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Avinash Kumar Sharma (Sr. Manager HR)     10 July 2016

Unreasonable terms in appointment letter

Dear Members,

My employers want me to draft Appointment Letter in which terms should be that if employee resigns from job then he has to give three months notice and if company suddenly terminates his services then it will pay only one month's salary. According to me this condition is unreasonable as given in Section 16 of Indian Contract Act 1872 and comes under "undue influence" clause. I want to know whether we can impose such condition in Appointment Letter and if imposed then such conditions are lawfull or not. Learned members are requested to enlighten me on this matter.


Avinash Kumar Sharma


 12 Replies

Sir though it is contrary to ICA 1872,howver most of the employers mploy the same..

Kumar Doab (FIN)     10 July 2016

The contract of employment should promote equitable terms or it can easily be termed arbitrary.


Notice period/pay is  part of service conditions that are goverened by various enactments.


The applicable enactments shall prevail upon any private agreement drafted by employer and signed with employee e.g; appoitment letter, contract of employment, service agreement, HR policy etc etc......................


The employer would want someone else to blame, and someone's else's shoulder to fire and someone else's face to hide behind and someone else's chest to take the bullet..........................Usually it is HR personnel and legal cell personel and Line Managers...............


The gleam of light is that 'Employer can personally be held responsible for violations'.



It is good to see that a HR person is asking reasonable questions.


I appreciate.


Counsel the employer wisely and briefly.




Avinash Kumar Sharma (Sr. Manager HR)     10 July 2016

Dear Sirs,

Thanks for your guidance. 


Avinash Kumar Sharma

JustAdvisor (IT)     10 July 2016

also there are judgments on "inequality of bargaining power" for unconscionable contracts. so in all likelihood this clause may be set aside.

Avinash Kumar Sharma (Sr. Manager HR)     10 July 2016

Dear Sir,

Can you refere me case laws or judgements on this issue so that I can give proper suggestions to my employers.


Avinash Kumar Sharma

JustAdvisor (IT)     10 July 2016

Central Inland Water Transport vs Brojo Nath Ganguly. This case does not fit 100%. Fundamental difference is that employer was a government agency and hence "State" within the meaning of Article 12 of COI. But while setting the ratio of public policy, honorable Supreme Court may have set it generally.

Kumar Doab (FIN)     10 July 2016

You may also pursue: Indian contract Act 1872; Sec73…….. declaratory of the common law as to damages


Equitable discretion should apply. The contract of employment should not keep employee at inferior position and employer at superior position. Such contract can be easily termed unfair. This should explain the provision of notice pay in lieu of notice period to employee also.


Contract of employment should promote equitable discretion.

Any policy in the larger interest and beneficial to both employer and the employee has the sanction of law as otherwise it will be easily termed as arbitrary.

It is general law that whenever there is any ambiguity in terms of contract then benefit of doubt will given to party who don’t make the contract (Read Employee).

The clause as stated by you is detrimental to employee's interest and beneficial for employer and easily be termed arbitrary.



Assuming that the the notice period/pay is as per exit clause of the appointment letter.
It is a compensation given by one party that has breached the contract to other party because of the breach of contract (Indian contract Act 1872; Sec73…….. declaratory of the common law as to damages).

The basic purpose of damages is to put party whose rights have been violated in the same position, so far as money can do so, as if his rights have been observed. When compensation sum is named in a contract as the amount to be paid in case of breach then it is know as liquidated damages e.g. in the employment contract. When it damages are not given in contract then it known un-liquidated damages and will be defined by court on the bases of reasonableness and facts of the case.


Another view point is that while the employer has kept the provision of liquidated damages max. to the amount of notice pay it if initiates the termination……………….And it has not keep the similar and equal amount of liquidated damages if employee initiates the termination……………………





Kumar Doab (FIN)     10 July 2016

The above mentioned post are keeping in mind the Senior Executives that are not coverd by Labor Laws.


Kumar Doab (FIN)     10 July 2016

Industrial Dispute Act does not fasten responsibility of serving notice period on workmen/employee.

Is your company under the ambit of Standing Orders?

Does it have certified standing orders?


What is this company; Commercial/Industrial?


You are in which state?



narendra.s.p (Chief Manager(Law))     27 August 2016

Any citation to uphold that Employer was in a dominant position to insist on Service Bond and such bond seeking liquidated damages is obtained by "Undue Influence" and not a valid contract under section 16 of Contract Act.

Kumar Doab (FIN)     29 August 2016

Central Government Act
The Indian Contract Act, 1872
10. What agreements are contracts.—All agreements are contracts if they are made by the free consent of parties competent to contract
14. ‘Free consent’ defined.—Consent is said to be free when it is not caused by— —Consent is said to be free when it is not caused by—"
(1) coercion, as defined in section 15, or
(2) undue influence, as defined in section 16, or
(3) fraud, as defined in section 17, or
(4) misrepresentation, as defined in section 18, or
(5) mistake, subject to the provisions of sections 20, 21 and 22. Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake.
15. ‘Coercion’ defined.—‘

Kumar Doab (FIN)     29 August 2016

 Delhi Transport Corpn. v. D.T.C. Mazdoor Congress reported in 1991 Supp (1) SCC 600. In paragraph 287, the Supreme Court held as follows:

"287. In todays complex world of giant corporations with their vast infrastructural organisations the State through its instrumentalities and agencies has been entering into almost every branch of industry and commerce and field of service, there can be myriad situations which result in unfair and unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power.

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