The Karnataka High Court has overturned a previous ruling that prohibited the Employees’ State Insurance Corporation (ESIC) and its associated colleges from enforcing a mandatory five-year service bond imposed on medical students. The court clarified that an agreement requiring a minimum service period in exchange for subsidized medical education is not equivalent to human trafficking, forced labor, or other exploitative practices.
A panel comprising Chief Justice Vibhu Bakhru and Justice C M Poonacha granted an appeal from the ESIC, affirming that the ESIC and its colleges are entitled to set fees for educational programs and that the execution of the service bond constitutes part of the terms for receiving education and training.
The appeal was initiated by the ESIC in response to a single-judge ruling issued on February 14, 2020. This prior decision determined that the ESIC lacked the authority under the ESI Act to demand a service bond as a prerequisite for student admission. The single-judge also asserted that mandating service infringes upon citizens’ employment rights guaranteed under Article 19(1)(g) of the Constitution, suggesting that enforcing such bonds is akin to imposing bonded labor, which is prohibited under Article 23.
This ruling stemmed from a petition lodged by Abhishek Choudhari and other students who were admitted to the MBBS program at the ESIC Medical College & PGIMSR in Bengaluru for the 2012-13 academic year under government quota. At the time of their admission, these students signed service bonds committing to work at ESIC hospitals for five years following their graduation, with a penalty of Rs 7,50,000 for non-compliance. After completing their studies, the students sought legal intervention when the ESIC issued their job postings.
In its appeal, the ESIC argued that it possesses the authority to enter into contracts and that the service bond serves to guarantee medical services for ESIC beneficiaries. They contended that the bond represents a voluntary agreement between the students and the ESIC, thus binding the students to its terms.
The division bench noted that the ESIC had initiated medical training programs to enhance the quality of services provided under the ESI scheme, as outlined in Section 59 of the ESI Act, which allows for the establishment and maintenance of hospitals. The court stated, “The establishment and maintenance of hospitals by ESIC would clearly involve entering into agreements with medical professionals and hiring staff for operational purposes. There is no doubt that ESIC is empowered to enter into such contractual agreements.”
The court further remarked that the argument claiming ESIC lacks the authority to require a service bond from MBBS students is untenable. The ESIC’s establishment of the college aims to improve service quality under the Employees’ State Insurance Scheme, thus allowing it to enter into contracts with students for service at its facilities. The bench deemed the single-judge’s conclusions erroneous.
Moreover, the court stressed that signing the bond was a prerequisite for the petitioners’ admission to the institution. “ESIC has financed a significant portion of the education costs. It has funded both the establishment and operational aspects of the College. Clearly, the petitioners cannot assert a right to education without any corresponding obligation to contribute to its cost,” the court stated.
Regarding Article 19(1)(g) of the Constitution, the court indicated that students are not compelled to serve ESIC but can opt to leave after fulfilling the terms outlined in the service bond. This requirement does not constitute a penalty, the court added.
“Undeniably, the amount stipulated would only cover a fraction of the education costs incurred by the students. Therefore, we cannot conclude that the bond’s terms violate Article 19(1)(g) of the Constitution of India. The assertion that executing a service bond as part of receiving subsidized education equates to bonded labor lacks legal foundation,” the bench asserted.
The court also observed that the students had accepted the service bond condition upon admission and had not contested it at that time or soon after. They completed their education under subsidized terms, contingent upon the service bond.
The court concluded, “They (the petitioners) cannot challenge this condition after completing their course and after benefiting from the subsidized education, which might not have been accessible without the service bond. The petitioners cannot now claim ignorance of the bond requirement during the counseling process.”
The students argued that since they were admitted under government-quota seats and had signed a bond for one year of service with the Karnataka Government, the additional five-year service obligation imposed by the college was excessively burdensome and unreasonable.
In light of a 2020 notification from the ESIC reducing the compulsory service duration to one year and lowering the penalty amount to Rs 5,00,000 for failing to serve, the court stated, “We do not find the two-year service requirement or the Rs 5,00,000 payment onerous in any way.”
The court ordered that students unable to fulfill the service requirement must pay Rs 5,00,000 with interest. Additionally, the court instructed students seeking time to join the service to approach the ESIC for further discussion.
