Employee Leaving Service On Retirement Or Resignation Has No Right To Claim Leave Encashment Unless Enabled By Statute: Kerala High Court

The Kerala High Court recently held that an employee who leaves his service either on retirement, voluntary or otherwise, or on resignation, would have no vested or inherent right to claim leave encashment, unless it is otherwise enabled by the statute, rules, or norms regulating the conditions of service.

The Division Bench comprising Justice Alexander Thomas and Justice C. Jayachandran, made the above observation while considering an appeal preferred by the National Insurance Company seeking to set aside the Single Judge's order directing the Company to disburse leave encashment to the employee on the ground that the same is part of the salary. 

The respondent Sudeep Kumar had resigned from the appellant National Insurance Co.Ltd. after 21 years of service, but was not disbursed the benefit of earned leave encashment despite being informed of the same. Consequently, he filed a writ petition before the Single Judge, which was disposed of vide order dated July 20, 2009, directing his representations. The representation however came to be rejected by the authority on July 30, 2009, on the ground that having chosen to resign from service, he would not be entitled to the benefit and that the same is available only for persons who have retired from service.

The Chief Regional Manager of the Insurance Company, in his written statement, averred that the service conditions of the employees of the Company were governed by the General Insurance (Rationalisation of Pay Scales and other Service Conditions of Officers) Scheme, 1975 and General Insurance (Termination, Superannuation and Retirement of Officers and Development Staff) Scheme, 1976.

It was added that the respondent opted to continue to be governed by the Scheme, 1976, instead of the Pension Scheme, 1995, when the petitioner-Company invited employees to indicate their preference. It was thus submitted by the Chief Regional Manager that the respondent was not eligible for earned leave encashment, since he had not attained the age of 55 years at the time of tendering the resignation letter, and that voluntary retirement upon completion of 20 years of service was applicable only to those employees who opted to be governed by the Pension Scheme, 1995. 

The Single Judge declared that the respondent would be entitled for the benefit, since leave encashment is part of salary, and thereby directed the appellants to encash the same. 

The Court observed that the respondent is covered by Clause 5 of the Scheme, 1976, since his service was determined pursuant to a resignation letter tendered by him, with a further request to waive the notice period.

Clause 5 states that, "(1) An officer or a person of the Development Staff, other than one on probation, shall not leave or discontinue his Service without first giving notice in writing to the appointing authority of his intention to leave or discontinue the Service and the period of notice required to be given shall be three months; Provided that such notice may be waived in part or in full by the appointing authority its discretion". 

It therefore ascertained the as per the Scheme, Clause 4(5) clearly stipulates that earned leave encashment would not be applicable to officers covered by Clause 5. 

"...the norms provide leave encashment by virtue of Clause 4(5) to the employees of the organisation, except those who are covered by Clause 4(4) and Clause 5 of the 1976 Scheme, of which the petitioner (respondent herein) belongs to the latter in essence and substance. The incident of retirement, either voluntary or on superannuation, is a sine qua non for claiming the benefit of earned leave as per the above norms. The petitioner (respondent herein) has not secured either voluntary retirement or superannuation retirement. His resignation cannot be equated to voluntary retirement, since he resigned before he had attained the cut off age of 55 years. There is no question of even remotely treating his resignation as voluntary retirement, in any view of the matter. In other words, the petitioner (respondent herein) has not fulfilled the elementary eligibility conditions for claiming earned leave benefit as per the above norms," the Court held.

The Court also went on to reject the argument that the respondent who had given only two months notice, would not be liable to be governed by Rule 5, since the said provision only deals with situations wherein there is determination of service pursuant to giving three months notice. 

The appeal was thus allowed and the impugned order of the Single Judge was set aside. 

The Appellants were represented by Advocates Thampan Thomas, B.V. Joy Sankar, R. Rajasree, and Nincy Mathew. Senior Advocate E.K. Nandakumar, and M. Gopikrishnan Nambiar appeared on behalf of the respondent. 

Case Title: National Insurance Co. Ltd. & Ors. v. S. Sudeep Kumar 

Citation: 2023 LiveLaw (Ker) 420 

Case Number: W.A. No. 1028 of 2023

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