Vijaya Bank & Anr. Vs Prashant B Narnaware (Supreme Court of India)
New Delhi, India – The Supreme Court of India has overturned a High Court decision, affirming the validity of a clause in an appointment letter issued by Vijaya Bank. The clause required an employee, Prashant B Narnaware, to pay ₹2 lakhs in liquidated damages if he resigned before completing a three-year minimum service period. The High Court had previously quashed this condition, deeming it a restraint of trade and against public policy, and directed the bank to refund the amount paid by the employee.
The employee, who joined as a Probationary Assistant Manager in 1999 and was later promoted, applied for a Senior Manager position in 2007, accepting the condition to serve for three years or pay the stipulated amount. He subsequently resigned in 2009 to join another bank, paying the ₹2 lakh under protest. He then challenged the clause, citing violations of Articles 14 and 19(1)(g) of the Constitution and Sections 23 and 27 of the Indian Contract Act, 1872.
The Supreme Court, referencing precedents like Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. and Superintendence Company (P) Ltd. v. Krishan Murgai, held that restrictive covenants operating during the subsistence of an employment contract are generally not considered a restraint of trade under Section 27. The Court found the clause aimed to further the employment contract, not to restrain future employment. Addressing the public policy argument, the Court considered the evolving nature of public policy and the specific needs of public sector undertakings like Vijaya Bank to retain skilled staff and manage costly, time-consuming recruitment processes. Citing Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, the Court acknowledged unequal bargaining power in standard contracts but concluded that the ₹2 lakh quantum was not unconscionable or disproportionate for a senior managerial role, especially given the employee’s ability to pay and subsequent resignation. The Court distinguished the High Court’s reliance on Y Venkatesh Kumar v. BEML Ltd., noting that case involved a broader restriction on future employability and did not account for the financial hardships faced by public sector banks due to premature resignations. Consequently, the Supreme Court ruled that the clause was neither a restraint of trade nor against public policy, allowing the bank’s appeal.
