Lock-In Clauses And Section 27 - The Supreme Court’s Framework In Vijaya Bank (2025)
- IJLLR Journal
- Jan 27
- 1 min read
Yajas Dinesh Singh, B.A. LL.B. (Hons), Jindal Global Law School
ABSTRACT
The enforceability of employment (service) bonds in India has long posed intricate legal questions under the Indian Contract Act and the Constitution. Recent jurisprudence, culminating in Vijaya Bank & Anr. v. Prashant B. Narnaware (2025), affirms that reasonable lock-in clauses are valid. This article analyses Sections 27 and 23 of the Contract Act, 1872 – which void restraints of trade and agreements against “public policy” – in light of the Vijaya Bank ruling. The Supreme Court there underscored the longstanding rule that covenants binding an employee during the subsistence of the contract are not “restraints of trade” within Section 27. Drawing on Niranjan Shankar Golikari v. Century Spinning (1967) and Superintendence Co. v. Murgai (1981), the Court held the 3-year bond (with ₹2 lakhs liquidated damages) enforceable, since it neither barred future employment nor burdened trade rights. On Section 23/public policy and Article 14/19 challenges, the Court applied principles from Central Inland Water Transport Corp. v. Ganguly (1986), treating such bonds as standard-form clauses needing scrutiny but not per se invalid. The Vijaya Bank Court recognized evolving public-interest considerations (e.g. preserving trained personnel, re- skilling) and found the bond reasonably tailored to legitimate banking interests. Thus, provided a bond is reasonable and ancillary to the employer’s business, it will survive Section 27 and Article 19(1)(g). The analysis below explores these doctrines in detail, including reasonableness and liquidated-damage principles, constitutional dimensions of equality and occupational freedom, as well as comparative perspectives. Counterarguments – unequal bargaining and potential coercion – are acknowledged but ultimately framed as policy questions best addressed by nuanced judicial balance.
