Law is on the side of students who want to leave an institute or course mid-way and are seeking refund of fees. This also means, education institutes should not be charging upfront fees for the entire course and refuse refund, in case the student wants it

Consider a typical scenario: A student takes admission to a coaching institute for a two year course, broken into four semesters. The student signs the enrollment /admission form containing various conditions. The institute collects upfront fees for the entire course. After attending classes for a few days/weeks, the student is dissatisfied and wants to opt out, but the institute refuses to refund the fees. It cites a clause in the admissions form that says, "Fees once paid shall not be refunded under any circumstances."

When the student persists with the demand, the institute cites another clause in the form: "In case of any dispute, matter shall be referred to arbitration and institute shall appoint the Arbitrator. The decision of the arbitrator shall be final and binding on the parties."

What is the solution? Here are two real life resolutions.

In one case, Dr Minathi Rath, a student’s father, dragged the coaching institute to the Consumer Forum. The State Commission held in 2006, that the clause "fees once paid is not refundable" was "unconscionable and voidable”. It further directed all educational institutes not to charge fees for the whole duration of the course in advance by way of lumpsum payment. The judgement was reported in the media as well. FIIT-JEE challenged this in the National Consumer Disputes Redressal Commission (NCDRC), but more about that later.

In another case,  a student paid an upfront fee of Rs1.8 lakh for a two-year coaching programme for the IIT-JEE entrance test. After a few classes, he wanted to opt out and sought a refund. As expected, FIIT-JEE (the coaching institute) refused, citing the non-refund clause which he had signed.

When the student’s father persisted with the request to refund the fee (after deducting a portion for the duration he attended the classes) FIIT-JEE initiated arbitration proceedings. The Arbitrator declined to grant the refund and agreed with FIIT-JEE’s submisison that once the student signed the admission form, he was bound by its clauses.

I entered the scene after the arbitration proceedings and filed an objection in the District Court against the order of the Arbitrator. The District Judge reversed the order of the Arbitrator with detailed reasons. The judge specifically noted that when a student signs the admission form, he has no bargaining power to negotiate, or refuse to sign any particular clause in the admission form. Hence, these clauses should not be held against the student. The District Judge also directed the Arbitrator to refund the proportionate fee to the student.

The matter did not end there. FIIT-JEE hired a big law firm and challenged the order in the High Court, although the amount involved was only Rs2 lakh. The matter came up before the High Court on 21 November 2011.

At the hearing, FIIT-JEE conceded that the non-refundable fee clause can be challenged as unconscionable under Section 23 of the Indian Contract Act, 1872, besides being in violation of the principles of public policy. The High Court agreed with the District Judge's view and remanded the matter to the Arbitrator for a decision after taking into account all the recent precedents on the point of law. The order is available here.

Now, in another development just a week prior to the High Court hearing, the NCDRC decided on FIIT-JEE’s appeal in Dr Minathi Rath’s case that we mentioned earlier. It is pertinent to mention here that the Supreme Court had settled the fee issue in the case of Islamic Academy of Education Vs. State of Karnataka (2003) 6 SCC 696. The Apex Court had expressed unhappiness with educational institutes charging the entire fees upfront and had said that students should only be asked to pay fees for a semester/ year to begin with.

But FIIT-JEE argued before the NCDRC that the ruling of Islamic Academy was not applicable to it since it is not an educational institute but only a coaching institute. The NCDRC was not impressed and upheld the order of the State Commission, directing FIIT-JEE to refund the fees. The order is available here.

We now began a second round of arbitration in the second FIIT-JEE case as directed by the High Court, by providing all the rulings on the dispute. This time the Arbitrator awarded the refund of fees for one year after deduction of statutory fees like Service Tax, etc.

In situations like these, students who want to leave an institute or course mid-way, usually hesitate to appoint a lawyer to argue their case. On the other hand, institutes have the resources for good legal representation. My advice to students is that the law is on your side if you want to fight. And educational institutes should be prudent, desist from charge upfront fees for the entire course, and if they do, should not refuse a refund.
 
(Dushyant K Mahant, is Founding Partner of Mahant & Mahant
and Intellectual Property Lawyer. He did his Masters in IP Law from Brisbane. Does pro bono work as well. Mr Mahant is active on social media to exchange views and news about politics, law and common sense)