Sarthak Advocates & Solicitors | View firm profile
Authored by Mani Gupta & Anubhav Tiwari
Like many other sectors, the pandemic and the measures undertaken to abate its spread – have had an adverse effect on the financial health of brick-and-mortar educational institutions. Even existing ed-tech companies which were focussed on test prep (for entrance examinations and government services) have felt the pinch of these measures. However, this cloud has a silver lining for the ed-tech space in India in general, which is likely to see growth owing to difficulties in physical interactions in the traditional brick and mortar setting. The opportunity was already huge – India is already home to approximately 340 million students.
In India, schools and colleges (across various cities) were closed even before the closure of shopping malls, theatres, public places and enforcement of Lockdown 1.0 from 25 March 2020. Schools and their administrators are already grappling with questions on the manner of reopening of schools and educational institutions. Postponement of the public examinations at 10+2 level in India by Central Board of Second Education (“CBSE”) and Council of Indian School Certificate Examinations already means that the academic calendar for intake examinations for higher educational institutions and subsequent admissions would have to be shifted. At the K12 level, the NCERT has already devised an alternate academic calendar for classes I to XII, which CBSE has advised affiliated schools to adopt. Public examinations have also been postponed by various state education boards of various states like Madhya Pradesh, Haryana, Jammu & Kashmir, and Chhattisgarh.
Most K12 schools have tried to make-up for the loss of time for their students by introducing online classes during this period. In fact, the Central Board of Secondary Education inter alia, encourages the use of online classes as a means of learning during this period. This segment of K-12 education has remained largely unregulated as the use of online classes so far has been fairly limited by schools as a means of delivering education on daily basis. As has been reported widely, schools in India have cobbled together instructions and are delivering those through meeting apps like WhatsApp, Zoom, Google Hangout, and Teams, but already it appears that specialised apps are being launched to cater to this segment.
While schools are adapting to continue operating through the use of technology, on the cash flow front, the schools have to also grapple with the demand from the parents to defer fee collection, and various directives from CBSE and State governments regarding the same. The governments in a number of states like Delhi, Maharashtra, Karnataka, Haryana, Uttar Pradesh, Rajasthan, Uttarakhand, Punjab and Jammu & Kashmir have issued directions to private unaided schools to defer the admission process for academic session 2020-21 and avoid collection of fee from parents during lock-down. It is not clear whether schools can charge for facilities which are kept in abeyance such as transport, meals, boarding and other hostel related charges (if any). While most of the state orders are silent on this point, orders of Delhi and Haryana do address this issue. As per the Delhi order, schools can charge only tuition fee. Haryana order disallows charging of transport fee. Both orders clearly stipulate that schools can only collect fee on monthly basis (as opposed to quarterly fee). With the revenue streams drying out at least for the foreseeable future, schools would have to depend on internal reserves or borrowings to meet expenses.
The double-whammy for schools in this situation is that schools are required to continue to pay their teaching and non-teaching staff, particularly in light of the advisory issued by the Ministry of Labour on March 20, 2020. Schools could also face action for termination of employment of any teaching or non-teaching staff due to the COVID-19 or the lockdown measures. In a letter addressed to the state governments on April 17, 2020, the CBSE has put forward the case of all sides and asked the state governments to examine the issue of fee and salaries in a humanitarian manner taking the interest of all stakeholders into account. The CBSE has also requested state governments to issue suitable instructions on these aspects. It remains to be seen whether the state governments would vary in any manner the existing instructions on these aspects. For general information on the aspect of termination of employment and payment of wages/ salaries, please refer to our general update on employment relations and FAQs.
In the higher education space, open and distance learning programs and online education system (“ODL”) are subject to the regulatory supervision of the University Grants Commission. As per the ODL Regulations, if a higher education institution intends to provide online education which results in grant of any certificate, degree or diploma, then such institution should take approval. In case of violation, UGC can inter alia invalidate the degrees, diploma or certificate issued. The ODL Regulations are applicable to universities and institutions deemed to be a university under section 3 of the University Grant Commission Act, 1956. As per a list available on the website of UGC, as of January 30, 2020 only 7 universities have received approval under the ODL Regulations to impart online education on limited number of programs/ courses. Further, courses like engineering, law, medicine, dental, pharmacy, nursing, architecture, physiotherapy, applied arts are also not allowed to be imparted by online mode of education. In terms of ease of use of technological platforms, UGC Regulation is rigid and prescribes use of SWAYAM (Study Webs of Active Learning for Young Aspiring Minds) platform only for imparting online education. For use of any other technology platform, approval of an expert committee of UGC is required.
However, in our view, the conduct of online classes by any college or university to existing students enrolled in its programs would not be covered by the regulations on ODL. Our view is also bolstered by the fact that in Guidelines issued on April 29, 2020, the UGC has endorsed the taking of online classes by universities.
This present crisis presents a ripe opportunity for those interested and invested in ed-tech. In a large country like India, there are obviously issues of economic disparity, access to internet and technological-hardware, but these are questions that feed into larger questions – should school education not be the responsibility of the state? Why should India’s formal education sector not be opened up for profit? The pandemic has already seen the existing players attempt to capitalise on the opportunity with many offering their content online for free and increased advertising. While, naturally, only time will tell whether this current gush of users translates into revenues and which ed-tech companies become unicorns in terms of capital raise, there are certain issues that all need to be mindful of.
Firstly, Indian-based ed-tech companies deal with data of their users and therefore, it is necessary for them to comply with the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 issued under the Information Technology Act, 2000 (“IT Act”). India is still awaiting its data protection law, which was introduced in the Lok Sabha in December, 2019 and has since then, been referred to a Parliamentary Standing Committee. Secondly, ed-tech companies may also be considered as internet intermediaries under the IT Act and therefore have to ensure compliance with the rules, guidelines under the same. Thirdly, content is king. Therefore, it is most essential for ed-tech companies to review their IPR policies and ensure that content is protected and owned by the company. Ed-tech firms also have to ensure that they robustly protect their intellectual property against infringement and therefore, should invest in this. Fourthly, Indian ed-tech would do well to remember that over-zealous regulation has been a hallmark of India’s education system. Every link of the chain – pre-schools, primary schools, tuition centres have attempted to be regulated at one stage or another and in one or more aspects. Therefore, there is a need to ensure that ed-tech companies that maintain transparency and do not delve into aggressive tactics to win market share. Increase in reported instances of aggressive selling, misrepresentation by ed-tech firms is likely to lead to the least desirable outcome for this sector – over regulation. Ed-tech firm should watch out for those!