If you are stuck in such a situation, here is what to do.

Mr. Alok Kumar was thrilled to receive a job offer from a leading tech firm, “Innovate Solutions Ltd.,” located in the city of Vikasnagar. As part of the joining formalities, the company requested him to furnish two documents on non-judicial stamp paper: a Service Indemnity Bond and a Non-Disclosure Undertaking (NDU). Unfamiliar with these legal requirements, Mr. Kumar visited the local court complex to procure the necessary stamp papers.

At the stamp vendor’s counter, his confusion grew. The vendor informed him that for a Non-Disclosure Undertaking, the stamp paper would be issued under the category of “Art. 5 General Agreement.” For the Service Indemnity Bond, he was given a choice between a “Bond” and an “Indemnity Bond.” When Mr. Kumar asked for the difference, the vendor simply asked him to choose one, so he opted for “Indemnity Bond.” Uncertain if he had made the right choices and concerned about the party designations (who is the First Party and who is the Second Party), Mr. Kumar sought clarity on the correct legal procedure for executing these employment-related agreements.

Advice in such cases

Navigating legal documents during a new job onboarding can be confusing. Here is some general advice:

• Understand the Documents: A Service Indemnity Bond is an agreement where the employee agrees to compensate the employer for any loss or damage caused by their actions, often related to leaving the job before a specified period after receiving expensive training. A Non-Disclosure Undertaking (or Agreement – NDA) is a contract where the employee promises not to share the company’s confidential information with anyone.
• Party Designation: Generally, the person making the promise or undertaking the obligation is the “First Party” (the employee), and the person to whom the promise is made is the “Second Party” (the company). However, the specific numbering is less important than ensuring the roles, responsibilities, and identities of each party are clearly and correctly described in the document’s text.
• Stamp Paper Type: The stamp vendor’s advice was largely correct. An NDU, which doesn’t have a specific category under most stamp acts, is typically executed on a “General Agreement” stamp paper. An Indemnity Bond should be executed on a stamp paper specifically titled “Indemnity Bond.” The value of the stamp paper is crucial and is determined by the respective State’s Stamp Act.
• Review the Content: Before signing, carefully read the entire content of both documents. Ensure the terms are reasonable and not overly restrictive. Pay attention to the duration of the obligations, the definition of “confidential information,” and the conditions under which the indemnity can be invoked.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

Applicable Sections of Law

These situations are primarily governed by civil and contract law:

• The Indian Contract Act, 1872: This is the principal law governing all contracts in India. Section 124 of the Act specifically defines a “contract of indemnity.” The general principles of what constitutes a valid contract (offer, acceptance, consideration, lawful object) are all applicable.
• The Indian Stamp Act, 1899 (or relevant State Stamp Acts): This law dictates the requirement for paying stamp duty on certain instruments or documents. Stamp duty is a state subject, so the exact amount and the specific article number (like “Art. 5 General Agreement”) can vary from one state to another. A document not duly stamped is not admissible as evidence in a court of law.

If you are the complainant

In this context, the complainant would be the company if the employee breaches the agreement.

• Issue a Legal Notice: The first step is to send a formal legal notice to the employee, detailing the breach and demanding compliance or compensation as per the agreement.
• File a Civil Suit: If the notice is ignored, the company can file a civil suit for recovery of damages (under the indemnity bond) or for an injunction and damages (for breach of the NDA).
• Preserve Evidence: The company must collect and preserve all evidence of the breach, such as proof of the employee joining a competitor, evidence of disclosed confidential information, and records of financial loss incurred due to the breach.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

If you are the victim

The “victim” here would be the employee who believes the company is unfairly enforcing the bond or NDA.

• Respond to Legal Notice: If you receive a legal notice from the company, do not ignore it. You must reply to it through a lawyer, refuting the allegations.
• Challenge the Agreement: You can challenge the validity or enforceability of the agreement in court. For instance, service bonds that are excessively long or impose a penalty (rather than reasonable compensation for actual loss) can be struck down by courts as being in restraint of trade.
• Gather Your Evidence: Collect all your employment documents, communication with the company, and any evidence that counters their claims of breach or loss.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

How the police behave in such cases

The police have no role in such matters. A breach of an indemnity bond or a non-disclosure agreement is a civil wrong, not a criminal offense. The police will not register an FIR for a breach of contract. Their involvement would only be warranted if the employee’s actions also constitute a specific criminal offense, such as “criminal breach of trust” under Section 316 of the Bharatiya Nyaya Sanhita (BNS) or theft of data/property. However, the enforcement of the contract itself remains a civil matter to be decided by a civil court.

FAQs people normally have

• Are service indemnity bonds always enforceable in India?
  

  They are enforceable only to the extent of the actual, reasonable loss proven by the employer. Courts generally do not enforce clauses that are penal in nature or act as a deterrent to an employee leaving their job. The bond cannot be used to enforce a state of “bondage.”

  
  
• What happens if the stamp paper is of the wrong value or type?
  

  An improperly stamped document is not admissible as evidence in court. However, the law often allows for the deficit stamp duty to be paid along with a penalty, after which the document can be admitted as evidence. It is always best to use the correct stamp paper from the outset.

  
  
• Can a company stop me from joining another company using an NDA?
  

  An NDA cannot prevent you from taking another job. Its purpose is only to prevent you from disclosing the previous employer’s confidential information. Any clause that unreasonably restricts your right to work elsewhere would likely be held void by a court.

  
  

What evidence is required?

For the company (plaintiff) to enforce the agreement, they would typically require:

• The original, signed Indemnity Bond or NDA on duly stamped paper.
• The employment contract and offer letter.
• Proof that the employee breached the agreement (e.g., resignation letter before the bond period, proof of joining a competitor, emails or testimony showing disclosure of secrets).
• Evidence of the actual financial loss suffered by the company as a direct result of the breach. This is crucial for indemnity claims.

How long will the investigation take?

As this is a civil dispute, there is no police “investigation.” The process is one of litigation in a civil court. A civil suit involves stages like filing the plaint, the defendant filing a written statement, framing of issues, evidence, arguments, and finally, the judgment. This entire process in the Indian judicial system can be lengthy, often taking several years to conclude, depending on the court’s docket and the complexity of the matter.

Advocate Sudhir Rao, Supreme Court of India