Medicos cannot challenge bond service after availing subsidised MBBS education: Karnataka HC

Bengaluru: In the matter of MBBS bond service, the Karnataka High Court recently observed that the medicos cannot be permitted to challenge the obligation after completion of the entire course and after having availed the corresponding benefit of education at subsidised costs, which may not have been available to them, if they had not furnished the service bond.

It noted that MBBS students who agreed to compulsory service bonds at the time of admission cannot avoid their obligations after availing subsidised education and training, and such bonds cannot be treated as forced labour or exploitation. The Court also observed that there is no compulsion on a student to serve a bond, as they are free to pay the agreed fine under the bond.

Based on this, the Court allowed the appeal filed by Employees’ State Insurance Corporation (ESIC), on mandatory service in its medical institutes, which had challenged the Single Judge’s order quashing the posting orders against the students, restraining enforcement of the service bonds, which was relaxed from 5 years to one year.

The period of compulsory service was reduced from five years to one year pursuant to the ESIC memorandum dated 28.07.2020, and if the students fail to render this one-year service, ESIC has fixed the liquidated damages at Rs 5 lakh. The said memorandum was issued after the pronouncement of the impugned Single Judge’s order in this case.

Holding that 5-year bond, later converted into a 1-year mandate prospectively from 2020, wouldn't violate the rights of MBBS students under Article 19(1)(g) [Right to practise a profession of choice] or Article 23 [prohibition against bonded labour], Division Bench of Chief Justice Vibhu Bakhru and Justice C.M Poonacha observed, 

"The conclusion that executing a service bond as a part of availing education for subsidised rate is bonded labour is without any basis in law. It is common for students to avail themselves of study loans to defer the cost of education."

Setting aside the single-judge's order that had done away with the compulsory service bonds for medical students and rejecting the single bench reasoning, the division bench said, "Once it is accepted that execution of the service bond is an integral part of the consideration for the education provided to the petitioners, it cannot be stated that availing of the educational services/training unreservedly over a period of over five and a half years to challenge the consideration for the same is a mere technical plea." 

The bench also held that "Since the petitioners had accepted the bond condition at the time of admission and did not challenge it then or soon after, they cannot question it later after completing the course."

Background

The petitioners are students who were admitted to the MBBS course at the ESIC Medical College & PGIMSR, Rajajinagar, Bengaluru, for the academic year 2012-13, in the Government quota seats allotted by the Karnataka Examinations Authority (KEA). 

They had executed service bonds at the time of admission to serve five years at any of the ESIC hospitals across the country, and on failure to do so, are liable to pay an amount of Rs 7,50,000/-.

Later, the bond terms of the service bond were subsequently relaxed under the Memorandum dated 28.07.2020 issued by ESIC; the duration of the compulsory service was reduced to one year, and the amount payable on avoiding the bond was reduced to Rs 5,00,000/-. The terms were applied prospectively, i.e., effective from 28.07.2020. Therefore, the benefit was also extended to students who were already serving in ESIC hospitals under the bonds they had executed. Accordingly, if the remaining bond period exceeded one year, it was reduced and capped at one year.

The petitioners completed their 4.5-year MBBS course and a 1-year compulsory internship at the teaching hospital by January 2018. Thereafter, the petitioners were required to register with the Karnataka Medical Council, for which the College was required to issue the Certificate of Internship, Study Certificate, and Conduct Certificate. As a result, the petitioners approached the Dean of the College requesting the issuance of the said certificates. However, the College refused to issue the certificates and directed the petitioners to serve in ESIC hospitals as per the service bond.

On 22.05.2018, the petitioners, along with similarly placed students, submitted a joint representation to the College Dean seeking the release of their original documents required for registration with KMC. 

Subsequently, on 03.07.2018, ESIC issued posting orders deploying the petitioners and other MBBS graduates to various ESIC hospitals across the country as Junior Residents under the ESIC Residency Scheme to fulfil the five-year service bond, directing them to join within seven days.

However, the petitioners challenged the legality of the service bonds on several fronts. First, they contended that ESIC is not competent to prescribe any condition for personal service as it is beyond the powers conferred under the Employees’ State Insurance Act, 1948, Second, the College does not have any power to enter into a contract providing for a service bond. Third, the requirement of rendering compulsory services offends the right to carry on a profession guaranteed under Article 19(1)(g) of the Constitution of India. 

Fourth, it violates the provisions of Article 23 of the Constitution of India, as it amounts to Bonded Labour. Fifth, that the service bond is void under Section 27 of the Indian Contract Act 1872. And sixth, the petitioners were compelled to execute the service bond, and the same, being without free consent, is void. 

They claim that the condition for executing the service bond was not made known to them prior to their opting for admission to the college. Additionally, the petitioners claim that, since they had already executed bonds to serve the State, no additional condition could be imposed on them. 

Aggrieved by these posting orders and the enforcement of the service bond, the petitioners filed a writ petition before the single bench of this Court in July 2018.

After going through the matter, the learned Single Judge allowed the writ petitions by the impugned order and quashed the impugned posting orders; restrained ESIC and its colleges from enforcing the five year service bond against the petitioners; and directed the ESIC to relieve the petitioners from the obligation of compulsory service. 

The Corporation, being aggrieved by the aforesaid order, has filed the present appeal. 

Court's Observation

Referring to the contention that the ESI Act or Rules must provide a specific power to enter into a particular kind of contractual agreement, which entails a student providing a service bond, the Court found no merit in this argument. It observed, "ESIC is fully empowered to enter into contractual arrangements. The petitioners' admission to the College is also a contractual arrangement under which medical education and training is imparted to the petitioners. In consideration of the same, the students are obligated to pay the fees as fixed, as well as to serve ESIC hospitals for a period as agreed in terms of the Service Bond," 

The Court further held that the learned Single Judge erred in concluding that ESIC lacked the authority to impose such a bond and that the bond was not a valid contract. This conclusion, based on the absence of proof that the Dean was authorised to execute the bond on behalf of ESIC, was found to be flawed.

Emphasising that execution of the bond was a condition of admission, the Court observed that “there is no ground to accept that the bond was not an agreement between the parties."

Clarifying that there is no compulsion for a student to necessarily serve ESIC, as they are free to pay the agreed amount under the bond, the bench said, 

"It is necessary to note that there is no compulsion for a student to necessarily serve ESIC. However, it is always open for the students to pay the amount as agreed under the service bond. We may note that there is no allegation that a sum of `7,50,000/-, which is mentioned in the bond, is in the nature of a penalty or in terrorem. Undisputedly, the said amount would barely cover the costs of education availed by the students. Thus, we are unable to accept that the terms of the bond violate Article 19(1)(g) of the Constitution of India."

Referring to the Sub-Article (1) of Article 23 of the Constitution raised by the petitioners, which indicates that it prohibits traffic in human beings and forced labour, and other forms of exploitation, the Court held, 

"The conclusion that executing a service bond as a part of availing education for subsidised rate is bonded labour is without any basis in law. It is common for students to avail themselves of study loans to defer the cost of education. They cannot be heard to state that their obligation to repay the loan after attaining the qualifications is bonded labour, even though a substantial part of their income may used to service the student loan. The agreement to serve a minimum period, as consideration for having received subsidised medical education and being trained, cannot be conflated with human trafficking, forced labour and other kinds of exploitation."

In view of the above, the Court held that "we are unable to accept that the petitioners are not liable to perform the bond executed by them."

Regarding the petitioner's argument that since they had already executed a one-year bond with the State, imposing an additional five-year service was excessive; that they were unaware of such a condition at admission and that the college could not impose extra terms after surrendering seats to the State, the court said, 

"As noticed at the outset, ESIC had reduced the requirement for rendering compulsory service to only one year, and it had further reduced the amount payable by the students, if they failed to render the said service to `5,00,000/-. Thus, even if the service required to be rendered by the petitioners to the State Government is taken into consideration, the total period of compulsory service is now confined to only two years. We are unable to accept that the period of two years’ compulsory service or the payment of Rs 5,00,000/- in lieu thereof is in any way onerous, as contended."

Further, the court said, 

"We may also note that ESIC had, during the proceedings in the writ petition, readily accepted that the period of compulsory service with the State be reduced from the term of five years as stipulated under the bond. This period is further reduced to one year prospectively from the date of the memorandum, that is, from 28.07.2020. Thus, in the case of the petitioners, they are required to serve only one year with the ESIC hospitals as of that date."

Holding that the said issue may not be of much significant, the Court said, "there is no dispute that the petitioners were called upon to furnish the service bond at the material time, and there is no dispute that at the time of the admission, they had done so. Thus, concededly, they had taken admission to the college on furnishing the service bond as required. They had not challenged the same either at the time of taking admission or immediately thereafter.  More importantly, the petitioners had undergone the course at subsidised costs on the basis of a compulsory bond. Plainly, they cannot be permitted to challenge the same after completion of the entire course and after having availed the corresponding benefit of education at subsidized costs, which may not have been available to them, if they had not furnished the service bond. The petitioners cannot now be heard to make a grievance of not being aware of the condition of furnishing a bond at the time of counselling."

The Court further held, 

"The contention that the ESIC could not impose a condition of service, as the petitioners were admitted against seats released to the State Government, is also not persuasive. ESIC/College is entitled to fix the fees for providing the course and, as noted above, execution of the service bond is a part of the consideration for provision of education and training."

Accordingly, the Court allowed the appeal and set aside the impugned order. It observed that petitioners who are unable to join the ESIC service would be required to pay the reduced bond amount of Rs 5,00,000 with interest. Those seeking time to join may approach ESIC, which should consider such requests sympathetically, including deferment in appropriate cases.

Insofar as those petitioners who are willing to render the service (which is now confined to a period of one year), ESIC is at liberty to avail the services of those petitioners at any of the ESIC hospitals. However, ESIC would also consider placing the petitioners in positions commensurate with their experience and further qualifications, the court added.

To view the court order, click on the link below: 

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