Hello everyone,
I can see a lot of discussion going on regarding employee contracts or bonds. For example, an employee may be required to sign a bond for 3 years of employment with the company in case the company sends them abroad for training. If the employee decides to leave before the agreed period, they may have to pay back their last year's salary and the expenses incurred by the company during the training. Alternatively, the company may specify a lump sum amount that the employee is liable to pay if they leave early.
I am curious to know if such bonds are legally enforceable or if they are just tactics commonly used by software firms. Can anyone provide information on a court ruling that either upheld or dismissed such a bond?
Regards,
Kaushika
From India, Kochi
I can see a lot of discussion going on regarding employee contracts or bonds. For example, an employee may be required to sign a bond for 3 years of employment with the company in case the company sends them abroad for training. If the employee decides to leave before the agreed period, they may have to pay back their last year's salary and the expenses incurred by the company during the training. Alternatively, the company may specify a lump sum amount that the employee is liable to pay if they leave early.
I am curious to know if such bonds are legally enforceable or if they are just tactics commonly used by software firms. Can anyone provide information on a court ruling that either upheld or dismissed such a bond?
Regards,
Kaushika
From India, Kochi
Dear Kaushika,
According to the Indian Constitution and democracy, nobody is liable for bondage. In lieu of the above line, I would like to emphasize that bonds are entirely illegal, and no company can sue any employee for the return on training expenses and other perks.
Hope the above explanation is self-explanatory.
Cheers!!! Sujeet.
According to the Indian Constitution and democracy, nobody is liable for bondage. In lieu of the above line, I would like to emphasize that bonds are entirely illegal, and no company can sue any employee for the return on training expenses and other perks.
Hope the above explanation is self-explanatory.
Cheers!!! Sujeet.
Dear Kaushika,
According to the Indian constitution and democracy, nobody is liable for bondage. In lieu of the above line, I would like to point out that bonds are completely illegal, and no company can sue any employee for the return of training expenses or other perks.
Hope the above explanation is self-explanatory.
Cheers!!! Sujeet.
According to the Indian constitution and democracy, nobody is liable for bondage. In lieu of the above line, I would like to point out that bonds are completely illegal, and no company can sue any employee for the return of training expenses or other perks.
Hope the above explanation is self-explanatory.
Cheers!!! Sujeet.
Hello Everyone,
I have recently come across the policy of taking a bank guarantee from the employee at the time of joining. Please let me know how to deal with such instances. Are they legal, and what actions can be taken against the companies?
Regards, Reena
I have recently come across the policy of taking a bank guarantee from the employee at the time of joining. Please let me know how to deal with such instances. Are they legal, and what actions can be taken against the companies?
Regards, Reena
Hi,
I have recently joined a software company. Here we have a bond for two years. As a security measure for the bond, employees are required to deposit their educational credentials in original with the company. Additionally, the company reserves the right to terminate employment by providing a one-month notice to the employee at any point during the bond. I would also like to know whether this arrangement is legal and binding.
Best Regards,
Harsh
From India, Delhi
I have recently joined a software company. Here we have a bond for two years. As a security measure for the bond, employees are required to deposit their educational credentials in original with the company. Additionally, the company reserves the right to terminate employment by providing a one-month notice to the employee at any point during the bond. I would also like to know whether this arrangement is legal and binding.
Best Regards,
Harsh
From India, Delhi
Dear Kaushik,
No company can bond the employee, but the company can sue any employee for its return on training expenses if it is stated in the bond that the employee is undergoing training with them.
Regards,
Mamatha
No company can bond the employee, but the company can sue any employee for its return on training expenses if it is stated in the bond that the employee is undergoing training with them.
Regards,
Mamatha
Hi all!
When the service agreements and bonds are not valid according to the law here in India, I think the only option left is to take the candidate's academic certificates and return them to him on the day of the bond's expiry.
Caution: Do not commit to the employee from the company's side in writing that the certificates are with you. However, these days political leaders are intervening and not asking management to provide jobs but asking to relieve employees without paying liquidated damages. I never realized politicians could do so much service for the benefit of this industry, where there is no honesty, integrity, respect, or commitment. It's all about fast money.
From India, Hyderabad
When the service agreements and bonds are not valid according to the law here in India, I think the only option left is to take the candidate's academic certificates and return them to him on the day of the bond's expiry.
Caution: Do not commit to the employee from the company's side in writing that the certificates are with you. However, these days political leaders are intervening and not asking management to provide jobs but asking to relieve employees without paying liquidated damages. I never realized politicians could do so much service for the benefit of this industry, where there is no honesty, integrity, respect, or commitment. It's all about fast money.
From India, Hyderabad
First thing that needs to be ascertained is whether the bond in question is a valid contract under the "Indian Contract Act, 1872" or not.
As per the Act, a "contract" is an agreement enforceable by law. The agreements not enforceable by law are not contracts. An "agreement" means 'a promise or a set of promises' forming consideration for each other. And a promise arises when a proposal is accepted. By implication, an agreement is an accepted proposal. In other words, an agreement consists of an 'offer' and its 'acceptance'.
An "offer" is the starting point in the process of making an agreement. Every agreement begins with one party making an offer to sell something or to provide a service, etc. When one person who desires to create a legal obligation communicates to another his willingness to do or not to do a thing, with a view to obtaining the consent of that other person towards such an act or abstinence, the person is said to be making a proposal or offer.
An agreement emerges from the acceptance of the offer. "Acceptance" is thus the second stage of completing a contract. An acceptance is the act of manifestation by the offeree of his assent to the terms of the offer. It signifies the offeree's willingness to be bound by the terms of the proposal communicated to him. To be valid, an acceptance must correspond exactly with the terms of the offer, it must be unconditional and absolute, and it must be communicated to the offeror.
An "agreement" is a contract if 'it is made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and is not expressly declared to be void'. The contract must be definite, and its purpose should be to create a legal relationship. The parties to a contract must have the legal capacity to make it. According to the Contract Act, "Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of a sound mind, and is not disqualified from contracting by any law to which he is subject". Thus, minors; persons of unsound mind and Persons disqualified from contracting by any law are incompetent to contract.
The main provisions of the Act are:
At least two parties are needed to enter into a contact. One party has to make an offer and the other must accept it. The person who makes the 'proposal' or 'offer' is called the 'promisor' or 'offeror'. While, the person to whom the offer is made is called the 'offeree' and the person who accepts the offer is called the 'acceptor'. There must be an 'offer' and an 'acceptance' to the offer, resulting in an agreement. Both offer and acceptance should be lawful.
The parties must intend to create a legal obligation. The agreement sought to be enforced should contemplate legal relations between the parties to it.
A contract is basically a bargain between two parties, each receiving 'something' of value or benefit to them. This 'something' is described in law as 'consideration'. Consideration is an essential element of a valid contract. It is the price for which the promise of the other is bought. A contract without consideration is void. The consideration may be in the form of money, services rendered, goods exchanged, or a sacrifice which is of value to the other party. This consideration may be past, present, or future, but it must be lawful.
The parties making the contract must be legally competent in the sense that each must be of the age of majority, of a sound mind, and not expressly disqualified from contracting. An agreement by incompetent parties shall be a legal nullity.
The contracting parties must give their consent freely. 'Consent' means that the parties must agree about the subject matter of the agreement in the same sense and at the same time. Consent is said to be free if it is not induced by coercion, undue influence, fraud, misrepresentation, or mistake. The absence of free consent would affect the legal enforceability of a contract.
The object of the agreement must be lawful. An agreement is unlawful if it is: (i) illegal (ii) immoral (iii) fraudulent (iv) of a nature that, if permitted, it would defeat the provisions of any law (v) causes injury to the person or property of another (vi) opposed to public policy.
An agreement expressly declared to be void under the Contract Act or under any other law is not enforceable and is, thus, not a contract. The Contract Act declares void certain types of agreements such as those in restraint of marriage, or trade, or legal proceedings as well as wagering agreements.
The terms of a contract must not be vague or uncertain. If an agreement is vague and its meaning cannot be ascertained, it cannot be enforced. Also, the terms of a contract must be such as are capable of performance. An agreement to do an impossible act is void and is not enforceable by law.
Generally, a contract may be oral or in writing. However, certain contracts are required to be in writing and may even require registration. Therefore, where law requires an agreement to be put in writing or be registered, the same must be complied with. For instance, the Indian Trusts Act requires the creation of a trust to be reduced to writing.
Contracts are of various types: (i) Express Contract; (ii) Implied Contract; (iii) Quasi Contract; (iv) Valid Contract; (v) Void Agreement; (vi) Void Contract; (vii) Voidable Contract.
When a contract is entered into, the parties must perform their respective obligations under the contract. Where a promisor dies before the performance of a contract, his legal representative is bound to perform the contract unless a contrary intention appears from the words in the contract or the nature of the contract.
A promisor must either actually perform or offer to perform his obligation under the contract, to the promisee. This offer is called 'tender of performance'. The essentials of a valid tender of performance are:
- it must be unconditional;
- it must be at a proper time and place, since a tender made before the due date is not effective;
- it must be made to the proper person;
- it must be of proper quantity and as to the whole of obligation;
- it must be made by a person willing and able to perform there and then;
- it must give a reasonable opportunity to the promisee for inspection of goods or articles.
Contracts which need not be performed are:
- Agreement to do impossible acts are void and need not be performed.
- When a contract is substituted by a new contract, or is rescinded or altered, the original contract need not be performed.
- Contracts discharged by the operation of law need not be performed.
- Contracts which have lapsed by time.
A contract of indemnity is one whereby a person promises to save the other from loss caused to him by the conduct of the promisor himself or of any third person. For example, a shareholder executes an indemnity bond favoring the company, thereby agreeing to indemnify the company for any loss caused as a consequence of his own act. The person who gives the indemnity is called the 'indemnifier' and the person for whose protection it is given is called the 'indemnity-holder' or 'indemnified'. A contract of indemnity is restricted to cover the loss caused by the promisor himself or by a third person. The loss must be caused by some human agency.
A contract is said to be discharged when the liabilities of the parties thereto come to an end or are determined. A contract may be discharged by any of the following modes:
- By Performance: when both parties perform their promises and nothing remains thereunder, to be done the contract is discharged.
- By Impossibility of Performance: the impossibility may be initial or subsequent.
- By Mutual Agreement: where the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract stands discharged.
- By Remission: where a party to a contract dispenses with, either wholly or in part, the performance of a contract by the other party, or extends the time for performance, or accepts any other satisfaction instead of performance, the contract stands discharged to the extent remitted.
- By Operation of Law: a contract is said to be discharged by operation of law under the following circumstances:
- material alteration or loss of a written document;
- merger of an inferior contract into a superior contract;
- discharge of an insolvent;
- when rights and liabilities under the same contract become vested in the same person.
- By Breach or Non-Performance: when a party to a contract has refused to perform or is disabled from performing, his promise, the promisee may put an end to the contract on account of breach by the first party.
Where a party to a contract refuses to perform it or becomes disabled to perform it, it amounts to breach of contract, and the promisee may set aside the contract unless he has signified by words or conduct his intention to continue it. The remedies available to the aggrieved party in case of breach of contract by the other party are:
- Suit for rescission of the contract: Rescission is the revocation of a contract. When a contract is broken by one party, the other party may sue for rescission and refuse further performance. In such a case, the aggrieved party is absolved of all its obligations under the contract.
- Suit for damages: the party who is injured by the breach of a contract may bring an action for damages. Damage is the monetary compensation allowed by the court to the aggrieved party for the loss or injury suffered by him as the result of breach by the other party.
- Suit for injunction: An injunction is an order of the court requiring a person to refrain from doing some act which has been the subject
From India, Madras
As per the Act, a "contract" is an agreement enforceable by law. The agreements not enforceable by law are not contracts. An "agreement" means 'a promise or a set of promises' forming consideration for each other. And a promise arises when a proposal is accepted. By implication, an agreement is an accepted proposal. In other words, an agreement consists of an 'offer' and its 'acceptance'.
An "offer" is the starting point in the process of making an agreement. Every agreement begins with one party making an offer to sell something or to provide a service, etc. When one person who desires to create a legal obligation communicates to another his willingness to do or not to do a thing, with a view to obtaining the consent of that other person towards such an act or abstinence, the person is said to be making a proposal or offer.
An agreement emerges from the acceptance of the offer. "Acceptance" is thus the second stage of completing a contract. An acceptance is the act of manifestation by the offeree of his assent to the terms of the offer. It signifies the offeree's willingness to be bound by the terms of the proposal communicated to him. To be valid, an acceptance must correspond exactly with the terms of the offer, it must be unconditional and absolute, and it must be communicated to the offeror.
An "agreement" is a contract if 'it is made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and is not expressly declared to be void'. The contract must be definite, and its purpose should be to create a legal relationship. The parties to a contract must have the legal capacity to make it. According to the Contract Act, "Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of a sound mind, and is not disqualified from contracting by any law to which he is subject". Thus, minors; persons of unsound mind and Persons disqualified from contracting by any law are incompetent to contract.
The main provisions of the Act are:
At least two parties are needed to enter into a contact. One party has to make an offer and the other must accept it. The person who makes the 'proposal' or 'offer' is called the 'promisor' or 'offeror'. While, the person to whom the offer is made is called the 'offeree' and the person who accepts the offer is called the 'acceptor'. There must be an 'offer' and an 'acceptance' to the offer, resulting in an agreement. Both offer and acceptance should be lawful.
The parties must intend to create a legal obligation. The agreement sought to be enforced should contemplate legal relations between the parties to it.
A contract is basically a bargain between two parties, each receiving 'something' of value or benefit to them. This 'something' is described in law as 'consideration'. Consideration is an essential element of a valid contract. It is the price for which the promise of the other is bought. A contract without consideration is void. The consideration may be in the form of money, services rendered, goods exchanged, or a sacrifice which is of value to the other party. This consideration may be past, present, or future, but it must be lawful.
The parties making the contract must be legally competent in the sense that each must be of the age of majority, of a sound mind, and not expressly disqualified from contracting. An agreement by incompetent parties shall be a legal nullity.
The contracting parties must give their consent freely. 'Consent' means that the parties must agree about the subject matter of the agreement in the same sense and at the same time. Consent is said to be free if it is not induced by coercion, undue influence, fraud, misrepresentation, or mistake. The absence of free consent would affect the legal enforceability of a contract.
The object of the agreement must be lawful. An agreement is unlawful if it is: (i) illegal (ii) immoral (iii) fraudulent (iv) of a nature that, if permitted, it would defeat the provisions of any law (v) causes injury to the person or property of another (vi) opposed to public policy.
An agreement expressly declared to be void under the Contract Act or under any other law is not enforceable and is, thus, not a contract. The Contract Act declares void certain types of agreements such as those in restraint of marriage, or trade, or legal proceedings as well as wagering agreements.
The terms of a contract must not be vague or uncertain. If an agreement is vague and its meaning cannot be ascertained, it cannot be enforced. Also, the terms of a contract must be such as are capable of performance. An agreement to do an impossible act is void and is not enforceable by law.
Generally, a contract may be oral or in writing. However, certain contracts are required to be in writing and may even require registration. Therefore, where law requires an agreement to be put in writing or be registered, the same must be complied with. For instance, the Indian Trusts Act requires the creation of a trust to be reduced to writing.
Contracts are of various types: (i) Express Contract; (ii) Implied Contract; (iii) Quasi Contract; (iv) Valid Contract; (v) Void Agreement; (vi) Void Contract; (vii) Voidable Contract.
When a contract is entered into, the parties must perform their respective obligations under the contract. Where a promisor dies before the performance of a contract, his legal representative is bound to perform the contract unless a contrary intention appears from the words in the contract or the nature of the contract.
A promisor must either actually perform or offer to perform his obligation under the contract, to the promisee. This offer is called 'tender of performance'. The essentials of a valid tender of performance are:
- it must be unconditional;
- it must be at a proper time and place, since a tender made before the due date is not effective;
- it must be made to the proper person;
- it must be of proper quantity and as to the whole of obligation;
- it must be made by a person willing and able to perform there and then;
- it must give a reasonable opportunity to the promisee for inspection of goods or articles.
Contracts which need not be performed are:
- Agreement to do impossible acts are void and need not be performed.
- When a contract is substituted by a new contract, or is rescinded or altered, the original contract need not be performed.
- Contracts discharged by the operation of law need not be performed.
- Contracts which have lapsed by time.
A contract of indemnity is one whereby a person promises to save the other from loss caused to him by the conduct of the promisor himself or of any third person. For example, a shareholder executes an indemnity bond favoring the company, thereby agreeing to indemnify the company for any loss caused as a consequence of his own act. The person who gives the indemnity is called the 'indemnifier' and the person for whose protection it is given is called the 'indemnity-holder' or 'indemnified'. A contract of indemnity is restricted to cover the loss caused by the promisor himself or by a third person. The loss must be caused by some human agency.
A contract is said to be discharged when the liabilities of the parties thereto come to an end or are determined. A contract may be discharged by any of the following modes:
- By Performance: when both parties perform their promises and nothing remains thereunder, to be done the contract is discharged.
- By Impossibility of Performance: the impossibility may be initial or subsequent.
- By Mutual Agreement: where the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract stands discharged.
- By Remission: where a party to a contract dispenses with, either wholly or in part, the performance of a contract by the other party, or extends the time for performance, or accepts any other satisfaction instead of performance, the contract stands discharged to the extent remitted.
- By Operation of Law: a contract is said to be discharged by operation of law under the following circumstances:
- material alteration or loss of a written document;
- merger of an inferior contract into a superior contract;
- discharge of an insolvent;
- when rights and liabilities under the same contract become vested in the same person.
- By Breach or Non-Performance: when a party to a contract has refused to perform or is disabled from performing, his promise, the promisee may put an end to the contract on account of breach by the first party.
Where a party to a contract refuses to perform it or becomes disabled to perform it, it amounts to breach of contract, and the promisee may set aside the contract unless he has signified by words or conduct his intention to continue it. The remedies available to the aggrieved party in case of breach of contract by the other party are:
- Suit for rescission of the contract: Rescission is the revocation of a contract. When a contract is broken by one party, the other party may sue for rescission and refuse further performance. In such a case, the aggrieved party is absolved of all its obligations under the contract.
- Suit for damages: the party who is injured by the breach of a contract may bring an action for damages. Damage is the monetary compensation allowed by the court to the aggrieved party for the loss or injury suffered by him as the result of breach by the other party.
- Suit for injunction: An injunction is an order of the court requiring a person to refrain from doing some act which has been the subject
From India, Madras
Dear Manish,
Thank you for the elaborate explanation, and yes, it answers my question. So before signing the bond, the person should speak to a lawyer to determine if it is covered under the Contract of Labour Act, right? Or is there any way he himself can make a decision on it?
Regards,
Kaushika
From India, Kochi
Thank you for the elaborate explanation, and yes, it answers my question. So before signing the bond, the person should speak to a lawyer to determine if it is covered under the Contract of Labour Act, right? Or is there any way he himself can make a decision on it?
Regards,
Kaushika
From India, Kochi
The flip side is that no company give you a copy of that bond unles you sign and accept it.
From India, Madras
From India, Madras
Dear All,
Whether a particular contract is valid or not depends entirely on the terms and conditions contained therein, as well as the manner in which it is drafted subject to various provisions of the law.
Suppose an agreement for training includes a provision stating that the employee must serve the company for 2 years after the completion of training abroad. In the event that the employee leaves before the said period, they are liable to pay damages to the employer, equivalent to 6 months' salary. This provision is not illegal or void.
In various judicial reviews, courts have held that such restrictions are not considered a 'restraint in trade', thus not violating sections 23/27 of the contract act or the fundamental right under Article 19. However, drafting must be done carefully, the restriction must not extend to the post-employment period, and it must be genuine to recover the cost of training.
Employees are free to leave, but they must compensate the company. In my opinion, such employees should not be allowed to have it both ways - benefiting from the training, joining a competitor, and leaving their old employer in the midst of business operations. This behavior is entirely immoral, unethical, and unprofessional.
If they wish to leave, they can do so but must bear the cost of training.
Please refer to the attached article and judicial pronouncement for further clarity.
Regards,
Amit Kishore Singh
From India, Delhi
Whether a particular contract is valid or not depends entirely on the terms and conditions contained therein, as well as the manner in which it is drafted subject to various provisions of the law.
Suppose an agreement for training includes a provision stating that the employee must serve the company for 2 years after the completion of training abroad. In the event that the employee leaves before the said period, they are liable to pay damages to the employer, equivalent to 6 months' salary. This provision is not illegal or void.
In various judicial reviews, courts have held that such restrictions are not considered a 'restraint in trade', thus not violating sections 23/27 of the contract act or the fundamental right under Article 19. However, drafting must be done carefully, the restriction must not extend to the post-employment period, and it must be genuine to recover the cost of training.
Employees are free to leave, but they must compensate the company. In my opinion, such employees should not be allowed to have it both ways - benefiting from the training, joining a competitor, and leaving their old employer in the midst of business operations. This behavior is entirely immoral, unethical, and unprofessional.
If they wish to leave, they can do so but must bear the cost of training.
Please refer to the attached article and judicial pronouncement for further clarity.
Regards,
Amit Kishore Singh
From India, Delhi
Folks,
A Simple Explanation
Sections 73 & 74 of the Contract Act are the main statutes that will come into place:
Section 73
When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
Section 74
When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
For example:
If an employee joins a company and signs a bond to work for 2 years or else pay 3 lakhs before leaving. The person is fully aware of what he is getting into. So the contract will stand good in the court of law as the company will not be forcing the employee to work; the company just wants the money and the damages caused thereby back. If the company files a case on the imposition of the person to work under any circumstances, then it will amount to forced labor, and Article 23(1) of the Indian Constitution will come into play.
FINAL VERDICT:
CASE FILED FOR BREACH OF CONTRACT FOR MONEY - holds good in the court of law - Sections 73 & 74 of the Indian Contract Act, 1872.
CASE FILED FOR BREACH OF CONTRACT AND IMPOSING THE RESOURCE TO STAY BACK - Fundamental Right Breached, and hence Sections 73 & 74 Null & Void.
From India, Bangalore
A Simple Explanation
Sections 73 & 74 of the Contract Act are the main statutes that will come into place:
Section 73
When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
Section 74
When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
For example:
If an employee joins a company and signs a bond to work for 2 years or else pay 3 lakhs before leaving. The person is fully aware of what he is getting into. So the contract will stand good in the court of law as the company will not be forcing the employee to work; the company just wants the money and the damages caused thereby back. If the company files a case on the imposition of the person to work under any circumstances, then it will amount to forced labor, and Article 23(1) of the Indian Constitution will come into play.
FINAL VERDICT:
CASE FILED FOR BREACH OF CONTRACT FOR MONEY - holds good in the court of law - Sections 73 & 74 of the Indian Contract Act, 1872.
CASE FILED FOR BREACH OF CONTRACT AND IMPOSING THE RESOURCE TO STAY BACK - Fundamental Right Breached, and hence Sections 73 & 74 Null & Void.
From India, Bangalore
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(Fact Checked)-The user reply contains accurate information regarding the Indian Contract Act, defining contracts, offers, acceptances, considerations, legal capacity, consent, etc. The reply also correctly mentions the remedies for breach of contract and the conditions for a valid contract. (1 Acknowledge point)