LexVIJAYA BANK & ANR. versus PRASHANT B NARNAWARE
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[2025] 6 S.C.R. 240 : 2025 INSC 691 Vijaya Bank & Anr. v. Prashant B Narnaware (Civil Appeal No. 11708 of 2016) 14 May 2025 [Pamidighantam Sri Narasimha and Joymalya Bagchi,* JJ.] Issue for Consideration Matter pertains to whether clause 11(k) of the appointment letter that employee to work for minimum three years and in default to pay Rs 2 lakhs as liquidated damages on leaving employment amounts to restraint of trade u/s.27 of the Contract Act and/or opposed to public policy; and the correctness of order passed by the High Court quashing clause 11(k) of the appointment letter and thus, directing the bank to refund the said sum to the respondent-employee. Headnotes† Contract Act, 1872 – s.27 – Agreement in restraint of trade void – Restrictive covenant in the clause of the appointment letter that employee to work for minimum three years and in default to pay Rs 2 lakhs as liquidated damages on leaving employment – Respondent-employee tendered resignation before completion of three years and paid the sum under protest – Writ petition by the respondent seeking quashing of the clause of the appointment letter – High Court quashed the clause of the appointment letter and thus, directed the bank to refund the said sum to the respondent – Correctness: Held: Restrictive covenant in clause of the appointment letter does not amount to restraint of trade nor is it opposed to public policy – Validity of restrictive covenant in an employment agreement in regard to restraint in exercise of lawful profession, trade or business has to be tested on the touchstone of s.27 – Restrictive covenant operating during the subsistence of an employment contract does not put a clog on the freedom of a contracting party to trade or employment – Object of the restrictive covenant was in furtherance of the employment contract and not to restrain future employment – Hence, it cannot be said to be violative of s.27 – From the prism of employer-employee relationship, technological * Author [2025] 6 S.C.R. 241 Vijaya Bank & Anr. v. Prashant B Narnaware advancements impacting nature and character of work, re-skilling and preservation of scarce specialized workforce in a free market are emerging heads in the public policy domain which need to be factored when terms of employment contract is tested on the anvil of public policy – Public sector undertakings like the appellant-bank needed to compete with efficient private players operating in the same field – Ensuring retention of efficient and experienced staff contributing to managerial skills was one of the tools inalienable to the interest of such undertakings – This prompted the appellant-bank to incorporate a minimum service tenure for employees, to reduce attrition and improve efficiency – Restrictive covenant prescribing minimum term not unconscionable, unfair or unreasonable and thereby in contravention of public policy – Respondent was serving in a senior middle managerial grade having lucrative pay package, quantum of liquidated damages not so high as to render the possibility of resignation illusory – High Court failed to consider the restrictive covenant in its proper perspective – Constitution of India – Arts.14, 19. [Paras 12, 15-16, 24-27, 31, 32, 35, 36] Contract – Standard form employment contracts – Interpretation of – Legal principles – Discussed. [Para 21] Case Law Cited K.Y Venkatesh Kumar v. BEML Ltd., Karnataka HC DB in W.A. No. 2736/2009 disposed on 09.12.2009; Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co [1967] 2 SCR 378 : 1967 SCC OnLine SC 72; Superintendence Company (P) Ltd. v. Krishan Murgai [1980] 3 SCR 1278 : (1981) 2 SCC 246; Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly [1986] 2 SCR 278 : (1986) 3 SCC 156; Haryana Financial Corporation v. Jagdamba Oil Mills [2002] 1 SCR 621 : (2002) 3 SCC 496 – referred to. List of Acts Constitution of India; Contract Act, 1872. List of Keywords Restrictive covenant; Liquidated damages; Resignation before completion of 3 years; Restraint of trade; Clog on the freedom to trade or employment; Restrain future employment; Opposed to public policy; Legal principles relating to interpretation of standard 242 [2025] 6 S.C.R. Supreme Court Reports form employment contracts; Terms of employment contract; Scarce specialized workforce; Public good and policy; Deregulated free-market; Minimum service tenure for employees; Expensive recruitme
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