chiru_HR (Tax assosiate) 30 January 2012

As per indian stampact, validity of bond/ service aggrement

Subject Title: as per Indian StampACT, Validity of Bond/ Service aggrement, on company's letter head ?

Hi All,

I am Tax associate, I have joined in an Pvt Ltd, at the time of joining they have signed a aggreement mentioning that " employee will be liable to pay 2 month salary in case he leaves the org. within 1 year" the same agreement was signed on Company's Letter head. I have to work two months without salary :-(

My question is, whether such agreement is valid as per Indian Stamp Act? Should n't it be on Judicial or non judicial Stamp paper?

Can company recover from me such amount?

I would appreciate if any one can guide me in this issue.

Regards

Reply Follow

2 Replies

Kumar Doab (FIN) 30 January 2012

You have posted:

-" employee will be liable to pay 2 month salary in case he leaves the org. within 1 year".

and

-"I have to work two months without salary"

Both of these two are all together different situations.

You can not be made to work without salary for a day.

The liability of the employee to pay an amount is to be described for some certain/specific reason e.g. liquidated damages (the employer may have to explain and validate the amount)

or training thru which employee is able to acquire some additional qualifications/kill (the employer may have to explain and validate the amount).

The employee in matter cited by you has agreed to a condition so be it a letterhead or any other paper.

Now the situation comes out to be whether such a clause can be inserted or not?

The employers have been and shall continue to look for various ways and means to keep the employee in employment for the longest possible time or for a reasonable time of say 1 year and thus check the attrition and overheads. From business point of view the employee under service agreement/bond shall be economical, easy to handle and control and shall offer less or no dissent.

The employee should also become aware and well informed and thus should look for ways and means to stay away from legal traps. Majority of the employees do not contest the decisions of employer as either they are ill informed and unaware or get easily subdued. Union/Guild/Association/Internal Council of employees takes care of such situations.

The employee in matter cited by you should consult a competent and experienced service lawyer/law firm and the lawyer shall be able to defend the employee. In almost all the cases an intelligent lawyer shall be able to defend the employee.

If the employee ends up working for 2 months without salary it would amount to working for the employer and paying the salary to the employer.

The only thing that is required is before the employee hastens to sign on the dotted line and falls into legal traps, the employee should always consult elders in the family, competent and experienced well wishers, trained legal mind/lawyer/law firm.

At times an elderly advice shall protect from situations, and at times at times elders and well wishers may advice to seek legal opinion. Retaining a lawyer is economical in the long run.

(Guest)

Execution of service-bond to restrain the employee from accepting better job opportunity is a clear violation of Section 27 of the contract act.It is also a violation of Article 19 of the Constitution,which guarantees right to work.However , some courts in our country have allowed recovery of actual resonable loss from the employee e.g. recovery of training cost actually incurred.