SC Holds that Employment Bonds, Prohibiting Premature Resignation and for Payment of Liquidated Damages in Case of Breach, are Not Violative of Section 27 of Contract Act

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Jul 29, 2025

SC Holds that Employment Bonds, Prohibiting Premature Resignation and for Payment of Liquidated Damages in Case of Breach, are Not Violative of Section 27 of Contract Act

The SC in Vijaya Bank & Another v. Prashant B. Narnaware,^[1] held that a contractual clause imposing a restriction on an employee’s option to resign by subjecting the employee to pay liquidated damages in the event of premature resignation was not violative of Section 27 of the Indian Contract Act, 1872 (‘Contract Act’). The SC further held that a restrictive covenant prescribing a minimum tenure is not unconscionable, unfair or unreasonable, and not opposed to public policy.

[1] Vijaya Bank & Another v. Prashant B. Narnaware, 2025 SCC OnLine SC 1107.

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