'Leave Encashment Rules Must Be Strictly Interpreted' : Supreme Court Denies Leave Encashment To Govt Servant Re-employed After Retirement

In a case concerning Sikkim Government Service, the Supreme Court recently held that a Government Servant who has been re-employed after retirement cannot take the benefit of leave encashments if he had availed the maximum of 300 days of leave encashment before his retirement.The Court also held that while the policy of leave encashment is made for the welfare of the deserving employees, it cannot be allowed excessively at the behest of the Public Exchequer. "Interpreting leave encashment provisions goes beyond financial compensation and connects to broader legal principles of dignity and welfare during service. However, such interpretations must carefully balance the interests of both employees and the financial stability of the organization, especially when public exchequer is involved. Courts must tread carefully to prevent employees from claiming leave encashment multiple times for the same accrual, which could lead to unjust enrichment and may go against the public interest of largesse." The bench of Justice JK Maheshwari and Justice Rajesh Bindal was considering the issue of whether a retired government servant who has been re-employed by the State can be allowed to avail leave encashments meant for those employees who initially retire at 58 years of age. The question of law framed was : “Whether an employee of the State who had availed the benefit of leave encashment maximum of 300 days once on attaining the age of superannuation under Rule 36 of Sikkim Leave Rules, can further be entitled for leave encashment again on relieving after the period of re-employment?”The respondent was appointed on deputation to the Sikkim State services in 1980. He retired on January 31, 2005, upon reaching the age of superannuation, as per Rule 982 of the Sikkim Government Service Rules, 1974. At retirement, he served as the Medical Advisor and Chief Consultant at STNM Hospital in Gangtok. While processing his retirement benefits, he was granted leave encashment for up to 300 days of unused leave, under Rule 63 of the Leave Rules.After retirement, the respondent was re-employed on the same post for 2 years, w.e.f. from 01.02.2005 to 31.05.2005, which was extended time to time upto 28.05.2019,- the date on which he was officially relieved. He was through a 2019 office order allowed cash equivalent to leave salary of 300 days of earned leave standing to his credit for the period of re-employment. The present issue arose when the State found that the Leave Rules do not allow leave encashment beyond 300 days in cases of re-employment, which was already paid during their initial retirment. The State noticed that despite this, leave encashments were being paid for re-employed persons. Resultantly, an Office Memorandum (OM) was issued on February 27, 2020 clarifying that a maximum of 300 days of leave encashment specified in Rule is inclusive of the period of leave earned during extension of service, re-employment, etc. Consequently, the extended benefit of the leave salary to the Respondent was cancelled during his period for re-employment through order dated May, 21, 2020. The Respondent then filed a writ petition seeking the quashing of the order dated May 21, 2020 and to declare that the respondent is entitled to receive Rs.20,51,100/- towards leave encashment alike similarly placed other re-employed employees. The Single Bench of High Court allowed the plea and interpreted Rule 36 in conjuction with Rule 32 and held that the phrase 'retires from service' in Rule 36 is broad enough and includes the re-employed employees. It also held the OM issued by the State as arbitrary. The State then challenged the order before a Division Bench, which upheld the orginal order. It held that Rule 36 applies to re-employed government servants also. Notably, Rules 36 reads "The Government may sanction to a Government servant who retires from service under the Sikkim Government Service Rules, 1974, cash equivalent of the leave salary in lieu of the period of earned leave on full pay standing at his credit on the date of his retirement subject to a maximum of 300 days." While Rule 32 reads "In the case of a Government servant re-employed after retirement, the provisions of these rules shall apply as if he had entered government service for the first time on the date of his re-employment." Arguements By The PartiesThe Counsel for the State mainly argued that the impugned order was contrary to the real intent behind Rule 36. He added that Rule 32 and Rule 36 of Leave Rules deal with different spheres and they cannot be read in conjunction, therefore, the interpretation as made in the impugned judgment is not correct. The State argued that a bare reading of the Rule provides the leave encashment benefit only for those who attained the age of retirement of 58 years. The rule does not deal with the persons being re-employed after initial retirement. The counsel for the Respondent on the other hand argued that the sanctioned leaves were...

'Leave Encashment Rules Must Be Strictly Interpreted' : Supreme Court Denies Leave Encashment To Govt Servant Re-employed After Retirement

Anmol Kaur Bawa

Courts must interpret leave encashment rules and statutes in a manner that prevents undue financial burden on employers.

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