Leave Encashment Benefit Is Part Of Salary : Supreme Court

The Supreme Court has held that leave encashment is part of salary.

The Court held that the condition in Rajasthan Voluntary Rural Education Service Rules, 2010 that barred carry forward of balance privilege leave is an arbitrary and unconscionable condition, which cannot be enforced.  

In this case, the appellants were appointed against sanctioned posts by a senior secondary school in 1993. The Rajasthan High Court had dismissed their plea by holding that neither gratuity nor leave encashment was covered by the expression "salary", under Rule 10 of the Rajasthan Voluntary Rural Education Service Rules, 2010 or under the Rajasthan Non-Government Educational Institutions (Recognition Grant-In-Aid and Service Conditions, Etc.) Rules, 1993.

Senior Advocate Deepak Nargokar, who appeared for the appellants, contended that the expression "salary" included both components, i.e., gratuity, as well as leave encashment. He referred to the decision in the State of Rajasthan and Anr. v. Senior Higher Secondary School, Lachhmangarh 2005 (10) SCC 346 where it was declared that leave encashment had, "to be read and understood with the definition of the word salary". Senior Advocate CU Singh, who appeared for the respondents, contended that leave encashment and gratuity could not be said to form part of "salary".

The Apex Court bench of CJI Uday Umesh Lalit and S. Ravindra Bhat noted that in Senior Higher Secondary School Lachhmangarh (supra), it was observed that the expression 'salary' includes benefit of leave encashment which is nothing but salary for the unavailed leave to the credit of the employee.

This court was of the opinion that the aforementioned reasoning is binding, and conclusive as regards entitlement of the appellants to claim leave encashment benefits, the bench said.

"Rule 5(viii), carry forward of existing privilege leave is denied; likewise, the period of service in aided institutions is not to be reckoned for the purpose of gratuity under Rule 5(ix). Every employee had to furnish an undertaking in the prescribed form to accept the terms and conditions. Ordinarily no public employer can be faulted in imposing pre-conditions before it recruits an employee. However, such conditions cannot be arbitrary, or so onerous as to be unconscionable. In the opinion of this court, the condition in clause (viii) of Rule 5 i.e., carry forward of balance privilege leave, is barred and requiring employees to seek encashment from their previous employer, i.e., aided institutions, is an arbitrary and unconscionable condition, which cannot be enforced.", the court observed. 

Thus, allowing the appeal, the court directed as follows:

With respect to leave encashment, the State and the respondent nos. 3 to 7 are liable to pay the appellants, in the ratio of 70:30 respectively. The respondent State shall, within 15 four weeks from today, determine the extent of entitlement of each appellant, and communicate the extent of amount payable by the management establishment (respondent nos. 3 to 7), to the appellants. These amounts shall be paid by all the respondents, within six weeks from today. The respondent nos. 3 to 7 shall also calculate and pay the amount of gratuity, to the appellants (on the basis of their initial date of entry in the school, till the date of order of absorption, by the respondent State), within six weeks from today. Since both sets of respondents contested their liability and denied them to the appellants, the amounts payable to the appellants shall also carry interest, at the rate of 10% from the date(s) of their entitlement, till the date of payment.

Case details

Jagdish Prasad Saini vs State of Rajasthan | 2022 LiveLaw (SC) 801 | SLP(C) 16813 OF 2019] | 26 September 2022 | CJI Uday Umesh Lalit and S. Ravindra Bhat

Headnotes

Service Law - Leave encashment is part of salary - referred to State of Rajasthan and Anr. v. Senior Higher Secondary School, Lachhmangarh 2005 (10) SCC 346. (Para 18)

Rajasthan Voluntary Rural Education Service Rules, 2010 ; Rule 5 (viii)- The condition in clause (viii) of Rule 5 i.e., carry forward of balance privilege leave, is barred and requiring employees to seek encashment from their previous employer, i.e., aided institutions, is an arbitrary and unconscionable condition, which cannot be enforced. (Para 20)

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