed by state laws as well. For instance, a trust set up in Maharashtra for this purpose would likely fall within the purview of the Maharashtra Public Trusts Act, 1950 and the Charity Commissioner – a regulator that has often been considered as difficult.

Legal Vehicle: Society, trust, and company afford differing degrees of flexibility in governance. While this piece does not deal with tax matters, tax structuring is an important factor to decide at least the legal vehicle, if not geographic location.

Digital Education: As a substitute for physical schools, it is yet to find acceptance. At the school level, this part of the sector remains restricted to test preparation, tutorials, and supplementary education, with limited regulation of content or quality.

The picture is not identical when we reach higher education. We shall explore that in the next edition.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.

 

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