Leave Encashment Rights After Deemed Retirement Upheld: Gujarat High Court's Verdict on Section 33(c)(2) of I.D. Act - 2026-05-22

Salary as Property: High Court Affirms Right to Leave Encashment After Unprocessed Resignation

In a significant ruling for public sector employees, the High Court of Gujarat has reaffirmed that the right to leave encashment is a protected property right that cannot be arbitrarily withheld by an employer. The court’s decision in Ahmedabad Municipal Corporation v. Sadgunbhai Semulbhai Solanki brings much-needed clarity to the process of voluntary retirement and the scope of Labour Court adjudication.

A Timeline of Administrative Stasis

The dispute originated from the resignation application of Sadgunbhai Semulbhai Solanki, a former employee of the Ahmedabad Municipal Corporation. Having served for decades, the respondent submitted his resignation on March 7, 2013, citing age and physical inability. Crucially, he expressed a willingness to deposit the required notice pay.

However, the Corporation failed to act on the request for over seven months. It was only in October and November of 2013—well after the three-month window stipulated for processing such applications—that the Corporation requested notice pay. By then, the respondent had already invoked service regulations regarding "deemed retirement" after 90 days had elapsed without a response from the employer.

The Legal Tug-of-War: Maintainability and Statutory Rights

The Corporation challenged an earlier Labour Court award of Rs. 1,63,620, arguing that the Labour Court lacked jurisdiction under Section 33(c)(2) of the Industrial Disputes Act. They asserted that because the resignation was never formally accepted, the respondent’s absence was unauthorized, disentitling him to leave encashment.

The respondent, represented by his counsel, contended that his terminal benefits, including gratuity, were already settled based on the date of his deemed retirement. He argued that the leave credit was a pre-existing right, evidenced by the Corporation’s own records.

The Court’s Reasoning: Procedural Fairness

Honourable Mrs. Justice M. K. Thakker observed that the Corporation’s inaction served as an implicit acceptance of the resignation under the relevant service rules. The Court emphasized that an employer cannot allow an application to languish for months and subsequently penalize the employee for "unauthorized absence" when the rules specifically provide for deemed retirement.

The High Court held that the Labour Court rightly exercised its jurisdiction because the respondent’s leave entitlement was a "pre-existing right" recognized by the Corporation’s own documentation.

Key Observations

The judgment underscores the sanctity of employee compensation, stating:

* "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... However, for seven months there was no intimation given to the respondent."

Final Verdict and Implications

Dismissing the Corporation’s petition, the High Court confirmed the award in favor of the former employee. This ruling serves as a stern reminder to public institutions that administrative lethargy does not exempt them from their financial obligations to retiring workers. By treating leave encashment as a fundamental component of an employee’s earned property, the Court has set a high bar for employers seeking to contest terminal benefits based on procedural technicalities. Future cases involving delayed processing of retirements will likely find this precedent instrumental in protecting the financial stability of the workforce.