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Indian Law/non judicial bond with PSU


Dear Sir,

 I had joined a PSU in 2010 and executed a non judicial bond of 1 year training+1 year probation+ 2 years /Rs 2.5 lakh. Meanwhile I got selected in Indian Engineering Service Examination but no department is allotted till now.In departments allotted through IES ,there is a provision of bond transfer from PSU to the allotted department.

I am expecting department allotment letter by October'13 but I have resigned from my job with a request to transfer my remaining bond amount to the department which I will be allotted.Now PSU has refused to entertain my request and has asked me to pay bond amount claiming that I do not have department allotment letter at the time of resigning the company.

Do I have to pay the bond amount just after resigning? If I refuse to pay bond value under these circumstances, can they take legal action against me?If they take legal action against me, what is the merit of my case?

Generally a service bond is illegal in India as it is one sided. Further, as per Section 27 of the Indian Contract Act, 1972, it is not legally valid, being agreement in restraint of trade, profession or business . Percept D Mark (India)Pvt. Ltd. Vs. Zaheer khan(2006)4 SC 227. Bonds are applicable only if the company has spent money on the personal enhancement of the employees However,it should  not just be a training that helps the employee to perform better. Moreover, in the event of breach of contract, the employer cannot recover anything more than the actual reasonable loss suffered by them.The Supreme Court of India has clearly stated that no employee can be forcefully employed against his will, just because he has signed a contract with the employer. Therefore,enforceability of a particular restrictive agreement depends upon the facts and circumstances of each case. The object is to maintain greater flexibility and bargaining power to the employees.

As per Govt. Guidelines,if you have applied through proper channel,then you are certainly  entitled to transfer benefits for moving from one PSU. to another PSU/Govt./semi-Govt. Organisations.Therefore,You may request them to give you the transfer benefits as per the Govt. Guidelines, and release you from the date mentioned in your notice.In case you do not get a satisfactory satisfactory reply,then please complaint to the Grievance Officer of the concerned well as to the Public Grievance site of GoI.Simultaneously,you may serve a legal notice to them also threatening legal action,if you are not released as per your notice and your transfer benefits including Bond are not given to you.Ultimately you may have to fight through court.

Further, under no circumstances,you should pay any amount from your own pocket.If at all any amount is actually recoverable by your employer on account of pre-mature termination of contract, they can recover it against your outstanding dues.They can demand only the actual reasonable loss suffered, if any ,by them and nothing more.

Please take all actions in consultation with a lawyer to protect your interest.

In this connection,a copy of the relevant Govt. Guideline is reproduced below:

Enforcement/transfer of bond in respect of employees of Public Enterprises who leave the services of one Undertaking to join another Undertaking/ Government. (DPE O.M. No. 15(2)/2003-DPE(GM)/GL-57 dated 29th July, 2004)
(c) Service Matters
29. DPE/Guidelines/II(c)/29
Enforcement/transfer of bond in respect of employees of Public Enterprises who leave the services of one Undertaking to join another Undertaking/ Government.

The undersigned is directed to refer to this Departmentís OMs No. BPE/GL-017/77/MAN/2(11)/75-BPE(GM-I) dated 13.6.1977 and 23.5.1981 and No. 17/20/84-GM dated 5.2.1985 on the subject mentioned above, which were deleted vide this Departmentís O.M. No. 20(5)/95-DPE(GM) dated 10th December, 1997. After deletion of these guidelines, Department of Public Enterprises received references from various quarters for revival of these guidelines to enable them to regularize enforcement/ transfer of bond in the case of public sector employees joining services in Central Govt./State Govt./Autonomous Bodies. The position has been reviewed and after careful consideration, it has been decided to revive this Departmentís OMs dated 13.6.1977, 23.5.1981 and 5.2.1985 with the following modifications:

(a) The bond executed by employees of the Public Enterprises, who have received scientific/technical training at the cost of Public Enterprises and have applied through proper channel during the currency of the bond join Central Govt./State Govt. services or take up employment under quasi-government organizations or any other public enterprise either on the basis of competition examinations/tests/interviews organized by those organizations or the Union Public Service Commission should not be enforced subject to the condition that a fresh bond is taken to ensure that the employee serves the new employer for the balance of the original bond period.

(b) The terms of bond whereby an employee of a Central public enterprise receiving scientific and technical training out the expenses of the Govt./Public Sector Enterprises undertakes to repay this specified amount in the event of his failure to serve the enterprise for a stipulated period after completion of his training should not be enforced against an employee who leaves service of public enterprise to secure, with proper permission, employment under the Central Govt., a public enterprise or an autonomous body wholly or substantially owned/financed/controlled by the Central/State Govt. A fresh bond should be taken from the person concerned to ensure that he serves the new employer for the balance of the original period.

(c) To ensure that the requirement of obtaining a fresh bond from a person, where necessary, is fulfilled, the enterprise with whom the employee has executed the original bond may at the time of forwarding his application write to the organization etc. under whom the employee intends to take up another appointment intimating them about the bond obligation of the individual and clarifying that in the case of his selection for the new post, his release will be subject to the condition that the new organization take from him a fresh bond binding him to serve them for the balance of the original bond period; in case he fails to serve the new department/organization etc. or leaves it before completion of the original bond period for a job where exemption from bond obligation is not available, the proportionate bond money should be realised from the individual and refunded to the first organization with whom he originally executed the bond.

2. All the administrative Ministries/Departments are requested to kindly issue necessary instructions accordingly to the public sector enterprises under their administrative control.
(DPE O.M. No. 15(2)/2003-DPE(GM)/GL-57 dated 29th July, 2004)

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Arun Kumar Maitra


Contract Law,Companies Act,Sale of Goods Act,Partnership Act,Negotiable Instument Acts,Constitution of India,Arbitration Act,Consumer Protection Act,Maternity Act,Payment of Gratuity Act,Payment of Bonus Act,Shops & Establishment Act etc.The answer to the grievance of the particular online query depends on the facts of the particular case and law applicable to it.However,my comments relating to the various queries raised through the "All Experts" should not be treated as legal advices and should not at all be relied upon.I do not accept any responsibility for them.They will only give you some ideas about the probable merits of your cases.Ultimate actions/decisions in the matter may please be taken in consultation with the Legal Experts in the relevant fields.My purpose of giving the comments is to increase my own knowledge on the subjects and share it with others.It is purely of academic interest to me. I strongly feel the more knowledge we share,the more we shall be able to learn because there is neither any age nor any end to learning.


I have experience of dealing with matters relating to holdings of board/general meetings,maintenance of statutory registers,filing of necessary returns with the RoC,obtaining licenses for import,replies to Parliament Questions,dealing with the Parliamentary Committees,appearing before various courts to defend my employers,filing affidavits/counter -affidavits,preparing written statements/re-joinder,giving advice to management on complicated legal issues,preparation,drafting and vetting of contracts etc. I have more than 35 years of experiences to deal with the Company Law and Other Commercial Laws of leading Organisations in the country both in Public as well as Private Sectors.

Member,Inst. of Chartered Accountants of India Member,Inst. of Company Secretaries of India; Member,Bar Council of India Member,All India Management Association Member,Delhi Management Association Ex. Vice-Chairman,Durgapore Chapter of the I.C.A.I. Expert ,CA Club India Expert ,Lawyers Club India Expert,AllExperts Ex. Faculty ,I.C.S.I as well as I.C.W.A of India Retd. Co. Secy. & G.M.(Law)/NFL(A Mini-Ratna A Schedule Central P.S.U.),New Delhi Ex.V.P.(Secretarial Dept.),Jaiprakash Associates Ltd. Ex. Co. Secy.,MAMC(A Govt. of India Enterprise),Durgapore



Awards and Honors
Obtained ''A'' Grade Certificate in the Parliamentary Procedure from the Secy. General of Parliament in 1994-95.It was in connection with a training course conducted by the BPE for PSU Executives.

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I am presently working as a Company Secretary in Old World Hospitality Pvt. Ltd.located in Delhi.It is engaged in Hospitality Industry.It has Units in India and abroad.It has been given the responsibility to look after operation & Management of ''India Habetat Centre'' located at Lodhi Road,New Delhi.

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