Bond Clause in Employment Contract Valid Not a Restraint of Trade U/S 27 of Indian Contract Act: Supreme Court

The Supreme Court has upheld the validity of an employment bond clause, allowing Vijaya Bank to recover ₹2 lakh from an employee who resigned before completing the mandatory three-year service period. 

The Court ruled that exclusivity clauses requiring minimum service are legally valid and do not violate Section 27 of the Indian Contract Act, 1872, as they apply during employment and not after termination.

The Court emphasized that such bonds help public sector banks retain skilled employees in a competitive environment.

This decision came in a writ petition, where the Karnataka High Court had quashed the bank’s policy, citing Section 27 and calling it a "restraint of trade."