Leave Encashment Is a Property Right and Cannot Be Denied Without Statutory Authority: Gujarat High Court

Leave Encashment Constitutes a Property Right; Deprivation Without Statutory Backing Violates Constitutional Protections - Gujarat High Court upheld the Labour Court’s decision granting leave encashment to a retired employee. The Court reaffirmed that leave encashment constitutes a property right under law and that its denial without statutory justification infringes constitutional protections.

The High Court dismissed the Ahmedabad Municipal Corporation’s petition and held that the respondent employee, having accrued earned leave, had a pre-existing right to claim its encashment. The Court also emphasized that the employer’s failure to act on the employee’s voluntary resignation within 90 days under the Gujarat Civil Services Rules (GCSR) rendered his resignation as deemed retirement.

The respondent, Sadgunbhai Semulbhai Solanki, was employed with the Ahmedabad Municipal Corporation and served in various roles from 1975. In March 2013, citing physical inability and social responsibilities, he submitted his resignation and sought voluntary retirement, proposing it take effect immediately. The resignation application included an offer to pay notice pay if required.

The Corporation failed to act on this application for over seven months and only later issued a demand for notice pay. In the absence of timely action, the resignation was deemed accepted after 90 days under Rule 49 of the GCSR, 2002. The respondent subsequently filed a recovery application under Section 33(c)(2) of the Industrial Disputes Act, 1947, seeking leave encashment of ₹1,63,620.

The Labour Court allowed the application, relying on the employer’s certificate showing earned leave credits and concluded that the respondent had a pre-existing right to the claimed amount. Aggrieved by the Labour Court’s award, the Ahmedabad Municipal Corporation filed a petition before the Gujarat High Court.

Whether the respondent’s resignation application, unattended for over 90 days, amounted to deemed retirement under Rule 49 of the GCSR, 2002.
Whether the claim for leave encashment was maintainable under Section 33(c)(2) of the Industrial Disputes Act, 1947.
Whether leave encashment is a property right that can be denied in the absence of statutory provisions.
Whether the respondent’s alleged unauthorized absence justified the denial of benefits.

The Court observed that the Corporation failed to act on the respondent’s resignation application within the mandatory 90-day period prescribed under Rule 49 of the GCSR. The rule states:
"If the appointing authority does not refuse to grant permission for retirement before the expiry of the period specified in the notice, the retirement shall become effective from the date of expiry of the said period."

Since the Corporation failed to reject or approve the resignation within the stipulated time, the resignation was deemed accepted, and the respondent was deemed retired as of June 7, 2013 (90 days from March 7, 2013).

The Court upheld the Labour Court’s decision that the respondent’s claim was maintainable under Section 33(c)(2) of the Industrial Disputes Act. The respondent relied on an undisputed certificate (mark 15/1) issued by the Corporation, which confirmed accumulated leave credits. The Court stated:
"The certificate establishes a pre-existing right, and therefore, the Labour Court rightly exercised jurisdiction under Section 33(c)(2) to compute the amount due."

The High Court reiterated that earned leave is akin to salary and forms part of an employee’s property rights. Quoting constitutional principles, the Court held:
"Depriving a person of their property without valid statutory provisions is a violation of constitutional protections. If an employee has earned leave and chooses to accumulate it, encashment becomes their right, which cannot be denied without authority."

The Court dismissed the Corporation’s argument that the respondent was unauthorizedly absent from March 2013 to April 2014. It noted that the Corporation neither initiated disciplinary proceedings nor directed the respondent to resume duty. The Court further observed:
"The Corporation’s failure to address the resignation application within 90 days precluded the necessity for the respondent to resume duty. Hence, there was no justification to classify the period as unauthorized absence."

The High Court upheld the Labour Court’s award, granting leave encashment of ₹1,63,620 to the respondent along with costs. The Court also vacated any interim stay granted earlier in the matter.

The Gujarat High Court’s judgment reinforces the principle that leave encashment is a legally protected right that cannot be arbitrarily denied. By emphasizing the importance of statutory compliance and timely action by employers, the decision protects employees’ rights to their earned benefits.

Date of Judgment: 24 December 2024