15 May 2025 Legal Updates

'EMPLOYMENT BOND VALID, DOESN'T VIOLATE S.27 CONTRACT ACT': SUPREME COURT UPHOLDS RS 2 LAKH PENALTY FOR PREMATURE RESIGNATION

(a) Case title:

• Vijaya Bank & Anr. vs. Prashant B Narnaware

(b) Court:

• Supreme Court of India

(c) Date of Decision:

• May 14, 2025

(d) Bench:

• Justice Pamidighantam Sri Narasimha and Justice Joymalya Bagchi

Facts

Prashant Narnaware joined Vijaya Bank as a Probationary Assistant Manager in 1999 and was later promoted. In 2007, he applied for and was appointed as Senior Manager-Cost Accountant, agreeing to a condition requiring him to: Serve the bank for a minimum of 3 years, pay Rs. 2 lakhs as liquidated damages if he resigned before completing this period.

He resigned before completing 3 years to join IDBI Bank and paid Rs. 2 lakhs under protest. He then filed a writ petition challenging the clause as violative of Articles 14 and 19(1)(g) of the Constitution and Sections 23 and 27 of the Indian Contract Act.

Issues

• Whether the minimum service clause amounts to restraint of trade under Section 27 of the Contract Act
• Whether the clause is opposed to public policy and thereby contrary to Section 23 of the Contract Act

Court's Analysis and Reasoning

1. On Restraint of Trade:

• The Court distinguished between restrictive covenants operating during employment and after termination.
• Citing Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. (1967), the Court held that negative covenants operating during employment are generally not considered restraint of trade.
• The clause merely imposed a minimum term of service and liquidated damages for early departure, without restricting future employment.

2. On Public Policy:

While acknowledging that public policy evolves with time, the Court considered:

• The competitive market scenario post-liberalization
• The need for public sector banks to retain skilled employees
• The expensive and time-consuming recruitment process for public sector undertakings

The Court found the liquidated damages of Rs. 2 lakhs reasonable given the senior managerial position of the respondent and the financial impact of premature resignations on the bank

Key Legal Principles Established

• Restrictive covenants operating during employment don't constitute restraint of trade unless unconscionable or excessively harsh.
• In standard form employment contracts, there is prima facie unequal bargaining power. The burden to prove a restrictive covenant is not against public policy lies with the employer
• Public policy evolves with time and must consider contemporary economic realities.

Judgment

The Supreme Court allowed the bank's appeal, finding that the restrictive covenant was neither in restraint of trade nor opposed to public policy.

DOWRY DEATH- MERE SUSPICION OF EXTRAMARITAL AFFAIR NOT ENOUGH FOR ABETMENT OF SUICIDE: DELHI HIGH COURT

(a) Case title:

• Anshul v. The State of NCT of Delhi Through SHO PS Geeta Colony

(b) Court:

• High Court of Delhi at New Delhi

(c) Date of Decision:

• May 13, 2025

(d) Bench:

• Hon'ble Mr. Justice Sanjeev Narula (Single Judge Bench)

Facts

• The case involves an application for regular bail under Section 483 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (formerly Section 439 of CrPC) in connection with FIR registered under Sections 498A, 304B, and 34 of the IPC.
• The deceased, Shivani Singh, was found hanging on March 18, 2024, within five years of her marriage to the applicant (married on November 8, 2019).
• The prosecution alleged that the applicant was having an extramarital affair with a colleague named Sarita and the applicant physically abused the deceased when he was confronted. The applicant pressured the deceased to get car EMI payments from her family. The deceased had called her father on the night of her death regarding this pressure that she was being subjected to.
• Evidence included video recordings allegedly showing physical assault and the extramarital relationship, along with statements from the deceased's family members.

Legal Issues

• Whether the ingredients of Section 304B IPC (dowry death) were prima facie established
• Whether the alternative charge under Section 306 IPC (abetment of suicide) was sustainable
• Whether the applicant deserved bail considering the circumstances and evidence

Court's Analysis

1. On Section 304B IPC (Dowry Death)

The court examined the four essential ingredients for Section 304B as established in Rajinder Singh v. State of Punjab (2015):

• Death under unnatural circumstances
• Death within seven years of marriage
• Cruelty/harassment soon before death
• Such cruelty/harassment connected to dowry demands

While the first two conditions were met, the court found the evidence for dowry-related harassment "soon before death" to be prima facie inconclusive because:

• No contemporaneous complaints were made during the deceased's lifetime
• EMIs for the car were verified to have been paid by the applicant himself
• The video showing alleged abuse was over a year old

2. On Extramarital Relationship and Section 306 IPC

The court, citing K.V. Prakash Babu v. State of Karnataka (2017) and Parul v. State (NCT of Delhi) (2023), held that an extramarital relationship per se does not constitute cruelty under Section 498A or abetment under Section 306

• Such relationship must be shown to have been pursued with the intent to harass or torment the deceased
• There must be a discernible act of instigation or provocation linked to the suicide

Decision

The court granted bail to the applicant on the following grounds.

WHEN DECIDING APPLICATION FOR APPOINTMENT OF ARBITRATOR, COURT CANNOT EXAMINE WHETHER CLAIM IS BARRED BY RES JUDICATA: DELHI HIGH COURT

(a) Case title:

• Hindustan Construction Company Ltd. vs. Indian Strategic Petroleum Reserves Ltd.

(b) Court:

• High Court of Delhi at New Delhi

(c) Date of Decision:

• May 7, 2025

(d) Bench:

• Hon'ble Ms. Justice Jyoti Singh

Background

• The Petitioner was awarded a contract worth Rs. 374,65,80,000/- by the Respondent in December 2009 for civil works for underground rock caverns for strategic storage of crude oil in Karnataka.
• Disputes arose between the parties, leading to arbitration in 2017.
• The original arbitration resulted in an award of Rs. 35,99,86,464/- plus 9% interest in favor of the Petitioner.
• Both parties challenged the award in separate petitions.
• On August 2, 2024, by mutual consent, the court set aside the award and disposed of the petitions.
• The Petitioner subsequently sought fresh arbitration, which the Respondent refused.

Key Legal Issue

Whether the court, while considering a petition under Section 11 of the Arbitration Act, can examine if claims are barred by res judicata (a legal principle preventing the same matter from being litigated again).

Court's Decision

1. The court allowed the petition and appointed Justice Swatanter Kumar, former Supreme Court Judge, as the Sole Arbitrator.

2. The court held that in proceedings under Section 11, it cannot examine whether claims are barred by res judicata.

3. Following the Supreme Court's ruling in Indian Oil Corporation Limited vs. SPS Engineering Limited (2011), the court affirmed that:

• The arbitral tribunal, not the referring court, should determine whether claims are barred by res judicata
• Section 11 proceedings are limited to examining the existence of an arbitration agreement and whether the petition is time-barred
• There can be no "threshold consideration" of res judicata at the appointment stage

Decision

The court left the question of res judicata open for the appointed arbitrator to decide in accordance with law, without expressing any opinion on the merits of the case.