Nirmala (SSS) 11 October 2012

Bank gurantee between employer and management trainee

Our company engage MT & JMTs every year. Trainee have to undergo one year training programme which is very structured with regular performance monitoring through periodic evaluation. The trainee has to enter into an agreement to serve the company for a minimum period 3 years including training period. On breech of contract by trainee or in case of termination of trainee on account of poor performance, misconduct or any other valid reason, the trainee has to submit One lakh rupee. At present we sign a legal document and a security deposit is deducted from stipend every month. Security deposit is refunded with bank interest on completion of bond period. On breech of contract it is forfeited.

With such conditions, for better recovery from defaulters and to retain the manpower,our company is thinking to have either of the below two option:

1. Bank Gurantee between employer and Traine of Rs one Lakh

2. PD cheque of Rs one lakh

Can somebody suggest which option is better. merits and demerits of both the option. Which option has less legal complications?

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4 Replies

Prasun Chandra Das (Banker) 11 October 2012

I am of the firm opinion that a Bank Guarantee (BG) is infinitely better than a post dated chq PDC.

Actually, a BG cannot be between the employer and the trainee, The BG will be issued by a bank, on behalf of the trainee, in favour of the the employer. It is easiest to invoke a BG - just write a letter to the Bank demanding payment within x no.of days, and the Bank is bound to pay, within x no.of days, without even considering the merits or legality of your invocation claim. Consult a lawyer to draft a water-tight BG.

On the other hand, there is no guarantee that a PDC, when presented for payment, will get passed, Then you are left with options like sec 138. But, if the PDC is a security chq, sec 138 does not apply. Proceedings in courts take a long time, and you may lose the case on technical and other grounds. Please see the posts in Forum>Criminal Law>Cheques and Forum>Business Law>Banking - you will understand the practical difficulties in winnigna sec 138 case.

The only thing that you will lose if you decide in favour of a BG is that you as an employer may lose out on a no.of talented but poor staff. Such BGs will be issued against 100% cash margin by banks, which mean that the trainees will have to furnish Rs.1 lac FD to the Bank, on the basis of which the bank will issue a Rs.1 lac BG. Trainees from poor families may not be able to furnish Rs.1 lac FD to the bank and so will not join your Co.

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Nirmala (SSS) 12 October 2012

Sir,

Thanks for valuable suggestion. I need few points o be cleared. Can bank gurantee be claimed in case employee is termination of trainee by the Management . Can trainee hold the bank for stop payment or hold BG in any case?

Rgds

Nirmala

Kumar Doab (FIN) 12 October 2012

"Can trainee hold the bank for stop payment or hold BG in any case?"

Yes, trainee can.This may crop up as an event to contest the entire contract as well.

However for all deductions,BG,PDC, stop payment etc you have mentioned, the entire contract should be carefully studied.

If possible you may attch it.Yu may erase the names etc to maintain the confidentiality.

Nirmala (SSS) 13 October 2012

Mr Doad,

Thanks for remarks. Like i said , at present our company execute an agreement with the trainee to serve the company for three years else trainee has to deposit one Lakh. We also terminate trainee, in case, his performace is very week during one year training programme. Every year more 100 trainees are inducted and extensive one year training is provided. Few of them leave in between for better oppurtunity or for higher studies. The agreement is not serving our problem

To restrict such exodus, the option of PDC or bank gurantee is being considered. Contract has not yet been prepared since better option and its viability is being explored with this forum. Conditions attached with BG and PDC is required. Important enclosures and precautions to be taken while preparing the contract may be advised.