'Schemes Died Its Own Death': Supreme Court Quashes Karnataka HC Order Directing Government To Pay Subvention To Medical Colleges After TMA Pai Foundation Verdict

"However, the schemes or executive instructions, particularly the subvention scheme, died its own death on 31.10.2002 when the scheme was declared unconstitutional by the final decision in TMA Pai Foundation (supra) case by 11-Judge Bench." Supreme Court, in a significant ruling dated August 04, 2026, held that the Central Government and the State of Karnataka were not liable to pay subvention amounts to medical colleges under a scheme that was effectively rendered unconstitutional by the 11-Judge Bench decision in TMA Pai Foundation & Ors. vs. State of Karnataka.

A bench of Justices Sheel Nagu and Dipankar Datta partly allowed the appeal, emphasizing that executive instructions cease to have effect once declared unconstitutional.

The present appeal arose from an impugned order of the Division Bench of the High Court of Karnataka, which upheld a Single Bench order directing the Government of India to make subvention payments to Sri Devraj Urs Medical College. The subvention scheme originated from an interim order dated 11.08.1995 in TMA Pai Foundation, aimed at eliminating capitation fees in professional courses by providing financial aid. The High Court had directed the government to pay the subvention amount for students admitted up to the academic year 2002-03 for the entire 5-year course.

The primary questions before the Supreme Court were whether the final decision of the 11-Judge Bench in TMA Pai Foundation (2002) rendered the High Court's orders liable for interference, and consequently, whether the Government of India and the Government of Karnataka were entitled to relief.

High Court Erred on Prospective Application and Vested Rights

The Supreme Court noted that the Single Bench and Division Bench of the High Court of Karnataka had upheld the respondent-college's entitlement to the subvention amount based on an understanding that a 'vested right' was created and that the final decision in TMA Pai Foundation operated prospectively. This interpretation led the High Court to direct payment for students admitted in the academic year 2002-03 for their entire course duration.

Unni Krishnan Overruled and Schemes Declared Unconstitutional

The Court reiterated that the 11-Judge Bench in TMA Pai Foundation (2002) had explicitly overruled the scheme framed in Unni Krishnan, J.P. And Ors. Etc. Etc vs State Of Andhra Pradesh And Ors. Etc. Etc., except for the part holding primary education as a fundamental right. The TMA Pai judgment clearly stated that the Unni Krishnan scheme was unconstitutional, although the principle against capitation fee or profiteering remained valid.

Clarificatory Order Did Not Grant Blanket Prospectivity

The Supreme Court meticulously examined the clarificatory decision dated 01.04.2003 in State of Karnataka vs. TMA Pai Foundation and Ors., which the High Court had relied upon for its 'prospective application' argument. The Apex Court found that this clarificatory decision did not expressly lay down that the ratio in TMA Pai Foundation was prospective in its entirety, especially concerning schemes. Instead, it set aside High Court orders and remitted matters for fresh consideration, requiring all statutory enactments, orders, schemes, and regulations to be brought into conformity with the TMA Pai Foundation decision.

Law Declared Retrospective Unless Stated Otherwise

Referring to its decision in P.V. George v. State of Kerala ((2007) 3 SCC 557), the Bench affirmed the settled legal principle that "The law declared by a Court will have a retrospective effect if not otherwise stated to be so specifically." This reinforced that unless the TMA Pai Foundation judgment explicitly provided for prospective application for such schemes, its effect would be retrospective.

Subvention Scheme Died with TMA Pai Decision

The Court emphatically held that "the schemes or executive instructions, particularly the subvention scheme, died its own death on 31.10.2002 when the scheme was declared unconstitutional by the final decision in TMA Pai Foundation (supra) case by 11-Judge Bench." This meant that the basis for the subvention payments ceased to exist immediately upon the pronouncement of the 11-Judge Bench judgment.

No Lump Sum Obligation for Entire Course & Lack of Financial Data

Furthermore, the Court pointed out that the subvention scheme itself obligated the Central Government to pay the amount on an annual basis, not for the entire course in a lump sum. Therefore, the High Court's direction for payment for the entire 5-year course, even after academic year 2002-03, was impermissible. The Supreme Court also noted the respondent-college's failure to furnish any pleadings or data regarding whether its revenue from tuition fees and other sources was insufficient to cover its expenses, referring to Bharat Singh and Others. vs. State of Haryana and Others ((1988) 4 SCC 534) for the necessity of substantiating claims with facts and evidence.

Limited Challenges to Stoppage of Subvention

The Bench took judicial notice that despite the subvention stoppage affecting numerous professional colleges, only two institutions had approached the Supreme Court against it, suggesting a lack of widespread grievance regarding the government's stance.

The Supreme Court consequently set aside the orders of the Single Bench and the Division Bench of the High Court of Karnataka to the extent that they directed payment of the subvention amount for the entire 5-year course for students admitted in 2002-03.

The Supreme Court partly allowed the appeal, reiterating that executive schemes that are subsequently declared unconstitutional by a larger bench cannot form the basis for continued financial obligations beyond the date of such a declaration. The ruling underscores the principle that financial claims against the government must be substantiated with concrete evidence of actual deficit, failing which, courts cannot direct payouts based on schemes that have lost their legal validity.

Date of Decision: August 04, 2026