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I am working as a "Professional" (e.g. no standard deductions such as PF, PT, ESIC etc. except a flat deduction of 10% TDS). I have signed a Memorandum of Understanding with the company (which is on a plain white paper signed by both me and the company) that I will serve the company for 3 years with a notice period of 3 months. Certain amount is deducted per month under the head of "Security Deposit", the clause reads as follows:

3. Security Deposit:

3.1. The Trust has an amount of Rs.XXX/- (Rupees XXXX only) from the Professional’s previous agreement as a security deposit. Additional Security Deposit of Rs. XXX/- (Rupees XXX Only) will be recovered at the rate of Rs. XXX/- (Rupees XXX Only) per month.

3.2. The security deposit will be refunded to the Professional if the Professional does not violate any of the following terms:

3.2.1. Completion of stipulated MoU period.

3.2.2. Stipulated notice period at the time of resigning, on completion of MoU period or even during extended period after completion of stipulated MoU period.

My question is that is the "Security Deposit" leagal?? e. g. If I do not complete 3 years but give 3 months notice, can the company withhold my amount?? and if I go to court, will my case stand??

From India, Nagpur

It is very difficult to give an answer from the point of view of labour law because your case should be addressed with reference to Contract Act and based on what you have accepted. If there is a contract which says that an amount will be held as security deposit which will be released on successful completion of certain things, that is one of the conditions of contract and the payment of consideration is based on all the conditions attached to the contract. That means, if the contract period has been fixed to be three years and during the said period, if you are supposed to complete certain things, you have to complete it failing which the security deposit will not be paid to you. On the other hand, if there is no separate tasks given but only a time frame (say, 3 years) is given then you will get back the security amount once you complete there years. If you leave or terminate the contract by giving three months notice also, you will be getting the security amount because, though decided to terminate the contract, you have worked as per the understanding for three months.


From India, Kannur

Thank you for your advice. Few things to be noted are that, it is not a "Contract" such as construction or completion of some task within the given time frame. It is a "Memorandum of Understanding (MoU)" and the word "contract" appears nowhere in the MoU. I am working as a "Professional" in the capacity of "Chief Operating Officer" and signing all document of the hospital and being paid a "Professional Fee" against certain number of working hours per month. I have signed the MoU on 01-06-2014 and wish to give a notice period of 3 months now. As a result I will not complete one clause of 3 years but am fulfilling the other clause of 3 months notice.
From India, Nagpur
Apex Management

Dear Inshakati,
It is not a matter of labour laws. As both the parties has agreed to fulfillment of certain tasks and agreed for deduction of security which is refundable subject to Completion of stipulated MOU period and notice period at the time of resigning.
As such you may lose the security deposit if resigns before the completion of stipulated time period.

From India, Delhi

Dear Apex Management,
As specified in my earlier reply, this is not a "Contract" for fulfillment of certain tasks in certain time. I agree to what you say, which is perfectly valid for say a software development or for a contractor to complete the building work within stipulated time. As said in my original post, it is an "understanding" between me as a "Professional" and my company. Instead of being treated as an "Employee" with standard deductions, I am working here as a Professional and signing all official document/ letters of the company.
I hope I have made myself very clear.

From India, Nagpur

The designation "Professional" is only fancy one. At the same time, when you have been entrusted with the authority of signing the company documents, you will come under the category of managerial person of the company unless there exists a resolution of the board of directors of the company. There can be different nomenclature but the purpose for which you have been engaged is very clear and that is to do a specific task. If the remuneration for the task done is measured in terms of time spent, then only the notice period would have significance. On the other hand, if it is measured only on compeltion of the entire work, then the matter would be different. In such cases, there should not be any such notice period clause in the MOU. In any situation the matter should be addressed following the MOU (which has all the characteristics of a valid contract falling under the Contract Act, 1927) signed by you. In short I would like to reiterate that notice period served should be treated as assignment done.


From India, Kannur

Hello Deepak Kanade,
Further to what Madhu.T.K mentioned, there is ONE VERY CRITICAL point that you need to keep in mind--irrespective of which Act this MOU falls under.
The Clause "3.2.2. Stipulated notice period at the time of resigning, on completion of MoU period or even during extended period after completion of stipulated MoU period" literally gives the absolute right to the Organization to hold you to ransom perpetually [the key words being "or even during extended period....."]. So practically the Organization can keep extending the MOU period.
Also Clause 3.1 mentions "The Trust has an amount of Rs.XXX/- (Rupees XXXX only) from the Professional’s previous agreement as a security deposit". What's this about? Since when have you been working here?
In Total, how much does the Hospital hold your money as Security Deposit--as of date?
Pl give more inputs so that the members can give more realistic & actionable suggestions.

From India, Hyderabad

Dear Madhu T. K., Apex Management and PK Sharmaji,

Thank you all for your comments and advice. I have joined this organization on 01-Jun-10 as a "Professional" and designated as "Chief Operating Officer". The initial engagement was for 3 years which expired on 31-May-13. The MoU was renewed for a further period of 3 years from 01-Jun-2013. To get a clear view, I am pasting the whole MoU wording below. Obviously, certain words are replaced with XX for reasons best known to you all. Pl. go through the entire MoU and comment. TIA.


The MOU is made on 1st day of June 2013 between XX, bearing its office at XX, hereinafter called as “The XX”


Mr. Deepak Kanade resident of XX, Cell:XX, e-mail, hereinafter called as “The Professional”.

They have mutually agreed upon the following:

1. Professional Fee:

1.1. The Professional will render his services as an Executive and Consultant to XX and allied XX and will be paid a consolidated professional fee of Rs. XX /- (Rupees XX Only) for 240 hours per month for his services from XX and allied XX taken together.

1.2. The exact modalities including tax details will be done by Accounts / Finance department as per the policy of The XX. TDS as applicable will be deducted from professional charges & incentives payable.

2. Tenure of Agreement & Notice Period:

2.1. The Professional will render his services for a minimum period of 3 years from 1st June 2013 to XX.

2.2. The XX will give a one months’ notice to The Professional for discontinuation of services. However, the MoU can be terminated prematurely by The XX with or without giving any prior notice, with or without any remuneration, if it is observed that any act or behaviour on the part of The Professional is not found to be in harmony with the conduct of The XX or causing disrepute to The XX. The decision of The XX will be final and will be binding on The Professional.

2.3. This MoU will be in force for a period of Three Years initially and will continue to be in force till such time the next MoU is signed OR there is a written notice for discontinuation of service from any one of the party.

3. Security Deposit:

3.1. The XX has an amount of Rs. XX /- (Rupees XX Only) from the Professional’s previous agreement as a security deposit. Additional Security Deposit of Rs. XX /- (Rupees XX Only) will be recovered at the rate of Rs. XX /- (Rupees XX Only) per month.

3.2. The security deposit will be refunded to the Professional if the Professional does not violate any of the following terms:

3.2.1. Completion of stipulated MoU period.

3.2.2. Stipulated notice period at the time of resigning, on completion of MoU period or even during extended period after completion of stipulated MoU period.

4. Timing:

4.1. The Professional shall attend the XX from 08:30AM till completion of the work on hand for the day.

4.2. The Professional shall log-in a minimum of 8 hrs. of working per day.

4.3. The Professional shall attend emergency/ night calls as and when necessary and/ or as per the duty schedule.

5. Working Relationships:

5.1. The Professional need to have good interpersonal and professional relationship with other XX.

6. Responsibilities and Performance Expectations:

6.1. The Professional will be responsible for all day-to-day XX and other activities/ functioning of the XX, projects and work assigned to him from time to time.

6.2. The Professional will be responsible to assign the work and get the assigned work completed from AGM/ Managers/ In-charges and other staff members.

6.3. The Professional will be responsible for complying all statutory requirements, registrations and licenses.

6.4. The Professional shall be responsible for safety of personal, equipment and instruments in the XX and at its projects.

6.5. The Professional will take necessary steps for enhancement of revenue generation and curtailment of expenditure.

6.6. The Professional shall act as a change catalyst and enhance the speed of changes by suggesting/ implementing/ monitoring/ reporting the changes suggested/ required/ desired towards a better functioning system based XX.

6.7. The Professional shall formulate and implement various policies in team within the required time frame.

6.8. The Professional shall take active participation in management and administration.

6.9. The Professional shall show a visible team leadership.

6.10. The Professional shall conduct/ attend required management meetings as per the directives and timings published from time to time.

6.11. The Professional shall engage in active learning process to keep himself constantly abreast.

6.12. The Professional shall give thrust on continuous process improvements together with effective & efficient execution with quality and system oriented scalable work culture in the XX.

6.13. The Professional shall be responsible for storage of data, data management, backup of data, keeping secrecy of information and data related to hospital.

7. Administrative

7.1. The Professional will report to the Board of Trustees.

7.2. The Professional can be posted in any of the periphery centers of XX on temporary duty for management of hospital. The Professional will have to visit periphery centers of XX as & when directed.

7.3. The Professional shall conduct/ attend daily morning meetings conducted at 09:00AM. It is expected that The Professional will discuss issues related to process/ system changes and stabilization. The Professional is also expected to act as a “Change Catalyst/ Change Agent”.

7.4. The Professional shall not bring disrepute in any way to the XX by discussing the style of management, remuneration aspects, performance etc. with the outside agencies/ individuals. The said behaviour shall be treated as “breach of trust” and shall be admonished as found suitable by the management.

7.5. The Professional will be fully dedicated to the XX and its associate XX as and when necessary and directed by the management. The Professional will not provide his services outside in any form (neither private practice nor charity).

7.6. In addition to the monthly professional fee, the Professional shall be paid an annual leave reimbursement of 20 days on pro-rata basis for the completed financial year. The reimbursement will be paid along with professional charges of May in the succeeding Financial Year.

7.7. The leave reimbursement shall be admissible in total if the attendance during a financial year is 270 days. For annual attendance below 270 days, it shall be paid on proportionate basis.

7.8. The professional will get facility for management training at XX for one month.

7.9. The XX hopes that with The Professional experience, training, involvement and dedication The Professional will be able to build a department of international standards for The XX to be proud of.

Mr. XX Mr. Deepak Kanade



Date: __________________ Date: __________________

From India, Nagpur

P.S. - I had requested to refund my Security Deposit in my Notice-cum-Resignation letter which is signed by all the board members. There have been instances earlier that 3 of sr. management professionals (AGM, Purchase Manager and Manager HR) have been terminated for unsatisfactory performance (including misappropriation of funds by the Purchase Manager). They never completed their MoU tenor but they were refunded their Security Deposit under the pretext that they were terminated by the organization. So, is the organization encouraging such non-performers and money launders?? All of them were with the organization for an year or above.
From India, Nagpur

MOU is a sort of Contract. I have seen many cases like this where a certain % of fee is with held and released upon expiry of contract or mutual closing. Pon
From India, Lucknow
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