The State of Kerala and Ors. vs. The Principal, KMCT Medical College and Ors. (CIVIL APPEAL)

The Supreme Court judgment review by Karma AI –The State of Kerala and Ors. vs. The Principal, KMCT Medical College and Ors.

I. Case Identification & Vitals

1. Court:
Supreme Court of India

2. Case Title:
The State of Kerala and Ors. vs. The Principal, KMCT Medical College and Ors. (and connected appeals)

3. Document Type and Date of Judgment:
Judgment, May 16, 2025

4. Case Number:
Civil Appeal No. [Not specified] / 2025 (Arising out of Special Leave Petition (C) Nos. 9885 – 9888 / 2020) and a batch of connected appeals.

5. SCR Citation:
NA

6. Neutral Citation:
2025 INSC 518

7. Disposal Nature:
Appeals disposed of with directions.

8. Case Type:
CIVIL APPEAL

9. Law Applicable:
Constitutional Law (Article 19(1)(g), Article 30); Education Law; Kerala Medical Education (Regulation and Control of Admission to Private Medical Educational Institutions) Act, 2017.

10. Bench:

1. Hon’ble Justice Surya Kant
2. Hon’ble Justice Nongmeikapam Kotiswar Singh

11. Judgment Authored by:
Hon’ble Justice Surya Kant*

II. Summaries & Core Issues

12. Headnote:
In a landmark judgment clarifying the powers of fee regulatory committees and the scope of cross-subsidization in private medical education, the Supreme Court addressed a complex dispute arising from the State of Kerala’s attempt to create a centralized corpus fund to subsidize education for Below Poverty Line (BPL) students. The fund was to be created by diverting a portion of the fees collected from Non-Resident Indian (NRI) students in self-financing medical colleges. The Kerala High Court had quashed the Government Order (GO) creating this fund, holding it was without legislative authority, but directed the collected amount to be retained by the colleges in a separate account for the benefit of their own BPL students.

The Supreme Court, in a batch of cross-appeals by the State, the colleges, and the NRI students, upheld the quashing of the GO. It ruled that neither the directions in P. A. Inamdar nor the Kerala Medical Education Act, 2017, empowered the Fee Regulatory Committee or the State executive to levy an amount from NRI fees to create a centralized state-run corpus fund. Such a measure requires a specific legislative enactment.

However, the Court dismissed the NRI students’ plea for a refund, holding that the principle of charging higher fees from them for cross-subsidization is well-established. It allowed the self-financing colleges to retain the collected “corpus fund” amount but designated them as “trustees” of the fund. The Court directed that a substantial part of this amount must be utilized for subsidizing the education of BPL students admitted to their respective institutions. The BPL students are to continue paying the subsidized fee, and any excess collected from them must be refunded or adjusted. The State was directed to release the collected funds back to the respective colleges within three months. (Drafted based on document analysis)

13. Short Summary:
The Supreme Court has resolved a major dispute over medical college fees in Kerala. The state government had tried to create a central fund to help poor students by taking a portion of the higher fees paid by NRI students. The Court ruled this was illegal because there was no law to support it. However, it did not order a refund to the NRI students. Instead, the Court directed that the extra money collected should be returned to the individual private colleges. These colleges must now act as “trustees” of this money and use it to provide scholarships and subsidized education to the BPL students enrolled in their own institutions.

14. Issue for Consideration:

1. Whether the Admission and Fee Regulatory Committee or the State Government has the power to direct the creation of a centralized corpus fund by levying a portion of the fees charged to NRI students, in the absence of a specific legislative provision.
2. If the creation of such a fund is illegal, are the NRI students entitled to a refund of the amount collected from them, or should the amount be returned to the colleges?
3. How should the principle of cross-subsidization, where higher fees from NRI students benefit economically weaker students, be implemented?

III. Procedural & Factual Background

15. Case Start Date:
The Special Leave Petitions were filed in 2020 and 2021. Leave was granted on May 16, 2025.

16. Case Arising From:
The appeals challenged the common impugned judgment dated July 23, 2020, passed by the High Court of Kerala. The High Court had quashed a Government Order (GO) creating a corpus fund but issued further directions on the utilization of the collected amount.

17. Background and Facts:
The Kerala Medical Education Act, 2017, established an Admission and Fee Regulatory Committee to regulate fees in private medical colleges. For the academic year 2017-2018, the Committee approved a fee of Rs. 20 lakhs per annum for NRI students, an increase from the previous Rs. 15 lakhs. However, it attached a condition: the “extra” Rs. 5 lakhs from each NRI student would be deposited into a “corpus fund” to provide scholarships for BPL students. The Committee based this decision on the Supreme Court’s observations in P. A. Inamdar.

The Government of Kerala later issued a GO dated June 6, 2018, to validate this decision, directing the creation of a centralized corpus fund managed by the State. This led to a series of litigations:

1. Colleges: Challenged the diversion of funds, arguing it was an overreach of the Committee’s power and hurt their financial autonomy.
2. NRI Students: Challenged the levy, arguing it was an illegal exaction without the authority of law and sought a refund.
3. State & BPL Students: Supported the GO as a necessary welfare measure.

The High Court quashed the GO for lacking legislative backing but, instead of ordering a refund, directed the colleges to maintain the collected amount in a separate account to be used for subsidizing their own BPL students. This led to cross-appeals from all three parties in the Supreme Court.

18. Timeline:

• June 1, 2017: The Kerala Medical Education Act, 2017, came into force.
• February 27, 2018: The Fee Regulatory Committee directed the creation of a corpus fund from NRI fees.
• June 6, 2018: The Government of Kerala issued a GO to formalize the creation of the centralized corpus fund.
• May 19, 2020: In a related matter, the High Court held that the Committee had no power to direct the utilization of fees for other purposes.
• February 25, 2021: The Supreme Court, in Najiya Neermunda, directed the Committee to reconsider fee proposals, emphasizing that fees should be non-exploitative and reasonable.
• July 23, 2020: The High Court passed the impugned judgment, quashing the GO but directing colleges to use the funds for their BPL students.
• May 16, 2025: The Supreme Court delivered the final judgment, modifying the High Court’s directions.

19. Parties Involved:

• Appellants/Respondents: The State of Kerala, The Principal, KMCT Medical College & Anr., Altaf Hussain & Ors. (NRI students), Sanchana Pious & Ors. (BPL students – intervenors).
• Key Body: The Admission and Fee Regulatory Committee.

20. Procedural History:

• Fee Regulatory Committee: Directed that Rs. 5 lakhs from each NRI student’s fee be remitted to a state-managed corpus fund for BPL scholarships.
• High Court of Kerala: Quashed the Government Order that formalized this fund as it lacked statutory authority. However, it directed the collected funds to be returned to the respective colleges and used exclusively for their B.P.L. students under joint management of the college and a state nominee.
• Supreme Court: Heard cross-appeals from the State, the colleges, and the NRI students against the High Court’s judgment.

IV. Legal Analysis & Arguments

21. Issues Framed:
The Supreme Court framed two main issues (Para 10):

1. Whether the Committee had the power to determine and direct that a particular amount of the fees charged to NRI students be kept in a corpus fund maintained by the State.
2. Whether the NRI students are entitled to a refund of the amount so charged or whether it can be set off against fees for later years.

22. Areas of Debate:

1. Can a policy for cross-subsidization be implemented through an executive order or does it require plenary legislation?
2. What is the scope of the powers of a Fee Regulatory Committee established pursuant to the directions in Islamic Academy and P.A. Inamdar?
3. If a levy is found to be illegal, what is the appropriate remedy: refund to those who paid, or returning the funds to the collecting institution for a related purpose?

23. Cases Cited by Petitioner/Appellant:

• P. A. Inamdar and Ors. v. State of Maharashtra (2005) 6 SCC 537: The foundational case on the rights of unaided minority and non-minority institutions. Paragraph 131, discussing the NRI quota and cross-subsidization, was the focal point of all arguments.
• Najiya Neermunda v. Kunhitharuvai Memorial Charitable Trust (2021) 5 SCC 515: Cited for the principle that fee fixation must be reasonable and non-exploitative.
• Modern Dental College & Research Centre and Ors. v. State of Madhya Pradesh and Ors. (2016) 7 SCC 353: On the balance between institutional autonomy and state regulation in fee fixation.
• Islamic Academy of Education v. State of Karnataka (2003) 6 SCC 697: The case that mandated the creation of Fee Regulatory Committees.

24. Cases Cited by Respondent/Defendant:
The same set of cases were relied upon by all parties, with each interpreting them to support their respective positions.

25. Acts/Rules/Orders Referred:

• Kerala Medical Education (Regulation and Control of Admission to Private Medical Educational Institutions) Act, 2017:
  • Section 8A (Powers and functions of the Fee Regulatory Committee): The Court analyzed this to find no power to create a corpus fund or divert fees.
  • Section 11 (Factors for determination of fee): The Court noted this section does not include the creation of scholarships as a factor for the Committee to consider.
• Government Order (MS) No. 107/2018/H&FWD dated 06.06.2018: The GO that was quashed by the High Court and the Supreme Court.

26. Acts/Rules/Orders Governing the Case:
The Kerala Medical Education Act, 2017, and the principles laid down by the Supreme Court in the P.A. Inamdar and Islamic Academy cases.

27. Literature Citation:
NA

28. Appearances for Parties:

• For the Colleges: Mr. Kapil Sibal and Mr. Nikhil Goel, Senior Counsel.
• For the NRI Students: Mr. Shoeb Alam, Senior Counsel.
• For the State of Kerala: Mr. Jayant Muth Raj, Senior Counsel.
• For the BPL Students (Intervenors): Mr. Gaurav Aggarwal, Senior Counsel.

29. Prayer:

• State: To uphold the GO and the centralized corpus fund.
• Colleges: To allow them to retain the collected amount as part of their fee structure.
• NRI Students: To get a refund of the illegally collected amount.

30. Evidence & Findings:
The case was decided on legal interpretation, not factual evidence. The key findings were:

• The Committee’s power under P.A. Inamdar and the 2017 Act is limited to regulating admissions and ensuring fees are not exploitative; it does not extend to creating a corpus fund or diverting fees. (Para 19, 25)
• Creating such a fund is a legislative function that can only be done through a proper statute, not by an executive order. (Para 26, 27)
• The principle of charging higher fees from NRI students to subsidize others is valid and well-established. (Para 33)

31. Petitioner/Appellant Arguments:

• Colleges: The diversion of funds is illegal and cripples their ability to function. The collected amount should be returned to them as it was part of their approved fee proposal.
• NRI Students: The levy is an illegal exaction without authority of law. They have already subsidized two students as per the Inamdar ratio, and the extra amount should be refunded.
• State of Kerala: The GO was a welfare measure authorized by the spirit of the Inamdar judgment, which is the law of the land and needs no further legislative backing.

32. Respondent/Defendant Arguments:
The arguments are cross-relational, as all parties were appellants in their respective appeals.

V. Judgment & Conclusion

33. Ratio Decidendi:

1. Limits on Executive Power: The State or its executive machinery cannot impose any levy or divert funds collected as fees without the explicit authority of a competent legislature. A welfare objective, however laudable, cannot be implemented through an executive order that lacks a statutory basis. (Para 25, 27)
2. Powers of Fee Regulatory Committees: The powers of a Fee Regulatory Committee, established pursuant to the Islamic Academy and P.A. Inamdar judgments, are regulatory, not expropriatory. Their role is to ensure that fees fixed by private institutions are non-exploitative and reasonable, not to create centralized funds or divert fees for other purposes. (Para 19)
3. Principle of Cross-Subsidization: The practice of charging higher fees from NRI students to subsidize the education of students from economically weaker sections is a valid and essential component of fee regulation in private professional education. This principle is not limited to a rigid formula (e.g., one NRI subsidizing two others) but is a broader mechanism to ensure equity. (Para 15, 33)
4. Doctrine of Trusteeship in Fee Utilization: When funds are collected for a specific purpose (corpus fund) which is later held to be illegal, but the collection itself (as part of a higher fee) is permissible, the Court can mould the relief. By designating the colleges as “trustees” of the fund, the Court ensured the money is used for its intended purpose (subsidizing BPL students) while correcting the illegality of a centralized state-managed fund. (Para 37)

34. Final Decision:
The appeals are disposed of with the following key directions:

1. The High Court’s decision to quash the GO dated 06.06.2018 is upheld.
2. The appeals by the State of Kerala and the NRI students are dismissed. The appeal by the self-financing colleges is allowed in part.
3. NRI students are not entitled to a refund. They must pay the full fees as approved by the Committee.
4. The State of Kerala must release the collected corpus fund amount back to the respective colleges within 3 months.
5. The colleges are entitled to retain these funds but are designated as “trustees” and must use a substantial part of the amount to subsidize the fees of BPL students admitted to their institutions.
6. BPL students shall continue to pay the subsidized fee rate, and any excess amount collected from them must be refunded or adjusted within 3 months.

35. Legal Jargons and Maxims:

• Corpus Fund: A fund where the principal amount is kept intact, and the income generated from it is used for a specific purpose.
• Cross-subsidization: A practice where one group of consumers pays a higher price to subsidize a lower price for another group.
• Res integra: A Latin term for a point of law that has not been decided or is untouched by precedent.
• Per contra: A Latin phrase meaning “on the other hand” or “in opposition.”
• Expropriatory: Relating to the action of the state in taking property from its owner for public use or benefit.

36. Exhibits:
NA

VI. Key Learnings for Law Students and Legal Professionals

37. Key Learnings:
The judgment in The State of Kerala and Ors. vs. The Principal, KMCT Medical College and Ors. is a significant pronouncement on the constitutional and statutory framework governing private professional education in India.

1. The Necessity of Legislative Backing for Financial Impositions: This case is a strong affirmation of the principle that any form of levy, tax, or financial exaction by the State must be supported by a clear and unambiguous law passed by a competent legislature. Executive orders or administrative directions, even if well-intentioned, cannot substitute for legislative authority in financial matters.
2. Judicial Creativity in Moulding Relief: The Supreme Court’s solution is a masterclass in judicial creativity. Faced with an illegal fund, it did not simply order a refund, which might have disrupted the educational ecosystem. Instead, it created a “trusteeship” model, correcting the illegality of the process while preserving the laudable objective of cross-subsidization. This demonstrates the power of the Court under Article 142 to do complete justice.
3. The Balance Between Autonomy and Regulation: The judgment carefully navigates the delicate balance between the autonomy of private educational institutions to fix their fees and the State’s power to regulate them to prevent profiteering. It clarifies that while colleges can charge higher fees from NRIs, the ultimate purpose is to strengthen the institution and support weaker students, not just to generate profit.
4. The Enduring Legacy of P.A. Inamdar: This case shows the continuing relevance of the principles laid down in the P.A. Inamdar judgment. It interprets and applies the concept of cross-subsidization in a practical context, providing much-needed clarity to regulatory committees, state governments, and educational institutions across the country.

The most important finding of this judgment is that while the State cannot create a centralized corpus fund from NRI fees via an executive order, the principle of cross-subsidization remains valid. The collected funds should be managed by the individual institutions as trustees for the specific purpose of subsidizing the education of economically weaker students.

Important Keywords for this Judgment: The State of Kerala and Ors. vs. The Principal, KMCT Medical College and Ors.

Medical College Fee Regulation, NRI Quota Fees, P.A. Inamdar case, Cross-Subsidization in Education, The State of Kerala vs. KMCT Medical College, Fee Regulatory Committee, Corpus Fund for BPL Students, Kerala Medical Education Act 2017, Executive Order vs. Legislation, Supreme Court on Education Policy.