The donation for the university from the Ambika Paul Foundation, a charitable trust set up by Paul in memory of his daughter, will go towards general upgrade of facilities at the campus in the West Midlands region of England.
"It is part of my continued connection with the university, which is based in Britain's industrial heartland. It is a university which takes pride in training students from ordinary backgrounds to create the next generation of leaders and entrepreneurs for this country and beyond," said Paul, who has been Chancellor of the university since 1999.
Paul will also be leading a delegation from the university to India next week to further strengthen education and business ties between the two countries.
Over the years, he has been instrumental in strengthening the India link of the institution with honorary degrees for leaders such as former President APJ Abdul Kalam, current President Pranab Mukherjee and finance minister Arun Jaitley.
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"The BBC has described this university as among the friendliest in the UK and it is also among the most multi- ethnic. This expansion plan will help enhance its role as an innovation hub where new ideas and products can incubate. It has a more hands-on approach, which appeals to me.
"I hope the large Indian-origin population in the region can feel proud of my association with it," said Paul, who had made a similar donation to the London Zoo in 1994, a place his daughter Ambika loved to visit.
The university has described his donation as the "single biggest gift" it has ever received.