Are bonds between employees and employer legal in India

Author’s note

You got a new job, but your company has made you sign a bond saying that you cannot quit the job before a period of one year or else you will have to pay two lakh rupees to your employer.

What are the legal provisions you should know about to get out of this situation? Figure that out ahead in this blog.

This is a situation faced by many young professionals. Bonds or agreements like these are often used by employers to retain employees for a certain minimum period. Employers induce fear in the minds of the employees. Sometimes, the employer may also use this as a strategy to extort money from the employee to get back at him. Little do the employees know that many times these bonds are not legally enforceable.

Go to the end of the blog to read our tips and suggestions.

This blog post focuses on explaining laws related to contracts to help people stuck in such situations.

Table of content

1. Whether such bonds are valid in India?
2. Bonds only enforceable when there is a valid consideration
3. Can you resign without worrying about paying the penalty?
4. What if the employer asks for a cheque without a date? Is that going to be a problem?
5. Remedies available to you in case your employer holds your salary or any documents
6. Tips and suggestion by Lawbriefcase

Whether such bonds are valid in India?

These bonds are agreements. Agreements are dealt with under the Indian Contract Act, 1872 (hereinafter referred to as the “Contract Act”). For these bonds to be valid they have to fulfill the conditions laid down in Section 10 of the Contract Act.

Therefore, the validity of the bond has to be assessed in every case.

This blog post will teach you – how to assess the validity of such bonds?

Bonds only enforceable when there is a valid consideration

The bond is valid when there is a valid consideration as per Section 10 of the Contract Act mentioned in the bond. A good example of a valid consideration would be when the employer has spent money on some special training of the employee, or when the employer has given some stock options or share equity to the employee. The valid consideration has to be mentioned clearly in the bond.

Stock options are usually known as Employee Stock Option Schemes (ESOS). Mere mentioning in the bond that the employee has a stock options does not make it a valid consideration. The employee must exercise the ESOS, only then can the valid consideration come into existence.

It has been clearly given in the case, Sicpa India Limited v. Shri Manas Pratim Deb RFA No.596/2002, the plaintiff had incurred an expense of INR 67,595 towards imparting training to the defendant. For the same, an employment bond was executed under which the defendant had agreed to serve the plaintiff company for a period of three years or to make a payment of INR 2,00,000. The employee left the employment within a period of two years, the employer went to the court. The court awarded the compensation of INR 22,532 to the employer for the breach of contract by dividing the expenses incurred by the employer and the number of years the employee had worked in that company.

A circumstance when the bond is not valid –

The bond is not valid when there is no consideration that is been mentioned in the bond that specifies the amount that has been spent for the training purpose of the employee, then the bond is not valid. For a valid bond, there must be valid consideration without consideration the bond is not valid. The employer cannot force or threaten the employee to work in their company.

Can you resign without worrying about paying the penalty?

Of course, you can resign from the job when the bond is illegal.

You just need to give a proper resignation letter to the person in charge.

Check into the bond which you signed for the job and look if the following essentials are present in the bond:

1. Free consent of parties; and
2. Competency to enter into a contract; and
3. A lawful consideration; and
4. A lawful object/purpose; and
5. The contract is not illegal due to any law in force.

All the above essentials have to be present in the bond signed by you for it to be legal. Even if one of the essentials is missing the contract cannot be called a contract. It will be a mere agreement that can not be enforced before a court and is, thus, not valid. And, voilla! You’re free to resign.

If anyone tells you that you are getting paid and that is a valid consideration, then tell them that you are getting paid a salary against the work that you are doing for the employer; and that is a separate contract in itself. There can be no term in this contract of employment that restricts you from exercising your right under Article 19(1)(g) of the Indian Constitution, 1950. Article 19(1)(g) lays down your fundamental right to freedom of trade and profession.

Always, keep a copy of the bond. It is your right to have a copy of the bond with you.

However, keep in mind that you will, most probably, have to serve a notice period which you had agreed to while signing up for the job. But, but, but, the bond which stipulates a penalty for leaving the job before a certain period of time has to have a valid consideration for it to be upheld by the courts.

According to Section 27 of the Contract Act:

“Agreement in restraint of trade, void every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.

Exception: Saving of agreement not to carry on the business of which goodwill is sold. One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein, provided that such limits appear to the Court reasoned, regard being had to the nature of the business.”

This means that your employer cannot restrain you from doing the same job in another company or on his own.

What if the employer asks for a cheque without a date? Is that going to be a problem?

Never give your employer a cheque. They do this because this way they can sue you under Section 138 of Negotiable Instruments Act, 1881.

However, if they insist on taking a cheque from you, at least what you can do to secure yourself is – that you get them to sign on a paper lays down the real purpose of taking demanding that cheque and mention on that paper that cheque bears no date.

There are certain ways in which the company can get money from its employees. The company can get the blank check during the joining of the employee and the company can sue the person for the amount that is mentioned in the bond.

The employer can sue the employee under Section 138 of the Negotiable Instruments Act, 1881 for not having an insufficient amount for the check that has been given.

Section 138 of the Negotiable Instruments Act, 1881 can be invoked by which, to check for more info on Section 138 of Negotiable Instruments Act, 1881 in https://lawbriefcase.com/how-to-file-a-complaint-u-s-138-of-the-ni-act/

You can read more about Section 138 of the Negotiable Instruments Act, 1881 here.

Remember, the employee must mention in the bond the purpose for which the cheque signed is being given. So, the employer may not misuse the cheque in the future to withdraw money from your bank account or sue for the same.

Remedies available to you in case your employer holds your salary or any documents

The positive consequence is that a criminal complaint can be raised against the owner and the in-charge persons in the office for causing injury through fraud and extortion. Under Section 383,384 for extortion, under section 420 for fraud under I.P.C. The employee can straight away go to the police and file the criminal complaint.

If the employee has given his check signed without mentioning the reason in the cheque or in the bond then, it may lead you to face a case under Section 138 of Negotiable Instrument Act, 1881.

If your bond is illegal then you can quit the job without worrying about anything. In fact, you can even lodge an F.I.R. in the Police Station having jurisdiction over the territory of your office or your home. You can level the charges under Section 420 (cheating and dishonestly inducing of property) and Section 384 (extortion) if your employer is holding any of your documents or your salary or a cheque.

You just have to go to the police station and lodge an F.I.R. Do not hesitate, fight for your rights. Do not let your employer cheat you and get the better part of you.

Do not worry about your company filing a case against you; they won’t be able to win. Also, you can always take the help of your State Legal Services Authority for free legal aid.

Tips and suggestion by Lawbriefcase

1. Do not sign a bond if it does not have a valid consideration, even if it means not getting that job. It will prevent you from a lot of pressure. A company that indulges in practices of putting their employees in fear is not the company you would want to join.
2. Do not give a cheque to your employer, especially, cheque without a date. If you give them a cheque, make sure that they put in writing the purpose of taking the cheque, so that they can not make a false case of cheque bounce against you.
3. Do not give your original documents and mark sheets. They will use it to criminally extort money from you or restrain you from leaving the company.
4. Go to the police and lodge an F.I.R. against the director, proprietor, HR, CEO and anyone else who threatens you. If the police tell you that this is a civil case, then tell them to put up the charges of extortion and cheating under IPC. If they still deny, then go to the DCP office and make a written complaint.