Employers routinely face legal challenges to service bonds they take from employees. A service bond is an instrument by which an employee binds himself to return a certain amount stipulated in the bond to the company in case he resigns from his job earlier than the stipulated time. An interesting question is how much compensation may be recovered upon such bonds by an employer? Whether entire money under a service bond may be recovered or the court has the discretion to reduce the amount?

The general approach of courts towards service bonds in private employment is rather unsympathetic. They interpret service bonds against the employer as the employee has had limited bargaining power. Another reason for unsympathetic treatment is that the breaching party has paid or undertaken to pay a certain amount in case of breach. This would disincentivize or deter breach. Compensation or restitution and not deterrence, is the object of contract law and hence a service bond is a treated as a penalty.

Since the award of compensation is not penal, the quantum of compensation is to be reasonable based on the actual loss. Remote, or exemplary or penal loss disproportionate to the actual loss is not awarded. If it is not possible to prove the loss, the agreed figure towards loss may be granted if otherwise reasonable. However, if it is possible to prove the loss, only proven loss will be awarded. Since a bond is in the nature of a penalty, only losses as proved will be awarded. Therefore, an employee tendering a service bond incurs the liability to pay only those damages which are proved and reasonable having regard to the facts and circumstances of the case.

@ Rakesh Matwa, Advocate

The illustrious German jurist Savigny propounded the thesis in 19th century that law is like language. It evolves in the society just as habits and customs. The thesis has much to commend itself to understand important juridical pronouncements even in 21st century. The general public sentiment in India seems to be opposed to the general decline of public institutions. On a conspectus of judicial verdicts one can well discern the influence of public sentiment on such verdicts be it in cases under anti-corruption laws or public appointments.

The theoretical influence in the area of public appointments came to light recently. Acquittal in a criminal case, however serious, was good a defence against denial of public employment in India. Once a person had disclosed the fact of his implication in a crime, his flawed acquittal in the case for lack of evidence or owing to serious flaws in conduct of prosecution case or on the basis of compromise for compoundable offences or due to hostility of witnesses at trial due to fear of reprisals, could not be a ground to deny public employment to the applicant.

However, not so after 3rd July, 2013 pronouncement of the Supreme Court in the case of Commissioner of Police versus Mehar Singh reported as 2013 (9) SCALE 444 In this case In this case appellants were accused of serious criminal offences involving attempt to murder and rioting. They were acquitted for lack of evidence as the witnesses turned hostile at the trial. In such cases as per the settled position thus far their flawed acquittal in the criminal case was good for all purposes and they could not be denied appointments to public office because of their criminal antecedents. Not so any longer. The apex court likened public appointments to disciplinary proceedings against employees. In disciplinary proceedings, even if an employee was acquitted in criminal case on the same facts, such acquittal had no bearing on the disciplinary proceedings instituted or pending against such employee. Analogically in cases of public appointments, unless an applicant had been acquitted on merits, he may be lawfully denied public employment in India irrespective of his flawed acquittal in the criminal case for lack of evidence due to compromise or witnesses turning hostile at trial for fear of reprisals. The ruling reminds one of Savigny that growth of law is indeed organic and it sprouts in a particular social environment just as language and local culture. The presence of a ubiquitous media seems to have hastened the process of crystallization of social mores, habits and customs.

@ Rakesh Matwa, Advocate