Compulsory service bonds for subsidized medical education are enforceable and do not constitute forced labour.

The respondents (petitioners) were MBBS students admitted to the ESIC Medical College, Bengaluru, for the 2012-13 academic year through the State Quota.

At the time of admission, they executed a service bond to serve ESIC hospitals for five years post-completion, failing which they would pay ₹7,50,000/-.

They also executed a separate one-year rural service bond in favor of the State Government.

Upon completing their internship in 2018, the College withheld their certificates and issued posting orders for compulsory service.

The petitioners challenged the legality of the ESIC bonds.

A learned Single Judge quashed the posting orders, holding that ESIC lacked statutory competence to impose such bonds and that they violated Articles 19(1)(g) and 23 of the Constitution.

ESIC appealed this judgment.

During the pendency, ESIC relaxed the bond terms to one year of service or a ₹5,00,000/- penalty.

Section 59-B of the Employees’ State Insurance Act, 1948, which empowers the Corporation to establish medical colleges to improve service quality.

Association of Medical Superspecialty Aspirants and Residents v. Union of India (2019) 8 SCC 607, which established that service bonds for subsidized medical education are a "composite package" and do not violate Article 19(1)(g) or Article 23.

Section 27 of the Indian Contract Act, 1872, noting that reasonable negative covenants during the term of an agreement are not in restraint of trade.

Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd.

The Division Bench disagreed with the Single Judge, ruling that Section 59-B, read with Sections 19 and 59, provides ESIC with the implied power to enter into contractual service bonds to ensure a pool of doctors for its hospitals, which is an objective of the Act.

The court found the bond to be a valid contract because the petitioners accepted admission contingent upon it; thus, it served as consideration for highly subsidized education.

Regarding constitutional rights, the court reasoned that since students can opt-out by paying liquidated damages (compensation for education costs), it does not constitute "forced labour" under Article 23.

Following Association of Medical Superspecialty Aspirants, the court held that such bonds are reasonable restrictions under Article 19(6).

The court emphasized that the petitioners, having availed the benefits of subsidized education for five and a half years without timely challenge, were now estopped from questioning the consideration (the bond) after completion.

(i) ESIC is competent to enforce the bonds; (ii) the bonds do not violate the Constitution or the Contract Act.

(iii) the petitioners are bound by the relaxed terms (one-year service or ₹5,00,000/- payment).

The court directed ESIC to consider requests for deferment of service for students pursuing further qualifications and to place them in positions commensurate with their experience.