ESIC medical service bonds upheld by High Court

The Karnataka High Court allowed ESIC’s writ appeal and set aside the Single Judge’s order that had quashed the posting orders and restrained enforcement of the five-year compulsory service bond.

The dispute arose from MBBS students admitted to ESIC Medical College & PGIMSR, Bengaluru, in the Government quota for the 2012-13 academic year. They had executed service bonds undertaking to serve ESIC hospitals for five years after completing the course, failing which they were liable to pay Rs. 7,50,000.

The students challenged the bond on several grounds. They argued that ESIC had no power under the Employees’ State Insurance Act, 1948 to insist on personal service, that the college could not enter into such a contract, that compulsory service violated Article 19(1)(g), that it amounted to bonded labour under Article 23, and that the bond was void under Section 27 of the Indian Contract Act, 1872. They also said the condition was not disclosed before admission and that they had already undertaken obligations to the State against the same seats.

The Division Bench, speaking through Chief Justice Vibhu Bakhru and Justice C.M. Poonacha, rejected the challenge. The court held that the service bond formed part of the consideration for the education and training provided by ESIC, and that the institution was entitled to impose such a condition. On that basis, the bond was upheld as enforceable.

The court also dealt with ESIC’s subsequent memorandum dated 28.07.2020, which relaxed the bond conditions prospectively. Under that memorandum, the compulsory service period was reduced from five years to one year and the amount payable on opting out was reduced from Rs. 7,50,000 to Rs. 5,00,000. The court held that the challenge had to be tested in light of the relaxed terms, since the memorandum was issued after the Single Judge’s order and was made applicable prospectively, with benefit extended to students already serving under the bond.

The Bench further observed that students unable to join service would be obliged to pay the reduced amount with interest. It also left room for reasonable requests for deferment, and said ESIC could consider placing willing petitioners in posts commensurate with their experience and further qualifications.

Practical takeaway: ESIC’s compulsory service bond for its medical students was upheld, subject to the later relaxed terms of one year’s service or payment of Rs. 5,00,000.