Thinking of Breaking a Service Bond? What Legal Issues Could You and Your Relative Face?

Hi, I joined a company and signed a service bond for 18 months. The bond is for Rs. 100/-, and my relative has signed as a surety. I provided my relative's address for the bond. If I break the bond, I will have to pay Rs. 60,000 to the company. I am now planning to leave the company. I have not submitted any original documents to the company. What problems could I face if I leave, and will it cause any issues for my relative?

Legal Implications of Breaking a Service Bond

Is this type of activity allowed under the Indian Constitution, like bonded labor and service agreements? Please help me with this significant problem.

Understanding Liability Under the Contract Act

Under Sections 73 and 74 of the Contract Act, a reasonable amount of damages can be recovered proportionate to the expenditure incurred upon the employee in imparting training, etc., irrespective of the liquidated amount stated in the bond. Such is the prevalent law today.

New Dimension of Diminishing Liability

However, a new dimension of diminishing liability of the employee under the bond is visualized, which may be tested in judicial fora. Thus, in respect of employees governed by the State Shops and Establishment Act, and those governed by the Payment of Wages Act, it is generally laid down under the Acts that wages shall be paid without deduction except when authorized by law. Thus, even if the employer and employee agree through an agreement, the employer cannot recover any amount from the wages of the employee, except in the manner authorized by law. It follows that the above bond agreement between employer and employee is superseded, though executed under the Contract Act. The provisions of the Payment of Wages Act and Shops and Establishment Act supersede Contract Act provisions to that extent. If a debt from the employee cannot be recovered from the wages of the employee as it is bad, so it cannot be recovered from the surety. This is a new dimension of diminishing liability of the employee in the above line of approach.

Thanks

Regards,
Sushil

Understanding Employment and Contractual Obligations

Until you join the company, you are not considered an employee and cannot derive benefits from the Karnataka Shops and Establishment Act. After joining, you could resign as per the provisions of the contract. However, before reaching that stage, you will be governed by the provisions of the Contract Act. Under Sections 73 and 74 of the Contract Act, the job agency may require you to pay suitable damages for rescinding and repudiating the contract, based on the Apex Court decision in Kishori Lal vs. Union of India, decided in 1959.

Thanks,

Sushil

Understanding Employment Bonds

The bond in question was created by the employer in lieu of what? Is it stated in the bond that in lieu of certain benefits, the employee has agreed to work for a specific number of days or months? This is the question that needs to be answered by the querist. The bond needs to be examined verbatim along with the job advertisement, job application, employment application, interview call letter, selection letter, offer letter, appointment letter, bond, and a copy of the resignation.

The liquidated damages stated in the bond need not be paid on demand and may have to be proved.

As per various publications and threads, bond/service agreements have become a nuisance. Even unscrupulous employers that do not honor labor laws, rights of employees, do not pay wages on time, do not give overtime, indulge in malpractices, and unfair practices are thus offenders. They are forcing employees to sign bonds.

Employees who do not unite, form unions, or become members of employee unions and affiliate trade unions like CITU, AITUC, INTUC, BMS, etc., are exploited.

Awareness of Legal Rights

Are you aware that the 'Works Committee' as per the Industrial Dispute Act is an authority, and many states have made it mandatory to form a Grievance Redressal Committee in each company? United employees can negotiate service conditions, and union leaders can help fight such exploitation.

Thanks for the reply. The employee has agreed to work for 12 months at the client location. If I don't, then I have to pay a sum of Rs. 100,000 INR to the employer, i.e., the job consultancy (3rd party payroll company). This is mentioned in the employment agreement. Secondly, when I talked to HR, he said this penalty will be levied when I join the client location.

But, I missed one point in the appointment letter:

Duties & Obligations

Under the 'Duties & Obligations' section: Termination - Your employment is liable to be terminated without assigning any reason.

Similarly, I can resign by giving a 90-day notice period only if the project duration is over or the resignation is approved by the concerned project in-charge.

In the event of leaving the company without giving any notice, you shall pay the company a sum equivalent to 3 months of your last drawn salary.

If I don't join in the first place, why would I pay anything?

Request for your inputs, experts.

Thanks!