Facing a Service Bond Break: What Happens If You Don't Pay the Penalty?

Service Bond Agreement and Its Consequences

I was working as a fresher in one of the corporate companies. The company's policy includes a mandatory service bond agreement of 2 years. If this bond is broken, the employee must pay a total of 1 lakh rupees. Due to other reasons, I left the company, which means I broke the bond.

Now, I have started receiving emails from the company with the subject "intimation regarding negative FFS," asking me to pay a total of 1 lakh plus one month of salary.

What will be the consequences if the bond amount is not paid? Will there be any legal issues regarding this? Should I neglect these emails, or should I take them seriously? Please advise on this issue.

Any employment bond entered cannot be challenged in any court of law, and our law of the land does not allow such bonds in favor of employers. Hence, do not respond to those mails. Instead, consult a good labor lawyer and file a complaint against the management for your grievances.

Legality of Service Bonds in India

The company can demand the actual expenses incurred toward your training provided by the employer, if any.

Generally, service bonds are illegal in India because they are one-sided. Further, such types of bonds contravene Article 19 of our Constitution, which provides the right to every citizen to do any occupation, trade, or business or practice any profession. However, such types of bonds are enforceable if the company has spent money on the specialized training of the employees, and not mere training that helps them to perform better or to protect intellectual property rights or for any other reasonable restrictions. The Supreme Court of India has clearly stated that no employee can be forcefully employed against his will just because he has signed a bond with the employer. Moreover, in case of breach of the bond, the company can realize only the actual reasonable loss suffered by them and nothing more.

Relevant Court Cases

In India, the cases relating to Star India Pvt. Ltd. v/s Laxmiraj Seetharam Nayak (2003 (3) Bom CR 563); Gujarat Bottling Co. Ltd. v/s Coca Cola Co., and Jet Airways (I) Ltd. v/s Jan Peter Ravi Karnik 2000(4) BCR 487 are a few decisions which the Court may take into consideration while granting relief to any prayer for injunction against an employee from competing or joining any competitor. Similarly, in the case of Sicpa India Limited v. Shri Manas Pratim Deb, the employee had signed the bond by way of imparting training by the employer. According to the bond, the employee has to serve 2 years of service or pay Rs. 2 Lacs in case of a breach of the bond by the employee. When the employer moved to court to enforce the bond and in respect of recovering the amount spent toward employee training, the court asked the employer to produce the evidence of expenses incurred toward employee training. In that event, they admitted in the presence of concrete evidence that the actual training cost toward the employee was 67595 since the employee has completed 2 years of service out of 3 years; therefore, the court awarded the compensation to the employer of 22532 by dividing the total expenses of 67595 into three years, i.e., 22532/- per year.

Conclusion

In view of the above, there is no need to pay any amount to them. If they move to court, let them prove before the court what damages they have suffered and let them recover their loss through the court.

Thanks & Regards,

V SHAKYA

HR & Labour, Corporate Laws Advisor.

Legal Implications of Employee Bonds

Bonds/agreements intended to withhold an employee are generally illegal, as already mentioned by the learned members above along with citations.

I would like to differ on the point of remaining silent. If you are receiving any kind of demand out of such a bond (even though such bonds have no legal validity), it is always advisable to reply to such demands by stating that such bonds are illegal, and the company is not entitled to get any money out of such bonds. It is better to always deny the demand, even if such demand is illegal. Please also keep an acknowledgment of such a reply for future reference.