Judgment: https://lawyerslibrary.in/books/qwil
Citation: 2025 INSC 559
Court: Supreme Court of India
Bench: *J.K. Maheshwari, Rajesh Bindal, JJ.
Date of Decision: April 23, 2025
Case Type: Civil Appeal (Arising out of SLP (C) Nos. 23709-23710 of 2023)
Case Title: State of Sikkim & Others vs. Dr. Mool Raj Kotwal
Sikkim Government Services (Leave) Rules, 1982 – Rule 32 and Rule 36 – Leave Encashment – Re-employed Government Servant – Entitlement to Second Leave Encashment Post-Re-employment.
The respondent, a retired government servant, was granted leave encashment of 300 days upon superannuation under Rule 36 of the Sikkim Government Services (Leave) Rules, 1982. Post-retirement, he was re-employed for over 14 years and sought leave encashment again for unutilized leave accrued during re-employment. The State initially sanctioned the same but later cancelled it vide clarificatory order dated 27.02.2020, stating that Rule 36 limits leave encashment to a maximum of 300 days, inclusive of any extension of service or re-employment. The High Court allowed the respondent’s writ petition, holding that Rules 32 and 36, read conjointly, entitled re-employed servants to leave encashment as if they were new entrants. The Supreme Court set aside the High Court’s orders, holding:
- Interpretation of Rules 32 and 36: Rule 36 applies only to government servants retiring from regular service under the Sikkim Government Service Rules, 1974, and limits leave encashment to a maximum of 300 days on the date of retirement, including extension of service under Rule 31. Rule 32, which treats re-employed servants as new entrants for leave accrual, does not extend the benefit of leave encashment under Rule 36 to re-employed servants. The two rules operate in distinct spheres and cannot be read conjointly to grant a second leave encashment.
- Re-employment and Leave Encashment: Re-employment under Rule 102 of the Service Rules is discretionary and not a continuation of regular service. Leave accrued during re-employment does not entitle the employee to additional leave encashment beyond the 300-day limit already availed upon retirement.
- Clarificatory Order: The State’s clarificatory order dated 27.02.2020, limiting leave encashment to 300 days inclusive of re-employment periods, is in consonance with the spirit of Rules 31, 32, and 36. Cancellation of the second leave encashment sanction was lawful.
- Natural Justice: The cancellation of the second leave encashment without a hearing did not violate natural justice, as the respondent could not establish a legal right to the benefit, and no prejudice was caused.
- Philosophy of Leave Encashment: Leave encashment is a welfare measure grounded in equity and economic security, compensating employees for unutilized leave during regular service. Allowing multiple encashments risks unjust enrichment and financial burden on the public exchequer.
Held
A government servant who has availed leave encashment of 300 days upon superannuation under Rule 36 is not entitled to additional leave encashment for leave accrued during re-employment. The High Court’s interpretation of Rules 32 and 36 was erroneous. Appeals allowed, impugned orders set aside, no order as to costs.
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Facts
Dr. Mool Raj Kotwal, the respondent, retired from the State of Sikkim’s service on January 31, 2005, upon reaching the superannuation age of 58, as per Rule 98 of the Sikkim Government Service Rules, 1974. He received leave encashment for 300 days of unutilized earned leave under Rule 36 of the Sikkim Government Services (Leave) Rules, 1982. Post-retirement, he was re-employed from February 1, 2005, to May 28, 2019. On May 31, 2019, he was sanctioned another leave encashment for 300 days for leave accrued during re-employment. However, the State, upon review, issued a clarificatory order on February 27, 2020, stating that Rule 36 limits leave encashment to a maximum of 300 days, inclusive of re-employment periods. Consequently, the 2019 sanction was cancelled on May 21, 2020. The respondent challenged this cancellation via a writ petition, which the High Court’s Single Judge allowed, interpreting Rules 32 and 36 conjointly to entitle re-employed servants to a second leave encashment. The Division Bench upheld this decision, prompting the State to appeal to the Supreme Court.
Issues
- Whether a government servant, having availed leave encashment of 300 days upon superannuation under Rule 36, is entitled to additional leave encashment for leave accrued during re-employment.
- Whether Rules 32 and 36 of the Leave Rules can be read conjointly to grant leave encashment to re-employed servants.
- Whether the State’s clarificatory order and cancellation of the second leave encashment were lawful.
- Whether the cancellation without a hearing violated principles of natural justice.
Arguments
- Appellant (State): Argued that Rule 36 limits leave encashment to 300 days upon retirement from regular service, not extending to re-employment. Rule 32, treating re-employed servants as new entrants for leave accrual, does not confer a right to additional encashment under Rule 36. The clarificatory order corrected a misinterpretation, and cancellation was lawful to prevent financial burden.
- Respondent: Contended that Rule 32 applies Leave Rules to re-employed servants as new entrants, and Rule 36 does not prohibit a second encashment. Cancellation without notice violated natural justice, and similarly situated re-employed employees received the benefit, raising discrimination concerns under Article 14.
Decision
The Supreme Court allowed the appeals, setting aside the High Court’s orders. Key findings:
- Interpretation of Rules: Rule 36 applies only to government servants retiring from regular service under the 1974 Service Rules, allowing encashment up to 300 days, inclusive of service extension under Rule 31. Rule 32, treating re-employed servants as new entrants for leave accrual, does not extend Rule 36’s encashment benefit to re-employment. The rules operate independently, and conjoint reading is erroneous.
- Re-employment: Re-employment under Rule 102 is discretionary, not a continuation of regular service. Leave accrued during re-employment does not qualify for additional encashment beyond the 300-day limit availed at retirement.
- Clarificatory Order: The State’s February 27, 2020, order, limiting encashment to 300 days, aligns with Rules 31, 32, and 36. The cancellation of the 2019 sanction was lawful.
- Natural Justice: No violation occurred, as the respondent could not establish a legal right to a second encashment, and no prejudice was caused by the lack of a hearing.
- Leave Encashment Philosophy: Encashment compensates unutilized leave during regular service, rooted in equity and economic security. Allowing multiple encashments risks unjust enrichment and strains public finances.
Ratio Decidendi
A government servant who has availed leave encashment of 300 days upon superannuation under Rule 36 is not entitled to additional encashment for leave accrued during re-employment. Rules 32 and 36 serve distinct purposes, and the High Court’s conjoint interpretation was incorrect.
Obiter Dicta
Leave encashment balances employee welfare with institutional sustainability. Courts must prevent multiple encashments to avoid undue financial burden on the public exchequer while ensuring lawful entitlements.
Disposition
Appeals allowed, High Court orders set aside, no order as to costs.
Multiple Choice Questions (MCQs)
- What was the primary issue in the case State of Sikkim & Others vs. Dr. Mool Raj Kotwal (2025 INSC 559)?
a) Entitlement to pension benefits during re-employment
b) Entitlement to leave encashment for leave accrued during re-employment
c) Validity of re-employment under Sikkim Government Service Rules
d) Discrimination in salary during re-employment
Correct Answer: b) Entitlement to leave encashment for leave accrued during re-employment - Under which rule of the Sikkim Government Services (Leave) Rules, 1982, was the respondent initially granted leave encashment upon superannuation?
a) Rule 31
b) Rule 32
c) Rule 36
d) Rule 17
Correct Answer: c) Rule 36 - What was the Supreme Court’s interpretation of the relationship between Rules 32 and 36 of the Leave Rules?
a) They must be read conjointly to grant leave encashment to re-employed servants
b) They operate independently and Rule 32 does not extend Rule 36’s encashment benefit to re-employed servants
c) Rule 32 overrides Rule 36 for re-employed servants
d) Rule 36 is inapplicable to any government servant
Correct Answer: b) They operate independently and Rule 32 does not extend Rule 36’s encashment benefit to re-employed servants - What was the effect of the State’s clarificatory order dated February 27, 2020?
a) It increased the leave encashment limit to 600 days
b) It clarified that leave encashment is limited to 300 days, inclusive of re-employment periods
c) It abolished leave encashment for all government servants
d) It mandated hearings before cancelling leave encashment
Correct Answer: b) It clarified that leave encashment is limited to 300 days, inclusive of re-employment periods - Why did the Supreme Court reject the respondent’s claim of violation of natural justice?
a) The respondent was given a hearing before cancellation
b) The respondent could not establish a legal right to a second encashment, and no prejudice was caused
c) Natural justice principles do not apply to leave encashment
d) The State provided compensation for the lack of hearing
Correct Answer: b) The respondent could not establish a legal right to a second encashment, and no prejudice was caused - What is the maximum limit for leave encashment under Rule 36 of the Leave Rules?
a) 150 days
b) 300 days
c) 450 days
d) No limit
Correct Answer: b) 300 days - What was the Supreme Court’s view on the philosophy of leave encashment?
a) It is solely a financial burden on the State
b) It balances employee welfare with institutional sustainability, preventing unjust enrichment
c) It should be granted without any limit to promote employee welfare
d) It is irrelevant to public interest
Correct Answer: b) It balances employee welfare with institutional sustainability, preventing unjust enrichment - What was the outcome of the Supreme Court’s decision in this case?
a) The High Court’s orders were upheld, and the respondent was granted leave encashment
b) The appeals were dismissed, and the clarificatory order was struck down
c) The High Court’s orders were set aside, and the appeals were allowed
d) The case was remanded to the High Court for reconsideration
Correct Answer: c) The High Court’s orders were set aside, and the appeals were allowed
Frequently Asked Questions (FAQs)
1. What was the core dispute in State of Sikkim & Others vs. Dr. Mool Raj Kotwal?
The dispute centered on whether a government servant, who had already availed leave encashment of 300 days upon superannuation, was entitled to additional leave encashment for leave accrued during re-employment under the Sikkim Government Services (Leave) Rules, 1982.
2. What are Rules 32 and 36 of the Sikkim Government Services (Leave) Rules, 1982?
- Rule 32: Treats a re-employed government servant as a new entrant for the purpose of applying Leave Rules, as if they entered service for the first time on the date of re-employment.
- Rule 36: Allows a government servant retiring under the Sikkim Government Service Rules, 1974, to receive cash equivalent of unutilized earned leave, up to a maximum of 300 days, on the date of retirement.
3. Why did the Supreme Court rule that the respondent was not entitled to a second leave encashment?
The Court held that Rule 36 applies only to retirement from regular service and limits encashment to 300 days, inclusive of service extension under Rule 31. Rule 32, while allowing leave accrual during re-employment, does not extend Rule 36’s encashment benefit to re-employed servants. The rules operate in distinct spheres, and a second encashment would exceed the 300-day limit.
4. What was the significance of the State’s clarificatory order dated February 27, 2020?
The order clarified that the maximum 300-day leave encashment under Rule 36 includes leave earned during re-employment or service extension. It corrected a prior misinterpretation that allowed multiple encashments, aligning with the Leave Rules’ intent.
5. Did the Supreme Court address the respondent’s claim of violation of natural justice?
Yes, the Court rejected the claim, stating that since the respondent could not establish a legal right to a second encashment, and no prejudice was caused by the lack of a hearing, there was no violation of natural justice.
6. How did the Supreme Court view the philosophy of leave encashment?
The Court viewed leave encashment as a welfare measure grounded in equity and economic security, compensating employees for unutilized leave during regular service. However, it emphasized balancing employee rights with institutional sustainability to prevent unjust enrichment and financial strain on the public exchequer.
7. What was the final outcome of the case?
The Supreme Court allowed the State’s appeals, set aside the High Court’s orders (both Single Judge and Division Bench), and upheld the cancellation of the respondent’s second leave encashment. No costs were ordered.
8. How does this case impact re-employed government servants in Sikkim?
The ruling clarifies that re-employed government servants in Sikkim are not entitled to leave encashment beyond the 300-day limit availed upon superannuation. It ensures uniformity in applying Rule 36 and protects public finances by preventing multiple encashments.