1 articles · Updated · Live Law - Indian Legal News · Jul 31
Summary
A Supreme Court reading of Indian contract law says employment bonds and negative covenants can be enforceable during service, highlighted by a Vijaya Bank clause requiring Rs 2 lakh from employees who quit before 3 years.
The court treated that restriction as protection against premature resignations and costly repeat hiring—not a restraint of trade under Section 27—because it operated only while the contract remained in force.
A 5-year exclusive-service covenant in Niranjan Shankar Golikari similarly survived, while post-employment restraints were described as generally void under Section 27 once the job ends.
Even clauses outside Section 27 can still fail under Section 23 if they are unconscionable, unreasonable or against public policy, especially given employees' weaker bargaining power in standard-form contracts.
The report also notes arbitration limits in employment disputes, citing a ruling that wage and termination claims under statutory labor laws are non-arbitrable.