The Supreme Court’s recent decision in Vijaya Bank & Anr. v. Prashant B Narnaware (2025 INSC 691) has reignited a crucial debate about the delicate balance between institutional interests and individual autonomy in India’s employment landscape. While the Hon’ble Court’s reasoning reflects legitimate concerns about public sector efficiency, the judgment raises profound questions about personal liberty and professional mobility in a rapidly evolving job market.
At the heart of this case lies a seemingly straightforward clause: a requirement for bank employees to serve for three years or pay Rs. 2 lakhs as liquidated damages. The Karnataka High Court, recognizing the inherent unfairness of such stipulations, had struck down this provision as unconscionable. However, the Supreme Court’s reversal of this decision merits careful examination, particularly in light of evolving employment dynamics and constitutional values.
The Hon’ble Supreme Court’s judgment hinges significantly on Vijaya Bank’s status as a public sector undertaking. The Court reasoned that PSUs face unique recruitment challenges, including “prolix and expensive recruitment process[es]” necessitated by constitutional mandates under Articles 14 and 16. While these procedural requirements are undoubtedly real, one must respectfully question whether they justify restrictions on individual liberty that would be deemed unacceptable in private employment. This distinction creates an uncomfortable precedent: are public sector employees somehow less entitled to professional mobility than their private sector counterparts? The fundamental right to practice any profession or carry on any occupation, trade, or business under Article 19(1)(g) should not vary based on the employer’s ownership structure.
More troubling still is the potential ripple effect of this judgment. What prevents private sector employers from citing this precedent and demanding similar “rights” to impose liquidated damages? If the Supreme Court validates such clauses for public sector entities based on recruitment costs and efficiency concerns, private companies – which arguably face even higher recruitment expenses through headhunters and competitive packages – could make equally compelling arguments. The judgment opens a Pandora’s box without establishing clear boundaries or exceptions. It fails to address critical questions: What constitutes a reasonable bond period? How should liquidated damages be calculated? What factors should courts consider when evaluating such clauses? This judicial silence creates a dangerous vacuum that could be exploited by employers across sectors.
Perhaps most concerning is the judgment’s apparent disconnect from contemporary employment realities. The Court’s reliance on decades-old precedents like Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co (1967 SCC OnLine SC 72) and Superintendence Company (P) Ltd. v. Krishan Murgai ((1981) 2 SCC 246), while acknowledging that “public policy relates to matters involving public good and public interest” that “varies with time,” seems to overlook how dramatically the employment landscape has transformed since the 1990s liberalization era. Today’s workforce, particularly in specialized fields like banking and finance, operates in a global marketplace where skills are transferable and opportunities transcend organizational boundaries. The judgment’s characterization of job changes as mere “pre-mature resignations” fails to recognize that professional mobility often represents career advancement, skill development, and personal growth – values that should be encouraged, not penalized.
The Court’s treatment of the Rs. 2 lakh penalty deserves particular scrutiny. While acknowledging that the employee was in a “senior middle managerial grade having a lucrative pay package,” the judgment concludes that this amount was “not so high as to render the possibility of resignation illusory.” This reasoning is troubling on multiple levels. First, it essentially validates financial coercion as a legitimate employment practice. Second, it fails to consider that even for well-compensated employees, Rs. 2 lakhs represents a significant sum that could deter legitimate career moves. Most importantly, it sidesteps the fundamental question: should monetary penalties be used to restrict professional mobility at all?
The judgment conspicuously fails to establish any framework for determining reasonable liquidated damages. Should it be based on training costs? Recruitment expenses? Lost productivity? The employee’s salary? Without clear guidelines, employers are essentially given carte blanche to impose arbitrary amounts, creating a scenario ripe for abuse. This judicial abdication leaves employees vulnerable to increasingly onerous bond conditions, potentially creating a class of financially bound workers unable to pursue better opportunities.
The Hon’ble Court’s interpretation of public policy presents a paradox. While correctly noting that public policy “connotes some matter which concerns the public good and the public interest,” the judgment appears to prioritize institutional convenience over individual freedom. Is it truly in the public interest to trap employees in positions where they may be unhappy, unproductive, or unable to realize their potential? The Karnataka High Court’s reliance on Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly ((1986) 3 SCC 156) reflected a more nuanced understanding of public policy – one that recognizes the inherent power imbalance in employment relationships and the need to protect individual autonomy. The Supreme Court’s departure from this principle sets a concerning precedent.
The judgment emphasizes the appellant bank’s need to “reduce attrition and improve efficiency.” However, this reasoning fundamentally misunderstands what drives employee retention in the modern workplace. Attrition is not solved through financial penalties but through positive incentives: competitive compensation, enriching work environments, clear career advancement paths, work-life balance, professional development opportunities, and organizational cultures that value employee well-being. Companies that excel in retention – both in India and globally – do so by making employees want to stay, not by making it financially punitive to leave.
Consider the irony: an employee forced to remain due to financial constraints is likely to be disengaged, potentially resentful, and certainly not performing at their peak. This creates a toxic cycle where the organization retains bodies but loses minds and hearts. Moreover, word of such practices spreads quickly in today’s connected world, potentially deterring top talent from even considering employment with organizations known for such restrictive practices. The very policy meant to ensure efficiency may ultimately undermine it.
While the Hon’ble Court addressed whether the clause violated Section 27 of the Contract Act (restraint of trade), it gave insufficient weight to the broader constitutional implications. The freedom to choose one’s employment, to seek better opportunities, and to shape one’s career trajectory are not merely contractual matters – they are fundamental to human dignity and personal autonomy. The Court’s technical distinction between restraints “during the subsistence of an employment contract” and those operating “after its termination,” drawn from Niranjan Shankar Golikari, may be legally sound but practically meaningless. A financial penalty that effectively prevents resignation operates as a restraint on future employment, regardless of when it is technically imposed.
The judgment’s treatment of the standard form contract issue is particularly disappointing. While acknowledging the principle from Brojo Nath Ganguly that such contracts evidence “unequal bargaining power,” the Court seemingly abandons this concern when faced with public sector employment. The reality that candidates for public sector positions often have limited negotiating power makes these protections more, not less, important. The respondent in this case, despite being an existing employee of the bank, had no real choice but to accept the terms if he wanted the promotion – a classic example of adhesion that deserved more thoughtful consideration.
Most alarmingly, the judgment grants employers virtually unfettered power to impose such conditions without establishing any meaningful checks or balances. There’s no requirement for employers to demonstrate actual losses, no obligation to prove that the damages are a genuine pre-estimate of harm, and no consideration of the employee’s circumstances or reasons for leaving. This creates a regime where employment bonds become tools of control rather than legitimate business protection measures.
The potential for abuse is staggering. What prevents an employer from imposing a five-year bond with Rs. 10 lakh penalty? Or a seven-year bond with Rs. 20 lakh penalty? Without clear judicial guidelines, each employment contract becomes a potential site of exploitation, particularly for younger employees desperate for opportunities in a competitive job market. The judgment effectively sanctions a form of economic bondage that seems antithetical to the values of a free and democratic society.
Furthermore, the judgment fails to consider the broader societal implications of restricted job mobility. Innovation often comes from the cross-pollination of ideas as professionals move between organizations. Start-ups benefit from experienced talent willing to take risks. The economy as a whole gains from efficient allocation of human resources. By validating financial barriers to job mobility, the Court may inadvertently stifle economic dynamism and innovation.
The international context is also worth considering. As India positions itself as a global services hub, our employment practices are increasingly scrutinized by international partners and investors. Restrictive employment bonds are virtually unknown in developed economies, where non-compete clauses are narrow and liquidated damages for resignation are considered exploitative. This judgment risks portraying India as a jurisdiction where worker rights take a back seat to employer convenience – hardly the image we want to project.
Notably absent from the Supreme Court’s analysis is any consideration of contemporary employment law jurisprudence that recognizes the changing nature of work relationships. The judgment fails to engage with the growing body of law recognizing employee welfare as a component of public policy, or with international best practices in employment relations. In an era where even traditional corporate giants are embracing flexible work arrangements and recognizing the value of employee autonomy, this judgment feels anachronistic.
The Karnataka High Court’s approach offered a more balanced framework – one that recognized both institutional needs and individual rights. By declaring the clause unconscionable, it sent a clear message that employment relationships, even in the public sector, must be founded on mutual respect and reasonable terms. The Supreme Court had an opportunity to modernize employment jurisprudence for the 21st century. Instead, it chose a path that prioritizes institutional convenience over individual autonomy, potentially setting back the cause of professional mobility and worker rights.
Perhaps most fundamentally, this judgment raises more questions than it answers. It provides no guidance on what constitutes reasonable bond conditions, no framework for calculating legitimate liquidated damages, no consideration of employee circumstances that might justify waiving such penalties, and no recognition of the power imbalance inherent in employment relationships. Courts across the country are left without clear principles to apply, potentially leading to inconsistent and arbitrary outcomes.
With utmost respect for the Hon’ble Supreme Court, this judgment appears to be an unfortunate departure from progressive employment law principles. It fails to adequately consider the changing nature of work, the importance of professional mobility, and the fundamental rights of employees. As India aspires to become a global economic powerhouse, our legal framework must evolve to support, not hinder, the aspirations of our workforce. Employment bonds that effectively trap workers in positions through financial penalties belong to a bygone era, not a modern, dynamic economy.
The judgment in Vijaya Bank v. Prashant B Narnaware may have resolved a specific dispute, but it has opened larger questions about the direction of Indian employment law. By granting employers broad powers to impose liquidated damages without establishing meaningful safeguards or limitations, it creates a precedent that could fundamentally alter the employment landscape in India – and not for the better. The risk of creating a workforce bound by financial chains rather than professional commitment is real and immediate.
One can only hope that future benches will revisit these issues with a fresh perspective, one that better balances institutional needs with the fundamental rights and aspirations of Indian workers. The Karnataka High Court’s original decision, with its emphasis on fairness and individual autonomy, points the way toward a more equitable future. Until then, this judgment stands as a cautionary tale of what happens when judicial reasoning fails to keep pace with social and economic evolution, potentially condemning a generation of workers to employment relationships characterized more by financial compulsion than professional choice.