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Published : August 27, 2012 | Author : Prerna Chopra
Category : Company Law | Total Views : 4978 | Unrated

Prerna Chopra
Prerna Chopra

Legal provisions regarding setting up base by foreign universities in India and related issues

India’s higher education system, with more than 13 million students, is the world’s third largest only after China and the US. There is a presence both private and public sector participation with regulations at union, state and local levels. Under the Constitution of India education falls under the concurrent list, with responsibilities lying with the Union and the states both. At the union level the main regulators of the higher education are-

University Grant Commission (UGC) which is a statutory organization set up by Union government for the coordination, determination and maintenance of standards of university education. It basically grants recognition to universities in India, and provide funds to government-recognized universities and colleges.

All India Council for Technical Education (AICTE) is another statutory body and also a national-level council for technical education under Department of Higher Education, Ministry of Human Resource Development which is responsible for proper planning and coordinated development of the technical and management education system in India. It accredits postgraduate and graduate programs under specific categories oft Indian institutions as per its charter.

Professional councils like the Indian Medical Council and the Bare Council of India are the other bodies which are equally responsible for imparting education in the various professional fields.

Other than these bodies, the government also plays a significant role by passing and reviewing various legal provisions regarding higher education from time to time.

Though the education system is one the largest in the world but ironically it educates only around 12% of the age group. Hardly 7-8% of the population in the age group of 17-23 years is enrolled in the institutions imparting higher education and thus there lies a great need to improve the educational infrastructure in the country as only 0.7% of India’s GDP is spent on the higher education. India, today also faces a serious quality problem that only a small proportion of its higher education sector can meet international standards. The reason for all this is the under-investment in the sector. In order to improve the system, there have been plans to establish new national “world-class” universities in each of India’s States, opening new IITs, and other initiatives. These plans, given the inadequate funds that have been announced and the shortage of qualified professors are unlikely to succeed. And thus to encourage investment in this sector India has been thinking of opening up its door for the foreign universities(FEIs) to come up and invest their capital in Indian education sector. This would not only bring world class education to our country but will also save up to $7.5 Billion (about Rs 34,500 crores) foreign exchange annually that students spend on studying abroad, as over 5 lakhs students choose to go overseas every year to obtain higher education which include professional courses in engineering, medical and management.

The various steps that have been taken to open Indian education sector for the outsider are-
Foreign Direct Investment
Government, vide Order No.7 (4)/2000-IPdated 11.2.2000 of the Ministry of Commerce and Industry (Department of Industrial Policy and Promotion) has allowed FDI upto 100%, on the automatic route in the education sector which means that foreign entities can invest in the Indian education sector without any prior approval of the government, subject to certain sectoral rules/regulations which include

The project shall conform to the norms and standards, including land use requirements and provisions of community amenities and common facilities as laid down in the applicable building control regulations, bye laws, rules and other regulations of the state government/ municipal/ local body concerned.

The investor/ investee company shall be responsible for obtaining all necessary approvals, including those of the building/ layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of development , external development and other charges and complying with all other requirement as prescribed under applicable rules/ bye laws/ regulations of the state government/ municipal/ local body concerned.

The state government/ municipal/ local body concerned, which approves the building/development plans, would monitor compliance of the above conditions by the developer

These conditions were laid down by the consolidated FDI policy, 1 October 2011. Though fully automatic route has been opened up for the FDI in the sector but due to various legal hurdles FEIs have till date not been able to set up their bases in India instead FEIs have been participating in the Indian educational system through

Twinning programs, that is, provide education partly in India and rest at the place where the FEI is situated.

Franchising of degree programs, under which the FEI collaborates with the Indian institutions to have their degrees be taught in India.

Over 68 of the FEIs that took the above mentioned routes were participating in the education sector without any approval from AICTE and other such regulatory bodies and thus there was a need to regulate their entrance and participation. Consequently AICTE brought out a notification in 2003 called AICTE notification for regulation for entry and operation of foreign universities and institutions imparting technical education in India, 2003.

AICTE notification for regulation for entry and operation of foreign universities and institutions imparting technical education in India, 2003
This was the first regulation in regard to FEIs investing in India. The main features of this notification were-

Procedure for registration

Condition for registration

1. For an FEI to operate in India it should provide a no objection certificate issued by the concerned embassy in India.

2. It should submit a detailed project report (DPR) to AICTE alongwith the application giving out various details including infrastructure, faculty, fees, curricula etc.

3. A standing committee nominated by the council would consider the proposal by the FEI


4. Then on the recommendation of the standing committee another expert committee would be formed to visit the said institution to assess the compliance of minimum standards laid down by the AICTE.

5. Consequently if satisfied the AICTE would issue a certificate of registration which would be valid for a specified time.

6. The notification also laid down various conditions for registration which include putting an end to franchisee system under these regulations,

1. No franchisee system shall be allowed under these regulations.


2. Accreditation by the authorized agency in the parent country with higher grades where grading is available shall be a prerequisite.

3. The Indian technical institution interested in collaboration in the field must be an affiliated institution of university in India or deemed university having adequate infrastructure.

4. The FEI has to give an undertaking furnishing that the degrees/ diplomas awarded to the students in India shall be recognized in the parent company.


5. Any course that jeopardizes he national interest of the country shall not be allowed to be offered in India.

6. Fee to be charged has to be prescribed by AICTE.

7. The FEIs already operating in India shall have to take fresh approval from AICTE.

In addition to the above, the notification also laid down the punitive measures and conditions for withdrawal of registration of such FEIs. In consequence to this notification only 2 FEIs got registered and a lot of other FEIs continued their operations without any approval. So to make the conditions more stringent, another notification was introduced in 2005 called AICTE notification for regulation for entry and operation of foreign universities and institutions imparting technical education in India, 2005, which has introduced certain amendments in the earlier notification.

The changes that AICTE notification 2005 has introduced are as follows-

FEI can set up campuses after being registered as a society or trust or a company under Section 25 of the Company Act.

Societies, trusts and companies registered under Section 25 of the Company’s Act, 1956, are not for profit institutions. They can generate surplus from education activities but have to plough back the profit for the growth of the institution.

FEIs will have to submit a detailed proposal for approval from AICTE to run a course.

Registration as a society or a trust is not possible for any foreign body unless cleared by the external affairs ministry and that will be a double check on preventing the bogus institutes getting into India as the ministry will be verifying their antecedents through its embassies and mission.

FEIs have to be affiliated to an Indian university and offer degrees of the university they are affiliated to.

The companies have been allowed to set up campuses through PPP (public-private partnership) or through build-operate-transfer mode under agreement with public sector.

The new notification made the penalties even more stringent.

A formal research in 2008 had revealed that around 140 Indian institutions and 156 FEIs were engaged in academic collaborations. Of the 156 overseas education institutions, 90 have university status and 20 are colleges. The total number of collaborations was 225 and with each collaboration having over one programme delivery, the total number collaboratively delivered stands at 635.Thus proper regulation in this field has increased the participation of FEIs to a great extent.

The above provisions were only for the entities imparting technical education in India. Till date there still remains a void when we think of the regulations for the FEIs which want to impart non-technical education, though a lot of attempts have been made to introduce regulations for the FEIs but due to various political hurdles none of them have been successful. Currently Foreign Educational Institutions Bill 2010 which has already got the consent from the UGC is right now lying pending for approval before the Parliament.

Foreign educational institutions Bill (regulation of entry and operations) Bill, 2010

This Bill earlier was introduced in 2007 but at that time it was rejected as the left front of the government did not agree with the idea of opening up of the education sector to the world as in its opinion that would lead to commercialization and thus again it was presented in 2010. The main object of the Bill is to regulate own campuses of FEIs in India and collaboration between foreign and Indian institutes. It lays out the detailed procedure that an FEI has to follow before setting up its campus and also getting into any collaboration with an Indian institute. Main features of the Bill are-

1. No FEI can impart education in India unless it is recognized and notified by the central government as a FEI under the proposed legislation

2. Maintenance of the corpus fund of not less than INR 500 million or such sum as may be notified from time to time by the central government.

3. The FEI has to offer and impart which is in conformity with the standards laid down by the statutory authority.

4. The FEI shall out of the income received from the corpus fund, utilize not more than 75% of such income for the purposes of development of its institution in India and the remaining of such unutilized income shall be deposited into the corpus fund.

5. Any FEI which contravenes the provisions of the Bill regarding the quality of program offered in India, use of income from corpus fund and investment of surplus in generated revenue shall be liable to a penalty of not less than Rs10 lakhs which may extend to Rs 50 lakhs and also the forfeiture of the corpus fund in whole or part thereof.

If once approved by the Parliament, it will finally open the door for the FEIs to set up their respective campuses in India. The FEI would be able to affiliate with the UGC, subject to its necessary conditions an FEI could be registered as a ‘deemed university’ under the relevant provisions of UGC Act, 1956. Recently again a debate was on regarding making certain amendments in the Bill over reduction in the minimum corpus of INR 50 million. This move has been prompted by a recommendation by the parliamentary standing committee.

“The corpus will not be INR 500 million for every institution. Considering that a diverse set of FEIs have expressed interest to have operations in India, it is not feasible to have the INR 500 million corpus condition for everyone,” an MHRD official told Business Standard. And also the pre-condition wherein a foreign education institution was not allowed to utilize more than 75 per cent of the income (from the corpus fund) towards development of the institution in India, may be reviewed by the ministry and it might allow these institutes to invest the surplus in growth of the institution, after a certain lock in period.

Not only this, but 3 other Bills, namely the National Accreditation Regulatory Authority Bill, Prevention of Malpractices Bill, the Education Tribunal Bill and Universities for Innovation Bill are also lying pending before the Parliament. In addition to above The National Knowledge Commission (high-level advisory body for Prime Minister of India) in its report for higher education has also recommended the setting up of an independent governing body for supervising education, The Independent Regulatory Authority for Higher Education (IRAHE). This would not only instill confidence in FEIs, but also in investors whose general apprehension against investing in India’s education sector appears to be lack of regulatory clarity.

Negative aspect of the present policies:
1. India’s open door comes with a variety of conditions and limitations. It might better be called the “half-open door.” These conditions instead of encouraging the FEIs to invest would lead to prevention. The proposed legislation requires an investment of $11 million upfront by a FEI to operate in India. Moreover, the FEI is restricted from making any profit on the Indian branch.

2. A further possible complication may be the role of State governments in setting their own regulations and conditions for foreign branches. There are separate rules laid down by the state and thus this has again increased a lot of ambiguity.

3. In addition, even after the regulations have been laid down by AICTE and a few other bodies there is still a lot of violation of these rules. And many cases have been coming to the courts nation wide in the same regard like CFA Institute and Anr. v. AICTE and many other such cases. In one of the judgment before the Madras High Court, S.T. Krishnamoothi v. Union of India (UOI, the respondent institute entered into an agreement with Southern Medical University in China without taking any prior approval from the UGC and from the Indian Medical Council and thus were penalized under both the UGC Act and IMC Act.

Thus the above makes it very clear that the change in the regulations in relation to FEIs is the need of the hour and clarity about regulations should be made as soon as possible.

Consequences of opening up Indian educational sector to foreign education providers

Once the gate is opened for the FEIs to invest in India it will give a huge high to our educational system. It will lead to increase in competition for the Indian institutes with resultant pressure on them to improve quality. But at the same time foreign institutions will need to deal with India’s often impenetrable and sometimes corrupt bureaucracy. Some fear that this would cause commercialization of education in the country. In short, many unanswered questions remain on just how foreigners will be admitted to India, how they will be managed, and who will control a highly complex set of relationship framework for foreign education and foreign education providers in India.

Regulatory Framework For Foreign Education & Providers

Higher Education in India is controlled and regulated by Government of India through Ministry of Human Resource Development. Mainly, following Bills and Acts are expected to form legal Educational Institutions (Regulation of Entry and Operations, Maintenance of Quality and Prevention of Commercialization) Bill

Foreign Education Providers (Regulation) Bill

Prohibition of unfair Practices in Technical, Mechanical Educational Institutions and universities Bill

National Education Tribunal Bill

National Authority for Regulation in Accreditation of Higher Educational Institutions Bill

Acts & Regulations

University Grants Commission Act, 1956

UGC (Establishment of and Maintenance of Standards in Private universities) Regulations, 2003

The All India Council for Technical Education Act, 1987

The Central Educational Institutions (Reservation in Admission) Act, 2006

State private university Acts,
For Example: The Chhattisgarh Niji Kshetra Vishwavidyalaya (Sthapana Aur Viniyaman) Adhiniyam, 2002

The Foreign Educational Institutions (Regulation of Entry and Operations, Maintenance of Quality and Prevention of Commercialization) Bill will allow foreign universities to invest at least 51 percent of the total capital expenditure needed to establish the institute in India. The Bill may aim to regulate the entry, operation and maintenance of quality assurance and prevention of commercialization by foreign educational institutions.

The regulating mechanisms in the Foreign Education Provider (Regulation) Bill may state as:
1. The University Grants Commission (UGC) may be entrusted with the task of regulating the entry and functioning of foreign universities.

2. FEIS shall be required to register with the body within six months of the bill turning into law.

3. Franchising of educational institutions may not be allowed.

4. Foreign education providers may be expected to follow national laws, including those on reservations.

5. The secretary, UGC, may be the ex-officio registrar of foreign educational providers; FEIS would be subject to all conditions of the UGC Act applicable to deemed universities in India, including fee fixation, admission, teaching standards.

6. Rs.10 crores deposit may be placed as a safety clause to safeguard against flyby-night operators.

7. Registration can be cancelled if any foreign education provider gives false information or is found to be in contravention of the UGC Act

8. Foreign education institutions and their branches in India would have to provide for reservation for Scheduled Castes, Scheduled Tribes and Other Backward Classes (OBCs), in keeping with the 93rd Constitutional Amendment Act.

9. Foreign education providers may be given the status of deemed universities in India. This will also permit them to grant admission and award degrees, diplomas or certificates.

Progression on the passing of Foreign Education Provider (Regulation) Bill
16 Mar 2010 The bill unanimously approved by the union cabinet.

17 Feb 2010 The Government decided to introduce a bill to allow the entry of  foreign universities during the parliament session.

11 Nov 2009 Foreign universities knock on India’s doors as educational reforms accelerate.

16 Sep 2009 The interested universities, mostly from the US, the UK and Australia, approach the ministry of human resource development.

7 July 2009 Government announced that it is contemplating a bill on allowing foreign universities, but would move carefully and through consensus.

28 June 2009 A panel set up by the Government to draw up a reform road map for the higher education sector recommended that only the top 200 foreign universities be allowed to enter the country.

10 Nov 2008 The proposed Bill holds fire after being cleared by the Union cabinet in February 2007.

14 May 2007 A much-hyped Bill that would pave the way for foreign universities to enter India was stalled amid disagreement over exceptions made for certain investors and the attention of ministry officials being diverted to the legal battle over broader caste-based reservations.

The establishment of National Commission of Higher Education and Research “NCHER” is also proposed by the Central Government, which will apply to all higher educational institution except agricultural and medical institution. The Commission shall consist of a chairperson and six other members who will be the persons of eminence standing in the field of academic and research possessing leadership abilities.

The members of Commission will be appointed by the President on the recommendations of selection committee. The Commission may lay down its own procedures for the conduct of its business and exercise of its powers and functions All foreign education providers will have to get accredited by the proposed National Accreditation Authority for quality control. Their entry will bring revolution in terms of quality. It will have enormous impact on research and creation of Intellectual Property.

Entry of Foreign Higher Education Providers Into India
Subject to laws applicable to higher education sector in India, which are in advanced formation stage, the following information will be helpful while planning the entry into India by foreign education providers.

Legal Entity for Private University
A private university in India can be established as either of the following legal entity
a) Public Trust
b) Society registered under the relevant Act of the state in which university is to be established
c) Section 25 Company, registered under Companies Act, 1956

Acquisition of Private University or higher education institute in India
The laws in India are not clear in this aspect, however as the law on higher education sector is developing, there is a good possibility in future that foreign education providers may be allowed to acquire existing private universities. It is right time for foreign education providers to enter into India and do their spade work of selecting prospective partner, which may be acquired in future.

Collaboration / Tie-ups
The foreign education providers can set up their business in India through collaborations by way of, joint researches, joint campus, twinning program, skill development and vocational trainings with Indian Institutes etc;

To improve the quality of IITs and IIMs and encourage the other institutes to follow them or invite the foreign universities in the country? Education is not a telecom or automobile sector nor the objectives are same which will yield the same results. It is one of the most important sector for the development of our country. Even the Committee to Advise on Renovation and Rejuvenation of Higher Education (or Yash Pal Committee) cautioned about the entry of foreign universities. The fear is that they would only create profits for their foreign stakeholders and most of the middle and lower class Indians will not be able to bear the cost of getting education there.

Regarding the claim of providing quality education, we can only say that it is not the tag of the foreign university but the facilities, infrastructure and environment are the factors which improve the quality of the education.
India Juris
T: 91-11-29814816 F: 91-11-29815116
E: newdelhi@indiajuris.com URL: www.indiajuris.com

Authors contact info - articles The  author can be reached at: prernachopra@legalservices.com

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