Kiran Raj

The Supreme Court of India Division Bench of Justice J.K. Maheshwari and Justice Rajesh Bindal allowed the appeal filed by the State of Sikkim and set aside the judgments passed by the learned Single Judge and the Division Bench of the High Court of Sikkim. The Court held that a government servant who has already availed leave encashment of 300 days on retirement under the Sikkim Government Service Rules, 1974, is not entitled to a second leave encashment benefit upon relieving after re-employment. The Court upheld the clarificatory order issued by the State and validated the cancellation of the second leave encashment previously sanctioned to the respondent.

The dispute arose regarding the entitlement of Dr. Mool Raj Kotwal, a retired government servant re-employed post-retirement, to avail leave encashment benefits a second time. The respondent had retired on 31.01.2005 from the post of 'Medical Advisor and Chief Consultant' in the Health Care, Human Services, and Family Welfare Department, Government of Sikkim. Upon his retirement, he was granted cash equivalent of 300 days of unutilized earned leave in accordance with Rule 36 of the Sikkim Government Services (Leave) Rules, 1982.

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Following retirement, the respondent was re-employed in the same post, with his re-employment extended multiple times until 28.05.2019. Upon conclusion of his re-employment, by an office order dated 31.05.2019, he was again sanctioned leave encashment benefits for the period of his re-employment.

However, upon scrutiny, the State Government issued a clarificatory order dated 27.02.2020, stating that leave encashment is restricted to a maximum of 300 days, inclusive of the period earned during extension of service or re-employment. Accordingly, the earlier sanction order of 31.05.2019 was cancelled on 21.05.2020. The respondent’s representation seeking reversal of the cancellation was rejected.

Aggrieved by the cancellation, the respondent approached the High Court of Sikkim, challenging the office order and seeking entitlement to leave encashment of ₹20,51,100 for the re-employment period. The Single Judge allowed the petition, holding that Leave Rules 32 and 36 should be read together and that re-employed employees are entitled to leave encashment. On appeal, the Division Bench of the High Court upheld the Single Judge's findings.

The State of Sikkim, challenging the interpretation of the Leave Rules, filed an appeal before the Supreme Court. It contended that the Leave Rules limited leave encashment to once, for a maximum of 300 days, and that Rule 36 must be interpreted independently of Rule 32. The State emphasized that permitting multiple encashments would be contrary to public interest and financial discipline.

The respondent, defending the High Court's rulings, argued that the denial of leave encashment violated principles of natural justice and Article 14 of the Constitution. He submitted that other similarly placed employees had been extended the benefit.

The Supreme Court observed that "the short question falls for our consideration is, 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."

The Court analyzed the relevant provisions of the Sikkim Government Service Rules, 1974, and the Sikkim Government Services (Leave) Rules, 1982. It recorded that "on analysis of Rule 36, it is clear that the government servant ought to retire under the Service Rules, and on fulfillment of the twin requirements, may be allowed cash equivalent to leave salary at his credit for leave encashment maximum up to 300 days."

The Court held that "Leave Rule 36 applies to those government servants who were in regular service prior to their retirement and not to re-employed government servants." Further, it stated that "after granting leave encashment once on retirement to a maximum of 300 days, the employee cannot get benefit of leave encashment second time in lieu of his relieving on completing the period of re-employment."

Examining Rule 32, the Court observed that "mere applicability of Leave Rule 32 would not ipso facto bring an employee within the connotation of 'government servant' to whom Leave Rule 36 applies." The Court held that Rule 32 and Rule 36 operate in different spheres and that "there is no interplay of Rule 32 with Rule 36."

The judgment also discussed broader principles, recording that "leave encashment is a form of deferred compensation to an employee who has not taken leaves and served, for which the employer must compensate not only for his/her work, but also for benefits of leave accumulated over time limited to 300 days maximum."

On the issue of alleged violation of natural justice, the Court stated that "when the respondent is unable to justify his claim of leave encashment and unable to set forth his right even allowing him reasonable opportunity, in our view, no prejudice was caused in cancelling the order."

The Court concluded that the clarificatory order issued by the State was "completely in consonance with the spirit of Rules 31, 32 and 36 of Leave Rules."

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The Supreme Court directed that "the irresistible conclusion can be drawn is that, under Rule 36 of Leave Rules, a regular government servant, if retires under Sikkim Government Service Rules, 1974 would be entitled for leave encashment maximum for 300 days." It held that if a government servant is re-employed after attaining the age of superannuation, he or she cannot claim leave encashment again upon completion of the re-employment period.

Accordingly, the Court ordered that "the orders passed by the learned Single Judge and the Division Bench stand set aside and both these appeals stand allowed."

It also directed that "the pending application(s), if any, shall also stand disposed of."

Further, the Court clarified that "there is no order as to costs."

Advocates Representing the Parties

For the Petitioners: Mr. Sameer Abhyankar, Advocate-on-Record; Mr. Krishna Rastogi, Advocate.

For the Respondents: Mr. A. Mariarputham, Senior Advocate; Ms. Anuradha Arputham, Advocate; Ms. Samten Doma Lachungpa, Advocate-on-Record.

Case Title: State of Sikkim and Others v. Dr. Mool Raj Kotwal

Neutral Citation: 2025 INSC 559

Case Number: Civil Appeal Nos. ___ of 2025 (arising out of SLP (C) Nos. 23709-23710 of 2023)

Bench: Justice J.K. Maheshwari and Justice Rajesh Bindal

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