J&K High Court Declares Grameen Bank's ₹2 Lakh Indemnity Bond Condition For New Appointees Void For Violating Banking Regulations

The court ruled that the condition, which mandated new appointees to execute an indemnity bond of ₹2,00,000 and allowed its encashment upon premature resignation, was not only unauthorized under the Regional Rural Bank Regulations 2010 but also contrary to principles of fairness and public policy.

“Having regard to the said statutory nature of the Regulations of 2010, a bare perusal of the said Regulations of 2010 reveal that no condition or requirement of execution of an indemnity bond by a new appointee in service of the respondent bank pledged in the name of the respondent bank and its encashment by respondent bank in the event of abandonment of the services by an employee is contained therein”, observed Justice Javed Iqbal Wani.

In the instant case petitioner, Aaqib Rashid Sofi, was appointed as a General Banking Officer (Scale-II) in March 2021 through a competitive recruitment process by JKGB. Along with his appointment, he was required to adhere to multiple conditions, including furnishing an indemnity bond of ₹2,00,000. The bond stipulated that the amount would be encashed by the bank if the appointee resigned before completing two years of service. Despite having reservations, Sofi, constrained by limited employment opportunities, accepted the conditions and joined the bank.

In 2023, the petitioner secured employment with Ellaquai Dehati Bank for the same position and subsequently tendered his resignation from JKGB after serving a prior notice. The bank, however, encashed the indemnity bond without notifying him, prompting the petitioner to challenge the validity of this clause before the High Court.

Before the High Court the petitioner argued that the indemnity bond condition was arbitrary, unauthorized under the Regional Rural Bank Regulations, and violative of his constitutional rights to seek better employment opportunities.

Delving into the legal framework governing the respondent bank and the indemnity bond condition Justice Wani began by referencing the Regional Rural Bank Regulations 2010, which were framed under Section 30 of the Regional Rural Banks Act, 1976. These regulations form the statutory basis for the service conditions of employees in regional rural banks, the court stated.

The court emphasized that the regulations neither mandate nor permit the inclusion of an indemnity bond as a condition for employment. Instead, Regulation 30 specifically requires employees to serve a notice period of one month before resignation or pay an amount equivalent to the notice period salary in lieu thereof.

Finding the indemnity clause to be legally untenable Justice Wani noted that imposing a condition not rooted in the statutory framework renders it unenforceable. The absence of any provision for such a bond within the regulations signified that the respondent bank had acted beyond its authority, the court maintained.

The court further underscored that the imposition of this condition was also inconsistent with Section 23 of the Indian Contract Act, 1872 observing,

“Thus, the condition incorporated in the appointment order dated 05.03.2021 qua execution of indemnity bond is beyond the realm of Regulation 2010, rendering the said condition legally untenable and unenforceable, otherwise also in presence of Section 23 of the Contract Act of 1872”

Additionally, Justice Wani remarked that the bond condition placed an unfair and undue burden on the petitioner, who was not in an equal bargaining position with the bank at the time of his appointment. The court relied on established precedents, such as Central Inland Water Transport Corporation v. Tarun Kanti Sengupta and Rattan Chand Hira Chand v. Askar Nawaz Jung, to reinforce that contracts containing unconscionable terms or those contrary to public policy are void and unenforceable.

In alignment with these observations the court quashed the clause requiring the execution of the bond and directed JKGB to refund the encashed amount of ₹2,00,000 to the petitioner, along with interest at prevailing bank rates.

Case Title: Aaqib Rashid Sofi Vs Chairman, Jammu and Kashmir Grameen Bank and others.

Citation: 2024 LiveLaw (JKL) 350

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