Supreme Court in Vijaya Bank & Anr. vs. Prashant B Narnaware (CA No. 11708/2016), on May 14, 2025, upheld the enforceability of a clause in the employee’s appointment letter requiring a minimum employment period of 3 years, with a stipulation for liquidated damages of ₹2,00,000/- in case of non-compliance. The Court observed that this clause effectively curtailed the employee’s ability to resign at will, thereby extending the duration of the employment contract for a defined term. It clarified that the objective of such a restrictive covenant was not to restrain future employment prospects, but rather to support the stability and enforceability of the employment arrangement. In view of this purpose, the clause was held not to violate Section 27 of the Indian Contract Act, 1872. Moreover, the Court emphasized that the bank’s inclusion of the minimum service requirement and liquidated damages clause was aimed at curbing attrition, enhancing operational efficiency, and avoiding the high costs and delays associated with premature resignations and repeated recruitment.
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