Punjab & Haryana High Court Directs Aided Institution to Pay Leave Encashment to Retired Employees

Leave Encashment is a Pensionary Benefit and Cannot Be Denied Based on Delay - Punjab & Haryana High Court ruled that leave encashment, being a part of pensionary benefits, cannot be denied to retired employees of aided institutions on the ground of delay in filing claims. The Court directed the petitioner, Ramgarhia Polytechnic College, to pay leave encashment benefits within four weeks while allowing the college to seek reimbursement from the State for 95% of the amount.

The Court dismissed the petitioner-Institute's objections regarding delay, lack of specific rules for leave encashment, and the jurisdiction of the Educational Tribunal, emphasizing the continuous nature of pensionary claims and the principle of parity with other aided institutions.

The petitioner, Ramgarhia Polytechnic College, challenged an order of the Educational Tribunal, Punjab, dated January 8, 2024, which directed the College to pay leave encashment and salary arrears to retired employees who had worked on aided posts.
The petitioner raised three main arguments:
1.    The Educational Tribunal lacked jurisdiction, as the Punjab Affiliated Colleges (Security of Service of Employees) Act, 1974 (1974 Act), was allegedly inapplicable to polytechnic institutions.
2.    The employees’ claim for leave encashment should be barred due to delay and laches.
3.    Leave encashment was not mandatory under the rules applicable to the petitioner-Institute, and the State should bear 95% of the liability under the grant-in-aid scheme.
The respondents, retired employees, argued that leave encashment is a pensionary benefit, and its denial would be discriminatory, as other aided institutions provide similar benefits.

Key Issues Addressed by the Court
1.    Does delay in filing a claim bar an employee’s entitlement to leave encashment as a pensionary benefit?
2.    Does the absence of specific rules for leave encashment justify its denial?
3.    Who bears the liability for leave encashment in aided institutions—the employer or the State?

Court’s Observations and Findings

The Court held that leave encashment is part of pensionary benefits and cannot be denied due to delay in filing claims. Relying on the Supreme Court judgment in Shri M.L. Patil (Dead) Through LRs v. State of Goa and Another (2022), the Court emphasized that pensionary claims are a continuous cause of action, and delay does not extinguish an employee's right to such benefits.

The Court stated: “Leave encashment becomes admissible to employees after retirement and is to be treated as part of pensionary benefits, even though it pertains to unutilized leave. Denying this benefit due to delay in filing the claim would be unjust.”

The petitioner argued that the Tribunal lacked jurisdiction under the 1974 Act, which was claimed to be inapplicable to polytechnic institutions. However, the Court ruled that since the matter had now been adjudicated by the High Court, the Tribunal’s jurisdiction became inconsequential.

The petitioner contended that no specific rule mandated leave encashment for polytechnic institutions. The Court rejected this argument, holding that once an institution receives 95% grant-in-aid from the State, it must align its policies with those of other aided institutions.
The Court observed: “Denial of leave encashment merely because the polytechnic institute lacks specific rules is unjust. Employees working in aided institutions are entitled to the same benefits as those provided in other aided institutions.”

The petitioner-Institute claimed that since the State provides 95% of the salary under the grant-in-aid scheme, it should bear the liability for leave encashment.

The Court clarified that the primary liability lies with the employer (the petitioner-Institute), as the master-servant relationship exists between the institution and its employees. However, the petitioner was allowed to seek reimbursement from the State based on the principle laid down in Jagdish Prasad Saini and Others v. State of Rajasthan and Others (2022), where the Supreme Court held that leave encashment is part of salary and is eligible for reimbursement by the State under grant-in-aid schemes.

The Court directed the State to decide the petitioner’s reimbursement claim within eight weeks.

The High Court disposed of the petitions with the following directives:
1.    Leave Encashment Payment: The petitioner-Institute must pay leave encashment benefits to the retired employees within four weeks of receiving a copy of the judgment, regardless of whether reimbursement from the State is received.
2.    Reimbursement by State: The State must decide on the petitioner-Institute’s reimbursement claim within eight weeks of receiving it.
3.    Gratuity Claims: As gratuity had already been paid, no further adjudication was required on this issue.
The Court emphasized that denying leave encashment would be harsh, particularly since employees had worked during their leave periods and contributed to the institution’s functioning.

This ruling reinforces the principle that pensionary benefits like leave encashment are a continuous cause of action and cannot be denied due to procedural delays. The judgment underscores the obligation of aided institutions to ensure parity in benefits with other aided institutions, aligning with the broader principles of fairness and equality.
The judgment also provides clarity on the allocation of liability for leave encashment between employers and the State in grant-in-aid institutions, balancing the responsibilities of both parties.

Date of Decision: December 20, 2024