Employment Restrictions on PSU Executives: How Valid Are They?

One of our regular readers points us to this news report:

“Top level public sector executives, including directors and chief executives, will not be able to join private firms after retirement or resignation unless they get go-ahead from the government.

If they decide to join, they may have to pay damages to the government for violation as per the bond or agreement signed with the department concerned, says a circular issued by the Ministry of Heavy Industries and Public Enterprises.

“No functional director of the company, including chief executive who has retired/ resigned from the service of the company shall accept any appointment or post in any company, whether Indian or foreign, with which the company has or had business relations within one year from the date of retirement without prior approval of the government,” the circular said.”

I will leave you with two valid questions the reader poses:

(i) Is this restriction reasonable in the context of Section 27 of the Indian Contract Act, which invalidates contracts that are in restraint of trade?

(ii) Is this restriction reasonable in the context of Article 19(1)(g) of the Indian Constitution (freedom to practice profession, or to carry on any occupation)?

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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