Is the no shop agreement before joining a company is legal?

Question

I have been interviewed and selected by a company , let's name it "XYZ Consultant". I accepted the job offer from them. They asked me to accept a "No-Shop Agreement" over email before sharing the final offer letter. As per the agreement, the company would pay me a sum of 50,000 as a pre-joining bonus on acceptance of offer letter and if I will : decline the offer letter and will not join them , I need to pay them a sum of 1,00,000. Due to some family emergencies, I had to drop the offer letter. Now as per the "No Shop Agreement", I was liable to pay 1 Lac. I paid 50,000 back to them as a part payment but not in a condition to pay them rest 50,000. Can someone help me understand the legal bindings for this and is it actually legal to bind someone to join the firm?

Other details : I am an IT employee and the firm that hired me is a private company. Jurisdiction : India

Regards

Answer 1

Such a clause might be held to be unenforceable under Indian law, as an illegal penalty clause (the part where they penalize you by the same amount as the pre-signing bonus). Since you did not sign the employment contract, you are not in breach of contract there. They cannot construe this signing incentive to be an unconditional obligation to agree to whatever final contract they come up with (acceptance of a contract cannot be compelled). The work-around for the illegality of penalty clauses is that they are "liquidated damages", that rather than sort out what their actual damages were by your decision to not accept the offer, you would pay a standard fee that has a a reasonable relation to actual damages. You would need to hire an Indian contract lawyer to get a solid perspective on whether that was the case here. He would also check whether your action was actually in breach of the agreement, or if the agreement itself was illegal.

A consideration is whether these external factors objectively justify rejecting an offer that you had strongly indicated that you would accept. E.g. what would you have done if you had signed the final contract and the same situation arose immediately after.

A no-shop agreement is one that requires good faith in negotiations, which per your representation you have exhibited. But what really matters is the wording of the agreement, not what you call it.