Sikkim's Stance on Leave Encashment: Supreme Court Settles Re-employment Benefit Dispute.


23 April 2025 Civil Appeals >> Civil & Consumer Law   |   Employee Related >> Corporate Law  

The Supreme Court has overturned a decision by the High Court of Sikkim, ruling that a retired government employee who received leave encashment upon superannuation is not entitled to claim the same benefit again for unutilized leave accumulated during their subsequent period of re-employment, especially beyond the stipulated limit of 300 days. The apex court's judgment clarifies the interpretation of the Sikkim Government Services (Leave) Rules, 1982, settling a discord between the State of Sikkim and a re-employed former Medical Advisor.

The case of State of Sikkim & Others v/s Dr. Mool Raj Kotwal., arose after the respondent, having retired at the age of 58 in 2005 and receiving leave encashment for the maximum permissible 300 days, was re-employed by the State for an extended period until 2019. Upon being relieved from re-employment, he was initially sanctioned leave encashment for another 300 days of accumulated leave. However, the State government, upon review, cancelled this subsequent sanction, citing that the Leave Rules did not provide for a second round of leave encashment beyond the 300-day limit already availed at the time of retirement. This decision was formalized through a clarificatory office memorandum issued in 2020.


 

 

Aggrieved by the cancellation, the respondent approached the High Court, which ruled in his favor, interpreting Rule 36 (Cash payment in lieu of unutilized earned leave on the date of retirement) read with Rule 32 (Leave during a period of re-employment after retirement) of the Leave Rules as entitling re-employed individuals to leave encashment as if they were entering service for the first time. The Division Bench of the High Court upheld this view.

However, the Supreme Court, after a detailed analysis of the relevant rules, disagreed with the High Court's interpretation. The apex court highlighted that Rule 36 explicitly applies to government servants who "retire from service under the Sikkim Government Service Rules, 1974," and allows for cash equivalent of leave salary for unutilized earned leave "standing at his credit on the date of his retirement," subject to a maximum of 300 days.

The Court clarified that while Rule 32 makes the Leave Rules applicable to re-employed government servants as if they were new entrants, this applicability pertains to the grant of leave during the period of re-employment and does not automatically revive the entitlement to leave encashment, especially after the employee has already availed the maximum benefit upon their initial retirement.

Justice-oriented reasoning behind leave encashment, as a form of deferred compensation for service rendered without availing leave, was also considered by the Supreme Court. However, it cautioned against interpretations that could lead to "unjust enrichment" by allowing multiple claims for the same accrual, potentially burdening the public exchequer.

The Supreme Court concluded that Rule 32 cannot be interpreted to grant a fresh cycle of 300 days of leave encashment to re-employed individuals who have already received this benefit upon their initial retirement. Rule 36, according to the apex court, is specific to retirement from regular service and does not extend to relieving after a period of re-employment.

While the respondent argued that the cancellation of the leave encashment sanction violated natural justice by not providing a hearing, the Supreme Court dismissed this contention, stating that when the claimant cannot justify their entitlement even with an opportunity, no prejudice is caused by the denial of a hearing.

Ultimately, the Supreme Court set aside the orders of the High Court, allowing the appeals filed by the State of Sikkim. The judgment clarifies that the benefit of leave encashment under Rule 36 of the Sikkim Government Services (Leave) Rules, 1982, is a one-time entitlement upon retirement from regular service and does not accrue again upon relieving from re-employment, especially beyond the maximum limit already availed.