Supreme Court Backs Enforceability of Bond Clauses in Employment Agreements: Vijaya Bank & Anr. v. Prashant B. Narnaware

In Vijaya Bank v. Prashant B. Narnaware , the Supreme Court of India upheld the validity of employment bond clauses requiring employees to serve a minimum tenure or pay damages for early exit, holding that such clauses are not a restraint of trade under Section 27 of the Indian Contract Act, 1872 (“Contract Act”) if they operate only during the period of employment and are fair, reasonable, and proportionate. The Hon’ble Supreme Court rejected the view that bonds in standard-form contracts are per se against public policy, noting that they can legitimately protect employers’ interests in retaining skilled personnel in competitive markets. On the facts, a three-year service bond with a INR 2 lakh indemnity was upheld, particularly as the employee was a senior, well-paid manager and the amount was not unconscionable or excessive, reinforcing that enforceability will depend on the reasonableness of the clause and the surrounding circumstances.

(To get more insights on this judgement, please read our Article published here.)

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