Leave Encashment Akin To Salary, Employee Cannot Be Deprived Without Valid Statutory Provision: Bombay High Court

Leave encashment is not a bounty but right earned by employee, the Bombay High Court observed while affirming the entitlement of two former employees of Vidharbha Konkan Gramin Bank to encash their accrued privilege leave, despite their resignations from the bank.

A division bench of Justice Nitin Jamdar and Justice MM Sathaye allowed the employees' writ petitions and directed the bank to pay the amount for leaves accumulated by two employees who resigned from the bank.

“Leave encashment is akin to a salary, which is property. Depriving a person of his property without any valid statutory provision would violate Article 300 A of the Constitution of India. Leave encashment paid on account of unutilised leave is not a bounty. If an employee has earned it and the employee has chosen to accumulate his earned leave to his credit, then encashment becomes his right”, the court observed.

The petitioners, Dattaram Atmaram Sawant and Seema Dattaram Sawant, sought to encash their privilege leave accumulated over their decades of service. Dattaram Sawant joined the bank as an Assistant Manager on December 8, 1984, and served for over 30 years before resigning on August 2, 2015. Seema Sawant began her tenure as a Cashier on August 6, 1984, resigning on October 1, 2014. Despite completing the formalities for resignation and receiving experience certificates affirming satisfactory service, the bank denied their requests for leave encashment.

The bank's service regulations underwent significant changes following the amalgamation of Wainganga Krishna Gramin Bank with Vidharbha Konkan Gramin Bank. The revised regulations, effective from October 28, 2013, under Vidharbha Konkan Gramin Bank (Officers and Employees) Service Regulations, 2013, included provisions for privilege leave, computed at one day for every 11 days of service and allowed accumulation up to 240 days post-1989.

Dattaram Sawant, with a last drawn salary of ₹82,193, accumulated 250 days of privilege leave, entitling him to an encashment of ₹6,57,554. Seema Sawant, whose last drawn salary was ₹66,690, accumulated 210 days of privilege leave, claiming ₹4,66,830. After their resignations, they sought the encashment of their accumulated privilege leave, which the bank initially ignored and later rejected on the grounds that the provision for leave encashment for resigned employees was introduced only after their resignations.

Advocate Shailendra Kanetkar for the petitioners argued that the right to leave encashment accrued during their service and could not be invalidated by their subsequent resignation.

Advocate Bhavesh Wadhwani for the bank contended that the entitlement to leave encashment for resigned employees was established by a circular dated November 17, 2015, which was after the petitioners' resignations. The bank maintained that the petitioners, having resigned before September 14, 2015 as provided in the November circular, were not eligible for leave encashment.

The core issue was whether resignation negates the right to leave encashment that the Petitioners would have had upon retirement.

The court examined the relevant regulations and concluded that the right to leave encashment is a statutory right once earned and cannot be forfeited without explicit statutory provision. The court relied on various precedents from the Supreme Court, emphasizing that pension, gratuity, and leave encashment are rights that cannot be deprived without due process of law.

The court dismissed the bank's reliance on the circular dated November 17, 2015, stating that it merely reiterated the existing legal position rather than creating a new right. The court highlighted that similar cases from other banks and jurisdictions supported the petitioners' claims.

Thus, the court ruled in favour of the petitioners, declaring their entitlement to the encashment of privilege leave as a right accrued during their service. The court directed Vidharbha Konkan Gramin Bank to calculate and pay the amounts payable towards leave encashment for the petitioners, along with an interest rate of 6% per annum.

Case no. – Writ Petition No. 12161 of 2019

Case Title – Dattaram Atmaram Sawant v. Vidharbha Konkan Gramin Bank

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