Unattended Resignation Leads to Deemed Retirement: Gujarat HC Upholds Employee Entitlement to Leave Encashment Under Section 33(c)(2) of ID Act - 2026-05-22

Silence as Acceptance: Gujarat High Court Rules on Employee Entitlement to Leave Encashment

In a significant verdict impacting labor rights, the High Court of Gujarat has affirmed that leave encashment is a vested property right that cannot be arbitrarily withheld by an employer. The case, Ahmedabad Municipal Corporation vs. Sadgunbhai Semulbhai Solanki , centered on whether an employee who resigned—and whose resignation went unaddressed by the employer for seven months—retains the right to encash their earned leave upon completion of their tenure.

The Backdrop: A Dispute Over Dormant Resignation

The respondent, a long-term employee of the Ahmedabad Municipal Corporation (AMC), submitted his resignation on March 7, 2013, citing age and physical inability. Despite his readiness to comply with formalities, the Corporation left his application unattended for months.

It was not until seven months later that the Corporation demanded a month’s notice pay. By then, the respondent had already completed the 90-day statutory waiting period, leading him to argue that he had been "deemed retired" under the service regulations. When the Labour Court ordered the payment of Rs 1,63,620 in leave encashment (later disputed by the Corporation), the AMC challenged the decision in the High Court, questioning the maintainability of the claim under Section 33(c)(2) of the Industrial Disputes (I.D.) Act.

Arguments from the Aisle

The Petitioner (Ahmedabad Municipal Corporation): The Corporation argued that the Labour Court lacked jurisdiction under Section 33(c)(2), as the entitlement to leave encashment had not been previously adjudicated. They contended that because the respondent failed to pay the required one-month notice salary, his resignation was never formally accepted, making his absence from work unauthorized and invalidating his claim to leave benefits.

The Respondent (Sadgunbhai Semulbhai Solanki): The respondent countered that his resignation application explicitly offered readiness to pay the notice amount if required. He maintained that the Corporation’s failure to respond to his application within the mandatory 90-day window under the relevant service rules (BCSR) effectively triggered a deemed retirement. He further pointed to an official certificate from the Corporation confirming 299 days of leave at his credit, constituting a pre-existing right.

Legal Analysis: Leave Encashment as Property

Presiding over the matter, Honourable Mrs. Justice M. K. Thakker scrutinized the rigidity of the Corporation's position. The Court noted that the Corporation had already accepted the respondent’s claim to gratuity based on the same date of retirement, making their new stance regarding leave encashment inconsistent and legally untenable.

Crucially, the Court emphasized that leave encashment is not a mere gratuity but a form of property. Drawing on established service rules, the Court found that the Corporation had neither rejected the resignation nor provided a timely response, stripping them of the right to treat the subsequent period as unauthorized absence.

Key Observations

The judgment offers clear guidance on the sanctity of earned employment benefits:

• "Leave encashment is akin to salary which is property and depriving a person of his property without valid statutory provision is violation of the provision of Constitution of India."
• "If an employee has earned the leave and employee has chosen to accumulate his earned leave to his credit then encashment becomes his right and in absence of any authority that right cannot be infringed."
• "As per the service regulation... within a period of 90 days, the communication has to be sent to the respondent with regard to the acceptance or rejection of the application. However, for seven months there was no intimation."

Final Decision: A Win for Employee Rights

The High Court dismissed the petition, confirming the Labour Court’s award. By ruling that the respondent’s right to his leave credits remained intact despite the administrative silence of his employer, the Court has reinforced the principle of professional equity.

This decision serves as a stern reminder to public sector employers: silence on an resignation application does not grant them a blank check to withhold terminal benefits. For employees, this reinforces the threshold for property rights within the workplace, ensuring that earned benefits cannot be forfeited due to internal administrative negligence.