Supreme Court: In an appeal filed by the State of Sikkim against the order passed by the Sikkim High Court, wherein the Court held that the respondent was entitled to leave encashment for unutilized leave accrued during the period of re-employment, the division bench of JK Maheshwari* and Rajesh Bindal, JJ. concluded that, under Rule 36 of the Sikkim Government Services (Leave) Rules, 1982 (‘Leave Rules’), a regular government servant who retires under the Sikkim Government Service Rules, 1974 (‘Service Rules’) was entitled to leave encashment only up to a maximum of 300 days. If a government servant was re-employed after attaining the age of 58 years and continues in service for an extended period, thereby accumulating additional leave, such re-employment does not entitle him or her to a second leave encashment merely based on leave accrued during the re-employment period. Consequently, the orders passed by the Single Judge and the Division Bench were set aside, and both appeals were allowed.
Background
The present appeals arose from a dispute regarding the grant of leave encashment for a second time to the respondent, a re-employed government servant, beyond the statutory maximum limit of 300 days under the Leave Rules. The respondent, initially appointed in 1980, retired on 31-01-2005 upon attaining the age of superannuation under Rule 98 of the Service Rules, and was granted leave encashment for 300 days under Rule 36 of the Leave Rules. He was subsequently re-employed in the same post until 28-05-2019, and upon final relieving, was again sanctioned leave encashment for 300 days via Office Order dated 31-05-2019.
Upon review, the State Government found the second grant of leave encashment to be inconsistent with the Leave Rules, particularly as Rule 36 did not permit encashment beyond the 300-day ceiling, even after re-employment. A clarificatory memorandum was issued, and the earlier order was cancelled, leading to the respondent’s writ petition before the High Court.
The Single Judge allowed the petition, interpreting Rules 32 and 36 in the respondent’s favor. The Division Bench upheld the decision. The State, aggrieved by both orders, filed the present appeals.
Issue
Whether an employee of the State who had availed the benefit of leave encashment maximum of 300 days once on attaining the age of superannuation under Rule 36 of Leave Rules, can further be entitled for leave encashment again on relieving after the period of re-employment.
Analysis and Decision
The Court took note of the Service Rules and observed that Rule 98 dealt with superannuation from regular service, specifying that the date of retirement would be the afternoon of the last day of the month in which the employee attained the age of 58 years. The emphasis was placed on the phrases ‘date of retirement’, ‘from regular service’, ‘the last day’, and ‘on which the employee attains 58 years’, indicating a clear and fixed point of retirement. Furthermore, under Rule 102, it was stated that an employee who retired under Rule 98 could be re-employed if such re-employment was considered to be in the interest of the government and the retired employee was physically and mentally fit. Therefore, the Court held that re-employment was not a right of the retired employee but a discretionary power that could be exercised by the government, when necessary, in the public interest.
Further, taking note of the Leave Rules, the Court observed that a government servant could earn leave for the period during which he was on duty. Under Rule 17, a government servant in the department was eligible for earned leave on full pay at the rate of 1/11th of the period spent on duty. Additionally, he was entitled to 20 days of half-pay leave each calendar year, either on medical grounds or for personal reasons. The note appended to this rule clarified that once the maximum limit of 300 days of earned leave was reached, no further leave could be accrued to the employee’s leave account.
The Court also noted that Rule 31 applied to the extension of service, a provision not specified in Rule 102 of the Service Rules. It was observed that a government servant whose service was extended could be granted earned leave, subject to a maximum of 300 days, including the extended period of service. Therefore, in the case of an extension of service, Leave Rule 36 applied with strict adherence, meaning that once the extended service period was added, leave encashment beyond 300 days was not permitted. According to Rule 32 of the Leave Rules, if a government servant was re-employed after retirement, the provisions of the Leave Rules would apply as if he had entered government service for the first time on the date of re-employment, for the purpose of granting leave during the period of re-employment.
The Court highlighted that Rule 36, comprised two key provisions:
(i) the retirement of the government servant must be in accordance with the Service Rules, 1974, and
(ii) the earned leave on full pay standing to the credit of the government servant on the date of retirement, up to a maximum of 300 days, may be granted.
Upon fulfillment of these twin requirements, the retired government servant could be allowed a cash equivalent to the leave salary at his credit for leave encashment, with a maximum of 300 days.
Upon analyzing the first provision, the Court noted that the government servant needed to retire under the Service Rules. The government servants eligible for the sanction of earned leave, as outlined in Leave Rule 36, were those in regular service as employed under the Service Rules. Re-employed government servants were not included in this provision; however, the benefit of leave encashment was available only to those whose services had been extended under Rule 31 of the Leave Rules, subject to the 300-day maximum. Further, Rule 99 of the Service Rules dealt with compulsory retirement in the public interest, and Rule 99A addressed voluntary retirement. The former was at the discretion of the government, based on the utility of the employee’s services in the public interest, while the latter could be initiated by the employee’s choice or request after completing 20 years of service.
The Court concluded that the mere applicability of Leave Rule 32 would not automatically bring an employee within the definition of “government servant” to whom Leave Rule 36 applied. This distinction was evident from the language used in Leave Rule 32, which specified that a “government servant re-employed after retirement” would be treated as if he had entered government service for the first time on the date of re-employment. Therefore, Leave Rule 36 applied only to those government servants who were in regular service prior to their retirement, up to the attainment of the age of superannuation, i.e., 58 years.
The Court noted that the second provision of Rule 36 of the Leave Rules clarified that the benefit of cash equivalent to leave salary, also known as leave encashment, was available upon retirement to a regular government servant, with a maximum limit of 300 days. This also included those whose services had been extended under Rule 31 of the Leave Rules. The language of Leave Rule 36 made it clear that unutilized earned leave, credited to the employee on the date of retirement, including any extension of service, could be granted, with a maximum limit of 300 days.
The Court clarified that the use of the phrase “the government may sanction to a government servant who retires from service under the Sikkim Government Service Rules, 1974” made the legislative intent clear, that leave encashment was available only to a regular government servant upon retirement, not upon relieving after re-employment. Thus, after leave encashment was granted once on retirement (up to the maximum of 300 days), the employee could not receive leave encashment a second time upon completion of the period of re-employment.
The Court emphasised that the language of Leave Rule 32 clearly indicated that the grant of leave during the period of re-employment would be treated as a new entry into government service on the date of re-employment. On the other hand, Leave Rule 36 specified the cash payment of unutilized earned leave and half-pay leave on the date of retirement of a regular government servant, subject to a maximum of 300 days. Thus, the Court concluded that Rule 32 could not be read in a manner that would revive the 300 days of unutilized leave for re-employed employees who had already availed the benefit of leave encashment up to 300 days during their regular service. As a result, there was no interplay between Rule 32 and Rule 36, as both rules operated independently and applied to different situations. The unutilized leave in credit beyond 300 days during re-employment could not be included for leave encashment under Rule 32 of the Leave Rules. Therefore, the Court held that Rule 36 could not be read in conjunction with Rule 32.
In light of the above discussions, the Single Judge’s interpretation of Rules 32 and 36, particularly the application of the deeming fiction for re-employed government servants, was found to be incorrect. Consequently, those findings were not upheld, and the Division Bench erred in affirming them. The Court further opined that Leave Rule 32 did not, ipso facto, deal with the applicability of Leave Rule 36 for granting leave encashment.
The Court remarked that the interpretation of leave encashment provisions extended beyond mere financial benefit, touching upon broader legal principles related to employee dignity and welfare during service. However, such interpretation required a careful balance between the rights of employees and the financial sustainability of the employing institution, particularly when public funds were involved. Courts were expected to exercise caution to prevent employees from claiming leave encashment more than once for the same accrual, which could lead to unjust enrichment and contravene public interest principles related to responsible use of government resources.
Thus, the Court held that the Leave Rules recognized the benefit of leave encashment for a government servant whose service had been extended and who had retired from regular service under the Service Rules, but not for a re-employed retired government servant. Consequently, leave encashment was permissible only up to a maximum of 300 days, as on the date of retirement, including in cases of extended service, and not beyond.
The Court opined that the clarificatory order issued by the State regarding the grant of leave encashment for earned leave to government employees on extension of service, subject to a maximum limit of 300 days and not beyond, was fully in consonance with the spirit and intent of Rules 31, 32, and 36 of the Leave Rules.
The Court explained that the respondent had been in regular government employment and had superannuated upon attaining the age of 58 years on 31-01-2005, in accordance with the Service Rules. He had been granted the benefit of leave encashment up to the maximum permissible limit of 300 days under Rule 36 of the Leave Rules. Upon re-employment, he continued in service for more than 14 years and was eventually relieved on 28-05-2019. Following his relieving from re-employment, a second benefit of leave encashment was sanctioned on 31-05-2019. However, upon realizing the inconsistency and the misapplication of Rules 32 and 36 in light of the overall spirit of the Leave Rules, the government issued a clarificatory order on 27-02-2020, denying the benefit of leave encashment beyond the 300-day limit. The Court found this clarificatory order to be in consonance with the intent of Rule 36 and deemed it just and reasonable. Consequently, the cancellation of the leave encashment sanction order dated 31-05-2019 was also held to be legally valid and in accordance with the law.
Lastly, the Court noted that it had been urged that the leave encashment benefit granted to the respondent had been cancelled without affording him a due opportunity of being heard, thereby violating the principles of natural justice. While the argument appeared persuasive at first glance, the Court found it to be without merit. Since the respondent had failed to justify his entitlement to a second leave encashment and was unable to establish any legal right to the same even, when given adequate opportunity, the Court held that no prejudice had been caused by the cancellation of the second grant of leave encashment. Accordingly, the argument alleging violation of natural justice was rejected.
[State of Sikkim v. Mool Raj Kotwal, 2025 SCC OnLine SC 888 , decided on 23-04-2025]
*Judgment Authored by: Justice JK Maheshwari
Advocates who appeared in this case:
For the Petitioner(s): Mr. Sameer Abhyankar, AOR, Mr. Krishna Rastogi, Adv.
For the Respondent(s): Mr. A. Mariarputham, Sr. Adv., Ms. Anuradha Arputham, Adv., Ms. Samten Doma Lachungpa, AOR
