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Application of Law of Contracts in the Education Sector

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 into.

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[1]. 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 article.

Contract Teachers

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[2]. 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'[3].

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.

These institutions 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[4] . The court directed the government to frame a scheme for regularisation of contractual employees[5] along with regulation on termination of service of the temporary employees[6]. In order to get regularised as an regular teachers the appointment must be made on the prescribed regulated way[7] 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[8] .

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 estoppels[9].

In Donoghue V. Stevenson[10] 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[11] 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[12]. 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[13].

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.

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[14].

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 expenditure.

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 service[15]”.

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 of collaboration.

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 future.

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[16]. The parties to the MoU will get the benefits arising out of MoU[17] 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[18]. 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[19]. 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 agreement.

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 benefits.

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 patents.

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.

Conclusion 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.

End-Notes:
  1. Education India Analysis, https://www.ibef.org/industry/education-sector-india/infographic (last updated on July, 2019)
  2. Rudra Kumar Sain & Ors V. Union of India & Ors, AIR 2000 SC 2808
  3. A. Sunderambal V. Government of Goa, Daman & Diu, AIR 1988 SC 1700
  4. R. N Nnajudappa V. T. Thimmaiah, AIR 1972 SC 1767
  5. Dharwad Distt. P.W. D. Literate Daily Wage Employees Association V. State of Karnataka, AIR 1990 SC 883
  6. Chamaklal V. Union of India, AIR 164 SC 1854
  7. Harmindar Kaur V. Union of India, 2005(7) SLR (P & H) 626
  8. State of Karnataka V. Umadevi, (2006) 4 SCC 1
  9. Smt. Narayani Devi V. Tagore Commercial Corporation, AIR 1973 Cal 401
  10. [1932] UKHL 100
  11. 1630
  12. Bok, Derek. 2004. Universities in the Market Place: The Commercialization of Higher Education. Princeton University Press
  13. Centre for Civil Society, Regulatory Structure of Higher Education in India, International Growth Centre available at http://www.schoolchoice.in/research/#ppp last visited on 12-10-2019
  14. State of Rajasthan V. Senior Higher Secondary School Lachhmangarh , RLW 2003 (1) Raj 530
  15. Haryana State Adhyapak Sangh V. State Of Haryana, AIR 1990 SC 968
  16. Kollipara Sriramulu V. T. Aswathanarayana & Ors, 1968 AIR 1028
  17. Jai Beverages Pvt. Ltd. V. State of Jammu & Kashmir & Ors, 2006 (4) SCJ
  18. Nanak Builders & Investors Pvt. Ltd. V. Vinod Kumar Alag, AIR 1991 Del 315
  19. BBB English Dictionary

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