Supreme Court Rules on Validity of Employment Bonds: Key Highlights in Vijaya Bank v. Prashant B Narnaware
I. What Happened? The Supreme Court of India recently delivered a significant judgment regarding the enforceability of employment bonds. The matter arose when an employee of Vijaya Bank, Prashant B Narnaware, was required to pay Rs. 2 lakhs to the Bank after resigning before completing the stipulated three-year minimum service period, as per the terms of his appointment. The High Court had earlier invalidated this clause, but the Supreme Court reversed that decision, holding that such contractual provisions are not void for being in restraint of trade. II. Background Under Section 27 of the Indian Contract Act, 1872, any agreement that restrains a person from exercising a lawful profession, trade, or business is generally void, except in limited situations such as the sale of goodwill. The legal issue in this case was whether an employment bond, which requires an employee to serve a minimum period or pay liquidated damages if they resign early, violates this provision or is other...