Employment Bond and Right to Resign: Want to resign, see this!

Bond Amount and Breach of Bond

An indemnity bond which permits an employee to leave the employment earlier than the minimum agreed period only at the cost of the forfeiture of his bond money is valid provided both the period of restriction and the bond money are reasonable. Only that part of the bond money can be retained which is necessary to indemnify the employer for his loss. A person who en-cashes an indemnity bond which in the nature of a bank guarantee can retain only that part of the amount of the bond which represents the damage or loss suffered by the bond-holder as a result of the contracting party's breach. Anything more would be undeserved windfall for one party and penalty of the other.

As held in Toshniwal Brothers (Pvt.) Ltd. v. E.Eswarprasad & Ors, “The Madras High Court held that the employer was entitled to recover the stipulated damages, which is a genuine pre-estimate by the parties of the damages incurred. There is no requirement to prove separately any post-breach damages. The employer is required to establish that the employee was the beneficiary of special favour or concession or training at the cost and expense wholly or in part of the employer and there had been a breach of the undertaking by the beneficiary of the same. In such cases, the breach would per se constitute the required legal injury resulting for the employer due to breach of the contract. “

Again in Satyam Computer Services Limited v. Ladella Ravichander, "The Andhra Pradesh High Court held that such action by the Defendant did not cause any damage or loss to the company and it would be unreasonable to acquire such amount from the Defendant. An amount of Rs. 100, 000 was fixed by the court as reasonable damages taking into consideration the period of work and the fact that no actual loss was caused to the Company.”

Reasonable Compensation:

In M/S Koenig Solutions Limited vs Mr. Kuldeep Singh, The plaintiff company has filed the suit for permanent injunction and recovery of damages of Rs. 4,00,000/- (Rupees Four Lakhs) against the defendant. The plaintiff imparted training for skill sets and technical know-how during the course of employment and the defendant agreed to indemnify the plaintiff company for all loss and damages which may arise on account of any breach of the terms and conditions of the appointment letter and employment bond dated 20.9.2010. The Bond has following condition

“The plaintiff made substantial investment on defendant's training and skill enhancement and other training cost of Rs.2,00,000/-.”

The tenure of the bond was 24 months and the employee served for a period of 20 months. The court held “Though the liability stands determined, the only question that arises is to the reasonable compensation to be given to the plaintiff company. The amount of bond has been Rs. 2, 00,000/- (Rupees Two Lakhs) and the defendant has worked with the company for a period of about 20 months. He was to serve the company for a period of 4 months more to fulfill the condition of employment bond of 24 months. The fact that the defendant was to serve for a period of 4 months more, the reasonable compensation to which the plaintiff company was entitled is assessed to Rs. 50,000/- (Rupees Fifty Thousand only). “

Right To Resign:

As held in Weiler Internation Electronics Private Limited v Punitha Velu, No restrictions can be imposed upon an employee when his terms of employment were not for a specified period and he had left the job.

The milestone case in this regards is Star India Private Limited v Laxmiraj Nayak, Employee of Star TV wanted to resign but his resignation was not accepted on the contrary a case was filed against him for a declaration that he had no right to resign or to join a rival firm. The court refused to issue an injunction for enforcing a negative Covenant. The court said that the question whether the employee have gained knowledge of trade secrets or confidential information or the company has imparted any special training  where matter which could be determined in a trial. Until all this sorted out a negative Covenant in matter of personal service could not be enforced. Freedom of contract include freedom of occupation there was nothing to suggest that the employer was likely to suffer a irreparable loss without the injunction mainly because the employer could face some inconvenience for competition would not be ground for enforcing a negative convenient it is not in public interest on the restraining healthy competition.