24 May 2025 Legal Updates

STANDARD FORM EMPLOYMENT CONTRACTS: SUPREME COURT LAYS DOWN PRINCIPLES OF INTERPRETATION

(a) Case Title:

• Vijaya Bank & Anr. v. Prashant B Narnaware

(b) Court:

• Supreme Court of India Civil Appellate Jurisdiction

(c) Date of Decision:

• May 14, 2025

(d) Bench:

• Justice Pamidighantam Sri Narasimha & Justice Joymalya Bagchi

Facts of the Case

Prashant B Narnaware was an employee of Vijaya Bank who joined as Probationary Assistant Manager in 1999. In 2006, the bank issued recruitment notification for 349 officers with a condition requiring selected candidates to execute an indemnity bond of Rs. 2 lakhs. The bond stipulated that employees must serve minimum 3 years, failing which they would pay Rs. 2 lakhs as liquidated damages.

Narnaware applied for promotion to Senior Manager-Cost Accountant, accepted the condition, and signed the appointment letter with Clause 11(k) containing this provision. In 2009, before completing 3 years, Narnaware resigned to join IDBI Bank and paid Rs. 2 lakhs under protest. He then filed a writ petition challenging the validity of this clause.

Legal Issues

The case centered on whether Clause 11(k) was:

• Restraint of trade under Section 27 of Indian Contract Act, 1872
• Opposed to public policy under Section 23 of Indian Contract Act
• Violative of Articles 14 and 19 of the Constitution

Court's Analysis and Decision

On Restraint of Trade (Section 27)

• The Court distinguished between restrictive covenants operating during employment which are generally valid. Restrictive covenants after termination of employment are generally void under Section 27.

Court's Reasoning:

The Court relied on Niranjan Shankar Golikari v. Century Spinning which established that negative covenants during employment period are not restraint of trade. Clause 11(k) imposed restriction during subsistence of employment contract, not after termination of the contract. The restriction was to ensure minimum service period and not to restrain future employment. Hence the same was not violative of Section 27.

1. On Public Policy (Section 23)

• The employee argued that standard form contracts are unreasonable and disproportionate. It leads to unjust enrichment to the employer. The Court observed that standard form contracts with unequal bargaining power can be void if unconscionable, unfair or unreasonable. However, inn the present case, the Court found the clause valid because:

2. Economic Context:

• Post-liberalization, public sector banks needed to compete with private players and retain skilled workforce

3. Legitimate Business Interest:

• Bank invested in recruitment process. Premature resignations caused financial hardship. Need for fresh recruitment drives was expensive and time-consuming. Being a PSU, bank couldn't make ad-hoc appointments

4. Reasonableness Test:

• Rs. 2 lakhs was not disproportionate for a senior manager's salary. The amount didn't make resignation practically impossible (employee actually paid and resigned).

Decision:

The Supreme Court allowed the bank's appeal, holding that Clause 11(k) was neither a restraint of trade nor opposed to public policy. The Court emphasized that in the post-liberalization era, public sector undertakings need reasonable measures to retain skilled workforce to remain competitive.

NO LUNATIC CAN BE CONVICTED AS HE CAN'T EXERCISE RIGHT TO DEFEND UNDER ARTICLE 21 : SUPREME COURT

(a) Case Title:

• Dashrath Patra v. The State of Chhattisgarh

(b) Court:

• Supreme Court of India

(c) Date of Decision:

• May 8, 2025

(d) Bench:

• Justice Abhay S. Oka and Justice Ujjal Bhuyan

FACTS

The incident occurred on 27th September 2018. The Appellant assaulted the deceased with an iron pipe on his head while the deceased was cutting grass in an agricultural field. A witness who was present on the field, fled when the appellant chased him. Appellant was charged with Sections 302 (murder), 352 (assault), and 201 (causing disappearance of evidence) of the Indian Penal Code. The Trial Court convicted the appellant with life imprisonment. The High Court confirmed this decision.

Key Legal Issue

Whether the appellant could claim the defense of insanity under Section 84 of the Indian Penal Code at the time of committing the offense.

Legal Principles Established

1. Burden of Proof for Insanity Defense

The initial burden of proof lies on the accused to prove insanity under Section 84 IPC. The burden of proof here is similar to civil cases and need not be of criminal standards. What is sufficient that there is a ‘reasonable doubt’ of insanity and the same need not be ‘beyond reasonable doubt’.

2. Legal vs. Medical Insanity

The Courts must distinguish between legal insanity and medical insanity. Legal insanity is sufficient; it is not necessary to prove medical insanity. Section 84 IPC protects a person if they were incapable of knowing the nature of the act, OR that the act was wrong or contrary to law.

3. Evidence Required for Insanity Defense:

The accused must produce evidence of:

• Conduct prior to the offense
• Conduct at the time of the offense
• Conduct immediately after the offense
• Medical condition and other relevant factors

4. Prosecution's Duty

When investigation reveals previous history of insanity, the prosecution has a duty to subject the accused to medical examination, and place that evidence before the court. Failure to do so creates a serious infirmity in the prosecution case.

Court's Analysis of Evidence

Multiple prosecution witnesses testified in cross-examination that the appellant had attacks of madness, his mental condition was not good, he was mentally unstable, villagers were aware of his condition, due to mental instability, he used to abuse and fight with villagers.

Critical Prosecution Failure: The prosecution did not seek re-examination of these witnesses or move for medical examination of the appellant during trial.

Supreme Court's Decision

Medical examination conducted in December 2023 (5+ years after the incident) was deemed meaningless. The witness testimonies created more than reasonable doubt about the appellant's mental state. The Benefit of doubt must go to the accused.

Judgment

The Appeal was allowed and the impugned judgment was set aside. The appellant was ordered to be set at liberty forthwith.

S. 11 SARFAESI ACT | DRT CAN'T DECIDE DISPUTES BETWEEN BANKS OVER SECURED ASSETS; MUST BE REFERRED TO ARBITRATION: SUPREME COURT

(a) Case Title:

• Bank of India v. M/S Sri Nangli Rice Mills Pvt. Ltd. & Ors. 

(b) Court:

• Supreme Court of India 

(c) Date of Decision:

• 23rd May 2025 

(d) Bench:

• Justices J.B. Pardiwala and Pankaj Mithal 

Dispute: 

The borrower (M/s Nangli Rice Mills Pvt. Ltd) availed loans from Bank of India and Punjab National Bank (secured creditor), hypothecating/pledging the same stock of rice and paddy as security.  Upon default, both banks claimed priority over the secured assets. 

The Debt Recovery Tribunal (DRT) initially ruled in favor of Bank of India (prior hypothecation), but the Debt Recovery Appellate Tribunal (DRAT) and High Court held that disputes between banks must be resolved via arbitration under Section 11 of the SARFAESI Act, 2002. 

Legal Issues:

• Whether disputes between banks/financial institutions over secured assets fall under Section 11 SARFAESI Act (arbitration) or Section 17 (DRT jurisdiction)? 
• Scope of the term "dispute" under Section 11, especially "non-payment of any amount due." 
• Whether a written arbitration agreement is required for Section 11. 
• Whether Section 11 is mandatory or directory. 

Supreme Court's Analysis:

• 1. Applicability of Section 11 SARFAESI Act:   Section 11 applies to disputes between banks/financial institutions/ARCs/qualified buyers relating to Securitization/reconstruction and Non-payment of dues (including interest). The dispute here (competing claims over security due to borrower’s default) qualifies as "non-payment of dues" under Section 11. 
• 2. No Written Arbitration Agreement Needed:  Section 11 creates a statutory fiction deeming consent to arbitration. No separate agreement is required. 
• 3. Mandatory Nature of Section 11:  The word "shall" in the section makes arbitration compulsory for eligible disputes. DRTs cannot adjudicate inter-creditor disputes. 
• 4. Exclusion of Borrower Disputes:  Section 11 applies only to disputes between lenders (e.g., banks). Borrower-related disputes fall under Section 17 SARFAESI Act. 

Decision:

The Supreme Court upheld the High Court’s decision, directing the banks to resolve their dispute via arbitration under Section 11.  It clarified that SARFAESI Act prioritizes speedy recovery, and inter-creditor disputes must be arbitrated to avoid delays. 

MATERNITY LEAVE PART OF REPRODUCTIVE RIGHTS: SUPREME COURT SETS ASIDE DENIAL OF MATERNITY LEAVE FOR THIRD CHILD

(a) Case Title:

• K. Umadevi v. Government of Tamil Nadu & Ors.

(b) Court:

• Supreme Court of India

(c) Date of Decision:

• May 23, 2025

(d) Bench:

• Justice Abhay S. Oka & Justice Ujjal Bhuyan

Facts

The Appellant Umadevi was a government school teacher in Tamil Nadu. She got married in 2006 and had two children out of wedlock. She got divorced in 2017 and the children stayed with the father. Umadevi married for the second time in 2018 and conceived for the third time. She applied for maternity leave for pregnancy from second marriage but was denied the same.

Legal Issue

Whether a female government employee who has two children from a previous marriage (not in her custody) can be granted maternity leave for her first child from a subsequent marriage?

Government's Position

Tamil Nadu Fundamental Rule 101(a) allows maternity leave only to women with "less than two surviving children". Appellant already has two children, so third child doesn't qualify for such leave. The population control policy supports limiting benefits to two children maximum.

Court's Analysis & Reasoning

1. Constitutional Framework

• Article 21: Right to life includes reproductive rights and dignity of motherhood
• Article 42: State must provide maternity relief as a directive principle
• Article 51: India should respect international treaty obligations

2. International Perspective

The Court extensively examined international conventions:

• Universal Declaration of Human Rights (1948): Motherhood entitled to special care
• CEDAW (1979): Women's right to decide on number and spacing of children
• ILO Maternity Protection Convention (2000): Minimum 14 weeks maternity leave

Key Legal Precedents

• Suchita Srivastava v. Chandigarh Administration: Reproductive rights are part of Article 21
• Deepika Singh v. Central Administrative Tribunal: Biological children from spouse's previous marriage don't affect woman's maternity entitlement for her own biological child

The Court's Reasoning

• Purposive Interpretation: Beneficial legislation should be interpreted liberally
• Custody Factor: "Surviving children" should mean children in the woman's custody
• Biological vs. Step-children: Only biological children from current employment period should be counted
• Harmonizing Objectives: Population control and maternity benefits can coexist

DECISION

The Supreme Court granted maternity leave to the appellant because her 2 children from first marriage are not in her custody. This is her first biological child from her current marriage and during her employment. The Court also recognized reproductive rights are fundamental rights under Article 21 of the Constitution and International conventions support women’s reproductive autonomy.

LEGAL PRINCIPLES ESTABLISHED

Liberal Interpretation: Maternity benefit rules should be interpreted purposively and liberally

Custody Principle: "Surviving children" for maternity benefit purposes means children actually in the woman's care

Employment Context: Only children born during the period of employment should be considered for benefit calculations

Constitutional Protection: Maternity rights are constitutional rights, not mere statutory benefits