Is the Bond System Still a Thing in India? What Happens If You Break It?

Dear All,

I would highly appreciate it if you could please let me know the following:

- Does the Bond system exist in India? (whereby the selected employee has to fill out a bond form, which clearly states that you cannot leave the organization for the specified years).
- If it does exist, then what are its consequences if an employee leaves the organization in between?

I would appreciate your earliest response.

Thanks & regards,
Rekha

Please let me know your thoughts on:

1. Is it completely legal to obtain a bond from employees for 1 year or a particular period?
2. If an employee breaks the bond and leaves the company, what legal actions can be taken against the employee?
3. From the employee's perspective, if he or she leaves the company and receives a notice from the company, what is the solution?

Hi Rekha,

Well, as you are aware, in India, the legal system is not as strong as compared to the US. Any action from the court might take a huge amount of time. Many companies do have a bond system, especially when they send an employee for company-sponsored training or on H1B Visas. However, it is not very successful due to legal flaws. It is also not seen as a very positive policy to enforce on employees. Bonds for making an employee stick to the organization are widely viewed negatively in the industry. Employees also hesitate to join these kinds of organizations. You can include a penalty clause in the bond if the employee breaks the bond, and the same amount can be adjusted along with the full and final settlement. However, in the case of an ATL (Asked-To-Leave) situation, the company can deduct the amount depending on the reason for the ATL. Companies can have a bond system where it is extremely necessary, and the bond needs to be drafted carefully in consultation with a professionally qualified and experienced lawyer. This information needs to be clearly communicated to the employee before they enter into the agreement.

Hope the above info is of some help to you. Please do let me know in case of any clarifications on the same.

Thanks,

Hena

Email: hena.alam@gmail.com

Hi Hena,

Thanks for your quick response! However, I heard that this system does prevail in India, but since I was not sure, that's why I asked my query in this forum.

What I have heard is, even if the employee leaves, the organization does not take any action. The reason is simply very clear because many formalities and legal actions are involved, thus the organization does implement this but does not take any action against the employee. Anyways, thanks for your information.

I would highly appreciate if those members whose organizations follow this system can share their views on this post! I would also request other members to share their knowledge.

Thanks & Regards,
Rekha

Hi Rekah,

As you rightly mentioned, few organizations still have such bond agreements with employees. However, it is not very successful due to the legal loopholes in the system that allow employees to escape unless a monetary component is involved.

Therefore, many organizations include a policy clause to prevent employees from leaving the organization too soon or joining a competitor. For example, a "minimum notice period of 60/90 days, depending on the position, or salary in lieu of the same days" can be enforced. Another measure is to restrict employees from directly joining a competitor company.

Even with these clauses in place, employees can still leave the organization without facing significant issues, as there are ways to circumvent these restrictions.

Regards,
Chandramouli

Hi,

When challenged, the so-called bonds may not stand the scrutiny of labor laws. However, it is being practiced in the industry and is working to the extent of 80%. Either the employee pays up or serves the required period. In some genuine cases, the employee is allowed to go amicably.

The reasons are given below.

Most of the employees, mainly in the IT industry, come from middle-class and upper-middle-class backgrounds. When a legal notice goes to the employee's family, it creates an ethical dilemma in their minds and they would like their ward to settle the matter honorably.

When an employee leaves without meeting the bond conditions, he does not get a relieving letter and experience certificate. Most companies ask for this.

His full and final settlement of accounts is not done.

The employee goes with the stigma that he is not known for honoring commitments made to employers.

During the reference check, there will not be a positive response from the previous employer.

Cheers,
PG

Hi Rekha,

Thank you for initiating this topic. My company requires a bond to be filled in upon joining. I signed a bond, along with two witnesses, when I joined here as a fresher, committing to serve the company for two years. If I breach the bond, I am obligated to pay an amount of 2 lakhs to the company.

I would like to clarify if I were to suddenly stop coming to work one day, would I be summoned and asked to pay the aforementioned amount?

-----
Sree

Hi Rekha,

I have some experience dealing with this problem. We commit to serving three years after training with the ETs. The turnover rate of ETs is less than 10%. We promptly follow up with the employee and surety and are usually able to recover the bond money in most cases. One effective method we employ is taking pre-receipt/authorization for all dues, including PF (managed by our trust), which has proven successful.

Overall, I believe that retrieving bond money is not a lost cause.

Regards,
Nair KK

Hi,

ETs are Executive Trainees or Engineering Trainees. If I am not mistaken, am I right, Mr. Nair?
I would like to know, what measures would you take if someone breaches the contract? Will sending a notice work?
What if the candidate moves abroad and/or chooses a job that doesn't require an experience certificate or so?

-----
Sree

Hello Rekha! You are correct on ET. Along with the bond, we take a guarantee bond from two sureties. When we sense that the fellow is gone for good, swoop down on the guarantors too. Send repeated notices every three weeks. Stop all payments. The termination letter should specify the dues to the company. Now send a letter offering to adjust dues payable to the candidate against Bond money/notice period. In most cases, this works, and if the remaining amount is not worth it, leave it at that stage.

In extreme cases, file a civil suit against the person/sureties. Court procedure provides for pre-decree attachment. So household goods like TV, fridge, sofa set, microwave, DVD, computer, etc., can be listed, which you can expect in every middle-class home, and move an application in the court. A smart advocate can get this job done. Nobody likes the scene of household goods getting loaded in a truck in the presence of court officials/Police before the eyes of all the neighbors. Another alternative is to provide for arbitration by the company in case of a dispute on the fulfillment of the service bond. Then the court process can be avoided, and the kangaroo proceedings would suffice. But provide an arbitration condition in the offer of appointment.

I know cases where leading private sector companies have resorted to such proceedings.

If you have any more queries, email me at kknair@bhelbpl.co.in.

Dear Sree,

Sorry for mentioning Rekha in my previous reply. Please consider the response meant for you. I am happy to know that you are from Trivandrum.

Wishing you a Happy New Year 2006.

Regards,
Nair KK

Dear Nair saab,

Your reply was very informative. Happy New Year to you too.

-----
Sree

Hi,

I have a query on IT companies getting a bond signed from their software engineering trainees. The trainees typically sign a bond with the IT company for a 1-2 year period, agreeing not to leave the employer.

1. If a trainee breaks such a bond, what action can the company take?

2. If the company sends a notice and the departed employee does not respond, what are the consequences?

Thanks

Hi Rekha,

The other way of the bond would be: asking the employee to serve the company for one year (maybe after confirmation) and taking a bond from him, wherein he agrees to pay one month's salary as a deposit with the company. In case he leaves, the amount would be retained by the company, and in case he stays for the said period, the amount would be credited back to his account. It may be one month's salary or a particular amount as T&D/hiring cost, etc.

Sending the notice to the employees who break the bond and calling them for a talk. Maybe you can negotiate the amount for settlement out of court/avoid further legal procedures.

Hope that adds up.

Thanks,
Pratibha

Dear All,

Mr. Nair has provided a lot of inputs. BHEL, the company where the Bond Scheme is implemented, is a Public Sector Company with a good legal team.

The invocation of the Bond is need-based and linked to the legal bent of mind of the Company and legal backing.

The Bond is actually to instill fear in the mind.

If the Bond is only signed by the Employee and not co-signed by a Guarantor, then you have the possibility of being let off the hook, but not if it is guaranteed.

The simple definition of a Bond is a solemn promise to pay a predetermined amount on leaving the services without the consent of the Employer. Will you not keep up a promise given to your friend? Why is so much bedlam created on this issue? Just consider it as a promise and keep it up.

You have the option not to sign it. Take employment without signing a Bond. That is the solution, and think not to break it.

With Regards,

V. Sounder Rajan

VS Rajan Associates,

Advocates & Notaries,

No.27, 1st Floor, Singapore Plaza,

No.164, Linghi Chetty Street,

Chennai - 600 001.

E-mail: rajanassociates@eth.net

Off: 044-42620864, 044-65874684,

Mobile: 98401 42164.

Please help me, I'm in big trouble. I have been working at a manpower recruitment company for the last 4 months, and I am currently in the probation period. However, at the time of joining, they made me sign a bond for 2 years. If I leave within this period, I have to pay 3 months' salary. As a security measure, they have taken my graduation degree. Now, I feel like this organization is like hell, and it's hard to stay. They always push us to work from 9 am to 8 pm. Kindly advise me on what actions the company may take if I leave without informing them.

Dear,

Being on probation, taking a bond may not be legal unless an equal amount has been spent on training, etc. Seek local specialist legal advice on presenting your papers to smoothly exit from your employer without issues.

With Regards

V. Sounder Rajan

Email: rajanassociateslawfirm@yahoo.com, rajanassociates@eth.net, rajanassociateslawfirm@gmail.com

Dear,

There has been the following comment on the Indian Legal System:

Well, as you are aware in India, the legal system is not as strong as compared to the US; any action from the court might take a huge amount of time. A lot of companies do have a bond system, especially when they send an employee for any company-sponsored training or on H1B Visas; however, it is not so successful due to legal flaws. It is also not seen as a very positive policy to be reinforced on the employees. Bonds for making an employee stick to the organization are seen very negatively industry-wide. Employees also hesitate to join these kinds of organizations. You can put the penalty clause in the bond if the employee breaks the bond, and the same amount can be adjusted along with the full and final settlement. However, in case it's an ATL case (Asked-To-Leave), the company can deduct the amount depending upon the reason for ATL. But companies can have a bond system wherever extremely necessary, and the bond needs to be framed very smartly in consultation with a professionally qualified and experienced lawyer. The same needs to be clearly communicated to the employee before he/she gets into the agreement.

The comment of Hena about the "Indian Legal System not being strong" has not been well understood and many times misquoted. Unlike India, where our Constitution guarantees Freedom of taking Employment enshrined under Article 19 (1) g together with Sec 27 of the Indian Contract Act. The ideal situation is to have a level playing field without any "handcuff" or restraint on both Employer and Employee. The present Indian Judicial System guarantees this equal level playing field and is a feather in the cap for the system. It is always better to have our own values without copying some practice which may be best suited for that Country. Remember India is a country of millions, and Indian Courts guarantee the "abolition of Bonded Labour." It is a thing to be happy about and not regret.

With Regards
V. Sounder Rajan

E-mail: rajanassociates@eth.net

Dear All,

Among the top ten posts on CITEHR, "Bonds" will be featured. Its usage is widespread in the country and is primarily used as a tool for retention rather than enrichment by corporates.

With Regards,

V. Sounder Rajan

E-mail: rajanassociates@eth.net

Presently, I am facing an issue. Recently, I joined a new software company and I have signed a bond for 1 year. If I break the bond, I have to pay 50% of my remaining months' salary. I have been in the job for 2 months, but now I want to leave due to personal reasons. Can anyone suggest a valid reason for leaving the job that would exempt me from paying the remaining 10 months' salary to the company? Alternatively, what conditions could I create for the company to terminate my employment? Please reply as soon as possible.

Dear,

Talk it out with your employer. Sometimes they may agree to relieve you.

vs Rajan Associates
Chennai

Dear Rekha,

Please check this post regarding the bond; it may serve as a reference for you. My post is also included among others.

Regards,

Dear Rekha,

Sorry, I forgot to paste the link: https://www.citehr.com/162292-legal-...ment-bond.html

Please check this post regarding the bond; it may serve as a reference for you. My post is also included with others.

Regards,