Once reflected as a charitable and philanthropic activity, education these
days is considered as one of the most profitable businesses. And when we
talk of business we can in no way ignore contracts. Educational institutions
are large organisations that enter into a large number of contracts ranging
from employment contract to licensing Intellectual Property Rights. This
article analyses the various types of contracts, right from the primary
level to the tertiary level that an educational institution generally enters
Education in India falls under the concurrent list of the constitution.
Thus, both the centre and the state can form legislation on education. An
educational institution is expected to function under the guidelines of
these legislations. Primary education in India is regulated by the board a
school is affiliated to, like the Central Board of Secondary Education,
Indian Certificate of Secondary Education or any of the state boards.
Tertiary level of education is regulated by the University Grant
Commission, All India Council for Technical Education, Medical Council of
India and Bar Council of India. Tertiary level of education is typically
divided into two broad segments, regulated (formal education) and
unregulated (non formal or semi formal education.
Government's initiative like National Accreditation Regulatory Authority
Bill for higher education and the Foreign Educational Institutional Bill are
the first steps of policy formation for promoting higher education and for
attracting Foreign Direct Investment (FDI) in India. 100% FDI through
automatic route is allowed in education since 2002.
In 2017 education sector
in India entered into eighteen merger and acquisition deals worth US$ 49
million. Till March 2019 India has attracted US$ 2.47 billion FDI in the
education sector. All these multimillion deals and relationships are
legally drawn and structured in a series of contracts. Contracts in
educational sector is broadly be classified under seven headings in this
Appointing contractual teacher, also referred as ad-hoc, temporary, or guest
faculty, is the most popular practice to meet the additional requirements of
teachers in educational institutions. The term ad-hoc is defined as “an
arrangement made for a particular purpose. Lots of discussion took place
from time to time on the appointment and regularisation of these teachers.
Teachers appointed on contractual basis are generally appointed without
following any regulatory guidelines and procedures. Contract teachers are
not considered “workmen” under Industrial Disputes Act, 1947 because
although it applies to both “skilled and unskilled” labour the Supreme Court
has determined that the contract teachers are neither, instead they are part
of a ‘noble profession'.
The court from time to time urged the government to bring appropriate
legislation in place to regulate teachers appointed on contractual basis.
Educational institutions appoint contractual teachers just by entering into
a contract for a fixed period of time, generally for a year, that can be
renewed if required. There service is strictly governed by the terms and
conditions of the contract signed between the teacher and the institution.
Appointing contractual teacher is highly economical for these institutions
as they are paid on the basis of per lecture and not required to pay any
other allowances or benefits as the regular teachers.
only have one or two regular teachers and mostly run by the contractual
teachers, thus making huge profits. Teachers appointed on contractual basis
after working for a long period of time challenged the validity of the
contract and approached the court for regularisation of the service. The
Supreme Court in this regard was of the view that after long years of ad-hoc
service the termination of appointment is unjust as the employee was
deliberately kept in service and not disengaged on time. In such cases court
might direct regularization.
Though the court deprecated the practice of
ad-hoc appointment, yet it was in favour of the employees who continued on
ad-hoc for a long period of time . The court directed the government to
frame a scheme for regularisation of contractual employees along with
regulation on termination of service of the temporary employees. In order
to get regularised as an regular teachers the appointment must be made on
the prescribed regulated way and in absence of such process the contract
signed between the parties, strictly prevails and cannot be challenged in
any way what so ever. A temporary or contractual employee could not claim to
be made permanent on the expiry of his term of appointment .
Third Party Contract
Educational institutions also enter into Contracts with third party service
provider. These third party services are haired in order to provide some
specific services to the students, the staff members or employees. Services
like Bus service, Canteen, HR service, stationary supply, uniform supply, IT
support, insurance for employees fall under this category. The relationship
between the institution, the service provider and the beneficiaries are
regulated and governed by the term and conditions of the Contract entered
between the institution and the service provider.
In India the Doctrine of Privity of Contract that is the common law principle applies when it comes
to the third party contract, i.e., no stranger to a contract can file a
suit. But there is an exception to it and the exception is that the
beneficiary to the contract can file a suit. There can also be situation in
which although there may be no privity of contract between the two parties,
but if one of the parties by their conduct acknowledge or recognizes the
right of the other, he/she may be accountable on the basis of law of
In Donoghue V. Stevenson
 a friend of Ms. Donoghue bought her a bottle of
ginger beer, which was defective. The ginger beer contained partially
decomposed remains of a snail. Since the contract was between her friend and
the shop owner, there was no privity of contract between the manufacturer
and the consumer, but it was established that the manufacturer has a duty of
care owed to their consumers and she was awarded damages in tort.
In Provender V. Wood
 case a father in law told another father in law
that if their kids get married he will give the groom a certain amount of
money. They got married and there was no money given to the groom. Groom
sued the father in law. The groom won the case because the third party was
closely related to the contract.
Public Private Partnership (PPP)
The Eleventh Five Year Plan proposed PPP model of Education. Indian
Institute of Information Technology (IIIT) is one of the examples of PPP
model institute in India. The PPP model was introduced for privatization and
commercialisation of education using public fund. Companies with minimum
net worth of Rs. 25 lakh are eligible to set up education institute under
this model. PPP is a contractual relationship between the government and
private organisation for a specific target or project.
Under this contract
role of each parties are clearly defined and they also agree upon sharing
both revenue and risk. In such model, generally the first party i.e,
government (central, state or local) take the initiative to invite private
parties to join the pre-defined activity. Typically one of the parties makes
the investment and the other party is responsible for operation management.
The policy framing part is the prerogative of the government and the
contract clearly talks and defines formation and implementation of plans,
evaluation of plans, ownership, management, funding, operation, academic
aspects, healthcare, hostels and so-on.
This PPP contract can also be
entered by signing University – Industry Collaboration Agreement, by some
existing university with industries to make the curriculum more market
relevant and also to increase the employability of the fresh graduates.
Another typical model of PPP is the introduction of school vouchers, whereby
the government enters into a contract with the student to pay student's fee
and other expenses in both private and government schools.
The award and management of the contract under the PPP model should maintain
complete transparency and accountability as public fund or resources are
utilised and given under contract to a private party. Any sub-contract
entered along with the main contract shall also be treated as part of main
Contract for Government Aid
This model involved in setting up of an educational institution by a private
not for profit organisation like trust, society or section 8 companies, with
its own funds and run the institute for a minimum period of 3 years before
it becomes eligible for government aid. Once the institute is categorized as
an aided institution all the rules that are applicable to the government
institutions applies to such institute.
They are to follow most of the
government rules and regulations in terms of admissions, fees, scholarships,
other incentives and subsidies, recruitment of staff, salary structure, etc.
In effect, they are considered as no different from public institutions, but
the management of such institutions are completely under the private
control. These institutions were often funded by the government up to 95 per
cent of the recurring and sometimes also a part of non-recurring
In recent years, because of some of the malpractices indulged in by the
managements of such institutions, many of them were taken over by the
government, or in some cases the staffs were directly paid the salaries by
the government. This has been a very prominent model in many countries both
at school level and in higher education.
For example, private non-profit
schools in Netherlands where government pays all costs of these private
schools, or charter schools in USA, which are private schools, operate under
contract with government and are publicly funded on per student basis, come
close to the aided schools in India.
While the charter schools and the
not-for- profit schools in the Netherlands are described as belonging to PPP
models, the aided schools in India and in many other countries are not
considered as PPP rather counted as publicly funded institute which is in
India popularly among the layman are recognised as government institute.
These institutions are run and managed by private body and funded by the
government. The government fund these institutions after signing an
agreement which the institute must strictly follow in order to continue with
its government aided status. As said by RS Pathak CJ “in our opinion, the
teachers of aided schools must be paid the same pay scale and dearness
allowance as teachers in government schools for the entire period of
Memorandum of Understanding between Universities
Collaborative working, joint working, memorandum of understanding (MoU) are
often used interchangeably. These work terms are negotiated and recorded in
legal contracts to create enforceable rights and obligations on the parties.
These legal relationship is created to work together and to create some
surplus or meet some academic missions, primarily in the form of students
exchange program, research, knowledge and teacher exchange program. In
practice a MoU is always followed by a Non-disclosure Agreement (NDA). A NDA
can either be imposed on one of the parties or on both the parties. This is
to protect the confidential information including intellectual property of
the parties that may come in knowledge of the other party during the course
Now the question comes about the enforceability of these MoUs. Whether the
MoUs are considered as a contract and enforceable by law? Numerous
judgements have been pronounced from time to time by various courts on the
validity of MoU. A MoU generally refer to signing of some contract in
A mere reference to a future formal contract does not prevent the
existence of a binding agreement between the parties unless the reference in
made in the MoU to a future contract in such terms and conditions as to show
that the parties did not intend to be bound by the MoU until a formal
contract is signed between the parties. The parties to the MoU will get
the benefits arising out of MoU the Supreme Court of India relied upon
the terms and conditions of the MoU in coming to this conclusion.
Mere heading or title of a document cannot deprive the document of its real
nature. Law is well settled in such matters that it is the substance which
has to be seen and not the form. Thus it is quite evident that the court
actually consider the intensions of the parties to the understanding, while
deciding and concluding whether a MoU is actually enforceable or not.
Academic Affiliation Contract
The power to control is the key factor of affiliation; it has a close
official link. These contracts set out the terms and conditions between
the parties which defines and governs the affiliate relationship. Academic
Affiliation Contract is drafted very thoroughly with very minute details.
Every educational institution whether of primary, secondary or tertiary
level is affiliated to any affiliation board or universities. These
contracts are entered between the parties to mitigate the risk that may
arise during continuation of affiliation. This formal understating between
the parties is in the interest of both. Both the parties intend to benefit
from the arrangement.
The terms and conditions of the affiliation agreement include
indemnification, liabilities, representation and warranty, and Intellectual
Property Rights. Indemnification – who is going to indemnify the other in
the event of loss, claim, demands, damages, judgments, settlements, and
other expenses (which also include attorneys' fees and costs)? Liabilities –
under what circumstances will the party be liable. Representations and
Warranties are a series of clauses inserted into the agreement that
elucidates the facts which inspired both or either side to come to an
So, if there is a misrepresentation on behalf of any party, they
will be held liable. Intellectual Property Rights empowers the affiliate
with non-exclusive, non-transferable right to use/access/market the product
of the other party.
Such rights exist as long as the agreement is valid. If
the affiliate is found to alter, modify or manipulate the intellectual
property concerned, he might be held liable subject to the terms agreed to
in the contract. Other clause like termination of the agreement and
consequences and pecuniary damages arising out of the contract, governing law(s), i.e. the relevant law which would govern the agreement,
jurisdiction, in case any dispute arises, are the clause that every
affiliation agreement must contain.
Intellectual Property Rights
Intellectual Property is the foundation of new university. In USA Bayh –
Dole Act was passed in order to make universities owner of their own
inventions and further license their inventions for commercial benefits. In
line with USA, India too tried to bring the Protection and Utilisation of
Public Funded Intellectual Property Bill (PUPFIP Bill) but failed. Through
these licenses technologies are transferred and disseminated for wider
In USA, more than 5000 start-ups have been created since 1980,
through the transfer of these technologies by licensing contracts. In India
too IITs have been incubating start – ups and companies by licensing its
Each year these universities earn millions of dollars through there
IP license. Florida State University earned revenue of US $ 45 million from
its intellectual property. University of Minnesota made US $ 370 million by
licensing its patent on compound behind abacavir that decreases HIV viral
load and reduces the risk of developing AIDS.
These researches are bought from lab of the educational institution to the
market by entering into sequence of contracts. Non-Disclosure Agreement,
Joint Collaborative Research Agreement, Joint Development of Technology
Agreement, Industrial Consultancy, Inter-institutional Agreement and
Technology Licensing Agreement are the few examples of types of contract
that are generally used in Intellectual Property.
Herbert Boyer was professor at University of California invented Synthetic
Human Insulin in 1978 and give it on licence to Genetech of which he was a
co-founder, thus enter into first contract. Second was when Genetech was
acquired by Roche in 2009 for US $47 billion and the party entered into
agreement on acquisition. Similarly, licensing of Laboratory of Molecular
Biology's (LMB's) work led to the development of Humira, registered mark of
Adalimumab, generating an income of 700 million pounds from royalty
agreement, share agreement, sale agreement and licensing agreement.
Though Right to Education is a Fundamental Right in India as per Article 21A
of the Constitution, in practice it is no more fundamental. Quality
education has become a big question, especially when the target is money
rather than excellence of education. There is no rule to regulate the fee
and other charges that educational institutions charges.
The sector is
changing rapidly with more and more private player entering the market. Even
the government is promoting the sector as a lucrative business area. It is
quite evident from the fact that 100% Foreign Direct Investment is permitted
in the education sector and organisations like Invest in India, Foreign
Direct Investment India, Federation of Indian Chamber of Commerce and
Industry, Chamber of Commerce openly advertise the sector by highlighting
various benefits of investment in the sector in order to attract more and
more investors. Thus we can conclude education is no more a social service,
but a lucrative business and is governed by series of contracts enter
between the parties.
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