Service Bond For Subsidised MBBS Education Not Forced Labour Or Trafficking: Karnataka High Court Allows ESIC Appeal
The Bench held that students accepted the admission and executed bonds as a “composite package”, and cannot later deny their obligations.
The Karnataka High Court has set aside a Single Judge-Bench order that had quashed the five-year compulsory service bonds executed by MBBS students at the time of admission to Employees' State Insurance Corporation (ESIC) medical colleges. The Court further held that the agreement to serve a minimum period, as consideration for having received subsidised medical education and being trained, cannot be equated with human trafficking or forced labour under Article 23(1) of the Constitution of India.
The Division Bench held that the establishment of medical colleges by ESIC under Section 59-B of the Employees’ State Insurance Act, 1948, is fundamentally an aid to providing medical services to insured persons, thereby empowering the Corporation to enter into contractual agreements requiring students to serve in its hospitals. The Court further noted that the students had accepted the admission and executed the bonds without protest, making it a "composite package" they could not later challenge after completing the course.
Chief Justice Vibhu Bakhru and Justice C.M. Poonacha, in an intra-court appeal filed by the ESIC against six MBBS students who had challenged their posting orders issued in 2018, observed, “…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 be 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”.
Advocate Geetha Devi M.P. appeared for the appellants and Advocate Akkamahadevi Hiremath appeared for the respondent.
The respondents were MBBS students admitted to the ESIC Medical College, Bengaluru, for the academic year 2012-13 under the State Government quota.
At the time of admission, they executed bonds undertaking to serve in ESIC hospitals for five years post-completion of their course, failing which they would be liable to pay ₹7.5 lakhs. After completing their internship in 2018, the College withheld their original certificates, insisting on the fulfillment of the bond. Subsequently, the ESIC issued posting orders deploying them as Junior Residents across various states.
Aggrieved by the posting orders and the withholding of documents, the students approached the High Court. On February 14, 2020, a learned Single Judge allowed their writ petitions, quashing the posting orders and restraining ESIC from enforcing the bonds.
The Single Judge reasoned that ESIC lacked the statutory competence to prescribe compulsory service and that such bonds violated fundamental rights and amounted to "bonded labour". ESIC challenged this decision in the present appeal.
However, the Division Bench rejected the finding that ESIC lacked the power to insist on bonds. It noted that Section 59-B was specifically introduced to improve the quality of services under the ESI Scheme by creating a pool of doctors.
“Since ESIC established the College to improve the quality of services provided under the Employees' State Insurance Scheme, it is apparent that it could enter into contractual agreements with students to render services at its hospitals. This is clearly in aid of its object…A conjoint reading of Sections 59 and 59B of the ESI Act clearly indicates that the establishment of medical colleges is not an end in itself but an aid in the provision of services under the Employees' State Insurance Scheme, which may be through the hospitals and medical institutions established and maintained by ESIC”.
The Bench even noted that “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…”.
Citing the Supreme Court’s decision in Association of Medical Superspecialty Aspirants and Residents and others v. Union of India and others (2019) 8 SCC 607, the Bench held that such bonds do not violate Article 19(1)(g) (right to profession) or Article 23 (prohibition of forced labour) of the Constitution.
While upholding the legality of the bonds, the Court took note of a 2020 ESIC Memorandum which had voluntarily reduced the compulsory service period from five years to one year and the penalty to ₹5 lakhs.
Consequently, the Court allowed the appeal, directing that the service obligation for the respondents be limited to one year as per the relaxed terms. Students unable to join are required to pay the reduced bond amount of ₹5 lakhs with interest.
Cause Title: Employees' State Insurance Corporation & Anr. v. Abhishek Choudhari & Ors. WA No. 312 of 2020
Appearances:
Appellants: Geetha Devi M.P., Advocate.
Respondents: Akkamahadevi Hiremath, K.S. Harish, GA, N.K. Ramesh, Ratna Shivayogimatt, N. Khetty, Advocates.