Facing a Demand for Payment After Quitting Early: Is My Service Agreement Valid?

Dear Seniors, I was working with ITC Ltd. - Hotels division and recently quit my job. I had signed a Service Agreement on a Non-judicial stamp paper with the Company in August 2012 for 3 years (1 year of training and 2 years of service) for INR 5.34 lakhs excluding interest.

I worked at the firm for exactly 2.5 years and quit my job after serving a notice period of a full 3 months and signed off my handover. I left the Company 6 months prior to the date of Agreement expiry.

I had also given my Exit Interview in which I had cited the reasons for resignation as "Lack of congenial work environment," "Poor work-life balance," and "Higher Studies."

My salary and all dues have been cleared by the Company. However, I have now received a letter from the Advocate of ITC Ltd. asking me to pay up the entire INR 5.34 lakhs plus INR 1.05 lakhs interest.

Can somebody please advise on the validity of this letter? When I had joined the Company, I was told that the working hours would be from 9 am to 6 pm, though I was made to do overtime every day amounting to 11-13 hours daily. This is the reason I had given a premature resignation and decided to pursue higher studies.

This reason was also given very clearly during my Exit Interview, the document of which remains with ITC.

Please advise on the implications of the letter and further action to be taken from my end. I have been asked to pay up within 15 days (letter dated 20 April 2015).

Also, what does Agreement on a Non-judicial stamp paper signify?

You decided to quit mainly for higher education and other reasons. What terms and conditions does your employment letter impose? I am sure the letter would cover notice pay, probation period, and notice period. If it escalates into a legal battle, the court may require you to pay, but likely not the full amount.

Did you inform the company about the non-conducive work environment or the daily overtime? Was any of this communication in writing? You have a legal battle ahead if the company insists on their demands.

Dear Friend, You have served well. After the training period, you served for 1.5 years. Additionally, you provided a three-month notice period and settled matters properly. Regardless of the agreement, your resignation was due to pursuing higher studies and poor working conditions. The authorities should have addressed these issues during your resignation process, either by providing a clear notification or allowing you to fulfill the remaining service period as per the agreement.

Review the Agreement

Please review the agreement to check if there is a clause stating that the entire amount must be paid before resignation or termination of service in your best interest. If such a clause is absent, legal authorities cannot impose further penalties on you. If the clause does exist, you may only be required to pay the balance amount for the unserved period or three months' salary. Even though you resigned properly due to poor work-life balance, you can confidently assert your resignation and hold the organization (ITC) accountable for its poor performance.

Respond appropriately to the company's legal department. Best of luck. Fear not for those who follow the correct procedures; they are bound to succeed.

Kind regards

As per the contract, the working hours were supposed to be from 9 am to 6 pm. However, you were consistently required to work overtime, extending your daily hours to 11-13 hours. If you have evidence of this, and the employer has not compensated you for the overtime, it signifies a violation of the essential terms of the service contract. Consequently, no compensation is owed to the employer, and you are not obligated to pay the amount requested by the employer. You may find the thread "Need to get a relieving or service certificate without paying bond money" useful, as it references relevant legal provisions.

Thanks,
Sushil

Understanding Employment Contracts and Extra Working Hours

ITC is a well-respected and known company. Their appointment letters would have covered extra working hours as they are in the service industry as well. If the contract says 9 am to 6 pm, it does not mean that extra working hours are not permitted or that an employee cannot be asked to work extra. As long as the employee is compensated for the extra work, there is no issue.

Challenges of Balancing Work and Higher Studies

Secondly, the employee found extra hours difficult because he was pursuing higher studies. No employer will bother about an employee's higher study requirements if they clash with work requirements. Proof of a non-congenial atmosphere is difficult to obtain. Did the employee bring instances of a non-congenial atmosphere to the notice of management?

Work-Life Balance Considerations

Work-life balance is a personal way of looking at things. If one is not happy with their work-life balance, they should quit because life in the competitive private sector is tough. In my opinion, this case is not an open-and-shut case. He may well end up paying bond money, at least in part, if it heads for a court battle. (Though, of course, personally, I wish he does not have to face court battles or payment of any bond money.)

Legal Action and Company Policies

Action on behalf of the company, asking for full payment and interest despite having reached a full and final settlement, shows that whether a company is reputed or not makes no difference. On the legal front, whether the atmosphere was congenial or not, or if the individual has to pursue higher studies, is insignificant. What will be considered is, in light of legal provisions, who has defaulted and whether compensation can be recovered. The querist should not have named the company. If he had been paid overtime, he would not have felt frustrated. Now, since he has received a notice, he can at least refer to the defenses stated in the earlier thread.

Thanks,

Sushil

My point is, will the querist fight a legal battle or look around for another job? Whether he got overtime or not, or was he in a position where he was not entitled to OT, is not known to us. The company was legally bound to pay and complete the full and final settlement, and it has followed the law. Now, they have decided to enforce the service agreement which was knowingly and voluntarily signed by the employee. Prima facie, the employee is liable to pay as per the bond. Only the Honorable Court can decide whether Rs 5 lakhs + interest of 1L is reasonable or excessive.

Some case laws which may be of interest:

Fertiliser and Chemical Travancore Ltd. v. Ajay Kumar and others, 1990 LLR 711

Toshnial Brothers (Pvt.) Ltd. v. E. Eswarprasad & Ors., 1997 LLR 500

No doubt in these decisions, the effect of breach of contract and bond has been discussed whereby the full amount claimed is not payable, but only the reasonable proportionate amount incurred on training, etc., will be payable, which I had also pointed out in my earlier stated thread. However, what I have tried to further submit is that the effect of provisions of the Shops and Establishment Act, Payment of Wages Act, and ID Act has not been argued nor referred to in those decisions. Thus, it can be argued that these decisions are per incuriam and thus not binding. These enactments are enacted subsequent to the Indian Contract Act and supersede the provisions of sections 73 and 74 of the Contract Act. The bond amount will not be deductible or payable from wages of employees or workmen.

Thanks
Sushil

Dear Mr. Sushil,

I agree with you. My point is that he may well end up paying part of the bond money. Secondly, the question of recovering from salary does not arise since the company has made full and final payment. Whether the queriest was a workman is also not known to us.

Dear Mr. Nathrao,

While focusing on the second point, even though full and final settlement has been made, it can be argued by the querist that the bond and contract of service are integrated and indivisible, and are related to employment under the Shops and Establishment Act and the Payment of Wages Act. Under these Acts, it is enacted that no deduction of any kind whatsoever shall be made except as authorized under the Act. After making full and final settlement, the rigor of these provisions is not diluted and cannot be circumvented through other methods. It is a beneficial provision in favor of the employee. I recollect that in one of the cases, even after the discharge of the employee, these provisions were invoked by a High Court.

Thanks,
Sushil

1. An agreement that is not registered has no legal sanctity.

2. Is there any term which specifically mentions that the amount and interest will be charged in case you leave before the period? If yes, then you are in trouble. If not, prepare a reply with the aid of a civil advocate from your side and send it across. Other things are irrelevant to the claim letter reply.

Shrikant Prabhudesai
7738665045

An agreement should be on stamp paper of appropriate value and be notarised. It need not be registered under the Registration Act because it does not pass any interest in immovable property.

In all bond agreements, the liquidated amount is invariably mentioned to be payable in case of breach of contract. However, this fact does not cause concern because under sections 73 and 74 of the Contract Act, only a reasonable amount appropriate to the expenditure incurred may be recoverable.

Thanks,
Sushil