HC: Dismissed employee can’t be denied leave encashment

Saurabh Malik
Tribune News Service
Chandigarh, November 30

The Punjab and Haryana High Court has ruled that leave encashment was part of salary and could not be withheld even when an employee was dismissed from service. The High Court also ruled that interest on outstanding dues of leave encashment, too, could not be withheld.

Justice Rajiv Narain Raina also quashed an order to the extent it deprived an employee of his leave encashment dues, after holding it to be illegal, arbitrary and without the authority of law.

The ruling came on a petition filed by Dhir Chand against the State of Haryana and other respondents.

The petitioner was seeking leave encashment following his dismissal from service upon conviction by a trial court on a criminal charge of corruption with sentence to serve imprisonment.

Justice Raina asserted leave encashment took the character of salary as it was paid in lieu of the unutilised leave due to an employee annually. It was payable on cessation from service and the sum was exempt from tax. The benefit was a privilege given to encourage employees to desist from truancy. It carried a ceiling of 300 days at the rate of last drawn salary. Once it was part of the salary, it could not be legally withheld except in accordance with the relevant rules.

Justice Raina added that the legal position regarding leave encashment was a subject of Full Bench decision in case of “Punjab State Civil Supplies Corporation Ltd. and others versus Pyare Lal”. The High Court specifically dealt with the issue of leave encashment in the background of criminal and disciplinary proceedings.

The Full Bench ruled that leave encashment was payable to a retiring employee notwithstanding the pendency of departmental inquiry or criminal proceedings. The distinguishing factor was that the employee was dismissed from service in the case in hand. However, the difference would not tilt the balance in favour of the State as the settled legal position remained that leave encashment was part of the salary; and salary, like credit in General Provident Fund account of an employee, could not be withheld in the event of dismissal because it represented money saved/earned for unutilised leave as a matter of right for work performed and duties discharged while in service.

Justice Raina added: “If there is no provision of law which may deprive a person of leave encashment lying in his credit for unutilised leave, this benefit should have been paid to the petitioner at the time of dismissal as a matter of right. If it remains unpaid, the counsel may not be wrong in insisting that the principal amount of leave encashment should carry interest at such rate as is deemed fit by the court.”