Holding

A regular government servant who retires under the Sikkim Government Service Rules is entitled to leave encashment only once, up to a maximum of 300 days, and re‑employment does not create a fresh right to a second encashment.

Summary

The respondent, a medical advisor, retired on superannuation at age 58 in 2005 and received leave encashment for a maximum of 300 days under Rule 36 of the Sikkim Government Services (Leave) Rules, 1982. He was subsequently re‑employed on the same post until 2019, during which he accumulated further earned leave and was again granted a second leave‑encashment order of 300 days on his relief. The State cancelled this second order, issuing a clarificatory memorandum that the 300‑day ceiling applies cumulatively, including any leave earned during re‑employment or extension of service. The respondent challenged the cancellation in a writ petition, arguing that Rule 32 treats re‑employment as a fresh entry and thus permits a second encashment, while the State contended that Rule 36 applies only to regular service retirees and cannot be read with Rule 32. The Supreme Court examined the language and purpose of Rules 31, 32 and 36, concluding that Rule 32 does not revive the entitlement to a fresh 300‑day encashment and that the maximum of 300 days is a one‑time benefit upon retirement. Accordingly, the Court set aside the orders of the Single Judge and Division Bench and allowed the State’s appeals, confirming that re‑employed retirees are not entitled to a second leave encashment.

Issues considered

Whether a government employee who has already received leave encashment of up to 300 days on superannuation is entitled to a second leave encashment on relieving after re‑employment.
Whether Rule 32 of the Sikkim Government Services (Leave) Rules, 1982 creates a legal fiction that allows the application of Rule 36 to re‑employed retirees.
Whether the State’s clarificatory order cancelling the second encashment violates principles of natural justice.

Legislation cited

Sikkim Government Service Rules, 1974s. Rule 102, s. Rule 98
Sikkim Government Services (Leave) Rules, 1982s. Rule 31, s. Rule 32, s. Rule 36

Headnote

Issue for Consideration 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 Sikkim Government Services (Leave) Rules, 1982, can further be entitled for leave encashment again on relieving of re-employment. Headnotes† Sikkim Government Service Rules, 1974 – rr.98, 102 – Sikkim Government Services (Leave) Rules, 1982 – rr.6, 17, 31, 32, 36 – Grant of benefit of leave encashment second time for the period of re-employment of respondent after attaining

Subjects

Leave EncashmentBenefit of leave encashmentSuperannuationLeave encashment on relieving after re-employmentRegular government servantBenefit of leave encashment second timeRe-employed retired government servantExtension of serviceClarificatory orderGrant of leave encashmentEncashment of unutilized earned leave

Judgment

[2025] 4 S.C.R. 2347 : 2025 INSC 559

State of Sikkim and Others
v.
Dr. Mool Raj Kotwal
(Civil Appeal No(s). 5464-5465 of 2025)
23 April 2025
[J.K. Maheshwari* and Rajesh Bindal, JJ.]

Issue for Consideration
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 Sikkim Government Services
(Leave) Rules, 1982, can further be entitled for leave encashment
again on relieving after the period of re-employment.

Headnotes†
Sikkim Government Service Rules, 1974 – rr.98, 102 – Sikkim
Government Services (Leave) Rules, 1982 – rr.6, 17, 31, 32,
36 – Grant of benefit of leave encashment second time for
the period of re-employment of respondent after attaining the
age of superannuation, in particular beyond the maximum
period of 300 days as prescribed – Respondent filed writ
petition challenging the cancellation of the order to grant leave
encashment and directing payment of sum as sanctioned –
Allowed by Single Judge relying upon Rule 36 read with Rule
32 of Leave Rules, declaring him entitled for grant of leave
encashment again for unutilized leave during the period of
re-employment – Appeal by the State, dismissed by Division
Bench – Interference with:
Held: 1.1 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 –
If the government servant is re-employed after 58 years of age
and continued for a long time and gets leaves accumulated during
the period of re-employment, he/she cannot get benefit of leave
encashment second time merely because he/she is having leave
in his/her credit during the period of re-employment. [Para 33]

* Author
2348 [2025] 4 S.C.R.

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1.2 Leave Rule 32 does not ipso facto deal with the applicability
of Leave Rule 36 for grant of leave encashment – Single Judge
was not correct to interpret Rule 32 and 36 by applying deeming
fiction for the re-employed government servant – Hence, those
findings cannot be countenanced, and the Division Bench erred
in affirming the same. [Para 24]
1.3 Leave Rules recognize benefit of leave encashment to a
government servant whose service has been extended and who
has retired from regular service under the Service Rules, but not
to the re-employed retired government servant – Therefore, the
leave encashment is permissible maximum upto 300 days of leave
and not beyond as on the date of retirement, including the case
of extension of service. [Para 29]
1.4 Clarificatory order issued by State in the matter of grant of
leave encashment for the earned leave to government employees
on ‘extension of service’ subject to maximum period of 300 days
and not beyond, is completely in consonance with the spirit of
Rules 31, 32 and 36 of Leave Rules. [Para 30]
1.5 In the present case, the respondent was in the regular
employment and superannuated on completion of 58 years of
age on 31.01.2005 under Service Rules – He was granted benefit
of leave encashment maximum of 300 days under Rule 36 of
the Leave Rules – On re-employment, he was continued for
more than 14 years and relieved on 28.05.2019 – On relieving
after re employment, the benefit of leave encashment was again
sanctioned on 31.05.2019 – The government on realising the
mistake and interplay of Rules 32 and 36 with the spirit of the
Leave Rules, issued clarificatory order on 27.02.2020 denying the
benefit of leave encashment beyond 300 days, is in consonance
with the spirit of Rule 36, which is just and reasonable to the
extent indicated – Therefore, cancellation of sanction of leave
encashment order dated 31.05.2019 is also in consonance to the
law – Orders passed by Single Judge and the Division Bench set
aside. [Paras 31, 33]
Service Law – Leave encashment – Purpose of granting,
stated – Principle of deferred compensation – Discussed –
Sikkim Government Services (Leave) Rules, 1982 – r.36.
[Paras 25-29]
[2025] 4 S.C.R. 2349

The State of Sikkim v. Dr. Mool Raj Kotwal

Sikkim Government Service Rules, 1974 – rr.98, 102 – Sikkim
Government Services (Leave) Rules, 1982 – rr.6, 17, 31, 32,
36 – Interplay of, explained. [Paras 17-23]

Case Law Cited
State of Rajasthan and Another v. Senior Higher Secondary School,
Lacchmangarh and Others (2005) 10 SCC 346 – referred to.

List of Acts
Sikkim Government Service Rules, 1974; Sikkim Government
Services (Leave) Rules, 1982.

List of Keywords
Leave Encashment; Benefit of leave encashment; Superannuation;
Leave encashment on relieving after re-employment; Regular
government servant; Benefit of leave encashment second time;
Re-employed retired government servant; Extension of service;
Clarificatory order; Grant of leave encashment; Encashment of
unutilized earned leave.

Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No(s).
5464-5465 of 2025
In
Special Leave Petition (C) No(s). 23709-23710 of 2023
From the Judgment and Order dated 27.04.2023 and 08.09.2022
of the High Court of Sikkim at Gangtok in WA No. 08 of 2022 and
WPC No. 14 of 2022

Appearances for Parties
Advs. for the Appellants:
Sameer Abhyankar, Ms. Ayushi Bansal, Sarthak Dora, Krishna
Rastogi, Aakash Thakur.
Advs. for the Respondent:
A. Mariarputham, Sr. Adv., Ms. Anuradha Arputham, Ms. Samten
Doma Lachungpa.
2350 [2025] 4 S.C.R.

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Judgment / Order of the Supreme Court

Judgment

J.K. Maheshwari J.

1. Leave granted.
2. Assailing the order dated 27.04.2023 passed in Writ Appeal No. 8 of
2022 confirming the order dated 08.09.2022 passed in Writ Petition (C)
No. 14 of 2022, by High Court of Sikkim at Gangtok, the State of
Sikkim (in short ‘State’) has filed these appeals. The discord between
the parties is regarding grant of benefit of leave encashment second
time for the period of re-employment of respondent after attaining
the age of superannuation, in particular beyond the maximum period
of 300 days as prescribed.
3. Being aggrieved by the order dated 21.05.2020 cancelling the order
dated 31.05.2019 to grant leave encashment and directing payment
of sum as sanctioned, the respondent preferred writ petition before
the High Court. Learned Single Judge allowed the same relying
upon Rule 36 read with Rule 32 of ‘Sikkim Government Services
(Leave) Rules, 1982’ (in short ‘Leave Rules’), declaring him entitled
for grant of leave encashment again for unutilized leave during the
period of re-employment. On filing the Writ Appeal by State, it came
to be dismissed by the impugned order. Hence the present appeals
by State challenging both orders passed by learned Single Judge
and Division Bench.

FACTS IN BRIEF
4. Prequel to the present litigation, the respondent was appointed on
deputation in year 1980 in the State services. On attaining the age
of superannuation1, he retired on 31.01.2005 in terms of Rule 982 of
Sikkim Government Service Rules, 1974 (in short ‘Service Rules’)
from the post of ‘Medical Advisor and Chief Consultant’, working at Sir
Thutob Namgyal Memorial (STNM) Hospital, in Health Care, Human
Services and Family Welfare Department, Government of Sikkim at

1 58 years.
2 Retirement on superannuation.
[2025] 4 S.C.R. 2351

The State of Sikkim v. Dr. Mool Raj Kotwal

Gangtok. Upon his retirement and while settling post retiral benefits,
he was paid leave encashment maximum of 300 days unutilized
leave as prescribed in Rule 363 of Leave Rules.
5. After retirement, the respondent was re-employed on the same post
for a period of 2 years, w.e.f. from 01.02.2005 to 31.05.2005, which
was extended time to time upto 28.05.2019, i.e., the date on which
he was officially relieved. Vide Office Order No. 710/G/DOP dated
31.05.2019 (in short ‘2019 office order’), he was allowed cash
equivalent to leave salary of 300 days of earned leave standing to
his credit for the period of re-employment.
6. The controversy was set into motion when the State on scrutiny found
that the Leave Rules do not provide for grant of leave encashment
to the re-employed employees second time beyond 300 days, which
was paid to them once on their retirement. It was noticed that, leave
encashment was being paid to the employees after their retirement
and ‘again’ after relieving from re-employment, though it was not in
conformity to the Leave Rules. The State Government took a decision
to correct the perpetual mistake and issued Office Memorandum
No. 4528/GEN/DOP, dated 27.02.2020 (the “clarificatory order”),
clarifying that maximum of 300 days of leave encashment specified
in Rule is inclusive of the period of leave earned during extension
of service, re-employment etc. The said clarification is pivotal to the
controversy involved, hence, reproduced as under –

“GOVERNMENT OF SIKKIM
DEPARTMENT OF PERSONNEL
GANGTOK
No. 4528/GEN/DOP Dated: 27/02/2020
OFFICE MEMORANDUM
Subject: Clarification on leave encashment of earned leave
to Government Employees on Extension of Service,
Re-Employment etc.
Rule 36 of the Sikkim Service (Leave) Rules, 1982 provides
to a government employee who retires from service

3 Cash payment in lieu of unutilized earned leave on the date of retirement.
2352 [2025] 4 S.C.R.

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under the Sikkim Government Service Rules, 1974, cash
equivalent of leave salary in lieu of earned leave on full
day standing at his/her credit on the date of his retirement
subject to a minimum of 300 days. Therefore, a maximum
of 300 days of earned leave due at credit also includes
the period of leave earned by a Government Employee
during extension of service, Reemployment etc.
This issues with the approval of Competent Authority.
Sd/-
(Tashi Cho Cho) SCS
SPECIAL SECRETARY TO THE GOVERNMENT”

7. After clarification, on 31.05.2019, order extending the benefit of cash
equivalent to leave salary in lieu of 300 days of unutilized leave
standing at the credit of Mr. M.R. Kotwal, Principal Medical Advisor
(Petitioner before High Court/Respondent herein) during the period of
his re-employment was cancelled vide order dated 21.05.2020 passed
by the Government of Sikkim, Department of Personnel, Gangtok.
The representation made by the respondent was also rejected on
18.02.2022 and the Chief Accounts Officer, Home Department,
Government of Sikkim, vide letter No. GOS/Home/Acctt./726 dated
21.03.2022 sent the information that payment of leave encashment
as prayed by the respondent cannot be released. That is how the
dispute arose, and litigation commenced.
8. Being aggrieved, the respondent preferred Writ Petition (C) No. 14
of 2022 seeking writ in the nature of mandamus and prayed for
quashment of the Office Order No. 493/G/DOP dated 21.05.2020
issued by Department of Personnel, Government of Sikkim, and
letter no. GOS/Home/Actt./726 dated 21.03.2022 and to declare that
the respondent is entitled to receive Rs. 20,51,100/- towards leave
encashment alike similarly placed other re-employed employees.
9. Learned Single Judge allowed the Writ Petition observing that Leave
Rule 36 should be read in conjunction with Rule 32, making the
Leave Rules applicable to the re-employed government servants. The
phrase ‘retires from service’ in Rule 36 is broad enough and includes
the re-employed employees. It is noted that after an order allowing
to receive cash equivalent for 300 days, withdrawal of such benefit
by a subsequent office memorandum is arbitrary. The clarificatory
[2025] 4 S.C.R. 2353

The State of Sikkim v. Dr. Mool Raj Kotwal

order couldn’t nullify the right accrued to the petitioner. While allowing
the Writ Petition, the Court did not accept the argument of the State
about financial burden because other similarly placed employees have
been extended similar benefit of second time leave encashment.
10. Being aggrieved, the appellants preferred the writ appeal which
came to be dismissed by the Division Bench observing that Rule 32
of the Leave Rules creates a legal fiction treating re-employed and
regular employee at par as if former had entered into service for the
first time, and made the Leave Rules applicable, and consequently
held that Rule 36 applies to re-employed government servants also.
The Court refused to interfere with the judgment of learned Single
Judge and noted that no palpable infirmity or perversity warranting
interference in intra-court appeal is made out.

ARGUMENTS ADVANCED BY APPELLANT – STATE
11. Mr. Sameer Abhyankar, learned counsel representing the appellants
extensively urged that Leave Rule 36 prescribes leave encashment
maximum of 300 days after retirement on attaining the age of
superannuation as specified in Service Rules. It was noticed that
employees who were re-employed after retirement were availing
benefit of leave encashment of the leave available in their credit
after being relieved. On examining the issue, the government found
that grant of such benefit is not as per the spirit of Rule 36 of Leave
Rules, therefore, issued the office memorandum dated 27.02.2020
clarifying the same. In consequence to the clarificatory order, the
benefit of leave encashment allowed to the respondent was cancelled
vide order dated 21.05.2020. Accordingly, after availing the benefit of
leave encashment of maximum of 300 days on retirement, he was
not found entitled to same benefit for the period of re-employment.
He submitted that the findings of learned Single Judge in reference
to Rule 36, re-affirmed by the Division Bench are not in conformity to
the real intent and object to grant benefit of leave encashment under
Rules to the retired employees. Rule 32 and Rule 36 of Leave Rules
deal with different spheres and they cannot be read in conjunction,
therefore, the interpretation as made in the impugned judgment is not
correct. On independent reading of Leave Rule 36, it is clear that a
person who has attained the age of retirement as per Service Rules,
i.e., 58 years, would be entitled for leave encashment maximum
up to 300 days. The said rule does not deal with relieving after the
2354 [2025] 4 S.C.R.

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re-employment, rather, it merely deals with contingency of grant of
leave encashment on retirement of an employee under Service Rules.
Therefore, the findings as recorded by the learned Single Judge
and affirmed by the Division Bench misinterpreting the formula of
granting leave encashment to an employee after retirement, require
due indulgence and interference in these appeals and interpretation
of the rules in right perspective.

ARGUMENTS ADVANCED BY RESPONDENT – EMPLOYEE
12. Per contra, learned senior counsel Mr. A. Mariarputham for the
respondent submits that on relieving from re-employment, sanction
of leave encashment was allowed vide office order dated 31.05.2019.
The same was cancelled vide order dated 21.05.2020 relying on the
office memorandum dated 27.02.2020, without notice and affording
an opportunity of hearing. Further, the rejection of representation
is discriminatory and violates Article 14 of the Constitution of India
because similarly situated other re-employed relieved employees have
been allowed the same benefits. In addition, the order cancelling
the benefit of leave encashment is in violation of the principles of
natural justice and without affording opportunity of hearing, the action
of the State was unfair which has rightly been interfered with by the
High Court.
13. It is further urged that Rule 32 applies to the re-employed government
servants alike an employee entered into service at first instance.
Leave Rule 36 also applies to the employees on whom Leave Rules
are applicable, however, on conjoint reading, the grant of benefit of
leave encashment, again to re-employed employee is not prohibited.
Thus, pretext taken to rectify the mistake by the State Government
cannot defeat the right of the re-employed employees conferred
under the Leave Rules. It is urged that two Courts have rightly dealt
with the interplay of Rules 32 and 36 of Leave Rules and it does
not call for any interference.

ANALYSIS AND REASONINGS
14. After having heard learned counsels at length and on perusal of the
material, in our view, 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
[2025] 4 S.C.R. 2355

The State of Sikkim v. Dr. Mool Raj Kotwal

be entitled for leave encashment again on relieving after the period
of re-employment?’
15. Prior to adverting to the issue and the submissions on merits, it is
necessary to refer the relevant Rules governing the controversy
involved in the present case. The retirement on attaining the age of
superannuation has been prescribed in the Service Rules and the
relevant Rules are reproduced below for ready reference –

“Sikkim Government Service Rules, 1974
98. Retirement on Superannuation –
(1) The date of retirement on superannuation of any
Government Servant in the regular service shall be the
afternoon of the last day of the month in which he attains
the age of 58 years. The Government retains the right to
change the prescribed age of retirement.
Provided that the Government Servant who had attained
the age of 58 years or more on the date of issue of this
Notification shall retire from the service with effect from
the afternoon of 31st October 1983.

xx xx xx xx
Explanation. – For the purpose of this rule, a Government
Servant whose date of birth falls on the first day of any
month shall have attained the age of fifty-eight years on
the afternoon of the last day of the preceding month.

xx xx xx xx
102. A Government Servant, who is retired according
to the provisions of rule 98, may be re-employed by
the Government if it is satisfied that such employment
is definitely in the interest of the Government and that
the Government Servant is physically and mentally fit.
The period for reemployment shall be determined by the
Government.
Provided that the day fixed plus the retiring pension shall
not, on the day of re-employment, exceed the pay last
drawn by the Government Servant before retirement, and
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also that the pay plus the retiring pension shall not, at any
time, exceed the maximum of the pay scale of the post
held by him during the period of re-employment.”
The said Rule 98 deals with superannuation from regular service and
specifies the date of retirement which would be the afternoon of the
last day of the month on which the employee attains the age of 58
years. Therefore, the emphasis can be gathered from the word ‘date
of retirement’, ‘from regular service’, ‘the last day’ and ‘on which the
employee attains 58 years’. Further, as per Rule 102, if an employee
has retired under Rule 98, he/she may be re-employed if such re-
employment is in the interest of government and retired government
employee is physically and mentally fit. Therefore, the re-employment
is not a right of the retired employee, but on the discretion and may
be exercised if service of an employee is required in public interest
by the government.
16. The leave encashment is governed by Sikkim Government Services
(Leave) Rules, the relevant rules thereof are reproduced below:-

“Sikkim Government Services (Leave) Rules, 1982
6. Earning of leave –
Save as otherwise provided in these rules, leave shall be
earned for the period for which a Government servant is
on duty only.
Explanation I. – Duty includes period of casual leave,
departmental examination leave under rule 25, in service
training joining time, quarantine leave but does not
include the periods of Extraordinary leave, examination
leave, study leave, maternity leave and all other kinds
of leave including special disability leave for accidental
injury.
Explanation II. – For the purpose of this rule the period
spent on deputation to autonomous bodies, public
undertakings shall count as duty only if contribution towards
leave salary and pension are paid either by the borrowing
employer or the government servant.
17. Earned leave for Government servants serving
in departments other than the vacation department –
[2025] 4 S.C.R. 2357

The State of Sikkim v. Dr. Mool Raj Kotwal

(1) Save otherwise provided in rule 27, all Government
servants shall be eligible for earned leave on full pay to
the extent on one-eleventh of the period spent on duty.
(2) In addition, a Government servant shall be entitled to
half pay leave of 20 days in respect of each completed
year of service which may be granted on medical certificate
or on private affairs.
Note – A Government servant shall cease to earn or
accumulate leave under sub-rule (1) above when earned
leave at credit exceeds 300 days.
18. Calculation of earned leave –
In calculating earned leave referred to in sub-rule (1)
of rule 17, the actual number of days of duty shall first
be counted and then multiplied by 1/11 and the product
expressed in days. The fraction in the earned leave shall
be rounded off to the nearest day that is fraction below
half a day shall be ignored and that a fraction exceeding
half a day or more shall be reckoned as one day.
31. Leave during a period of extension of service –
Where the services of a government servant has been
extended in the interest of public service beyond the
date of his retirement, such government servant may be
granted earned leave subject to a maximum of 300 days,
as follow –
(i) during the period of extension, any earned leave due
in respect of that period of such extension and, to
the extent necessary, the earned leave which could
have been granted to him under sub-rule (2) of rule
28 had he retired on the date of retirement;
(ii) after the expiry of the period of extension –
(a) the earned leave which could have been granted
to him under sub-rule (2) of rule 28 had he
retired on the date of retirement decreased by
the amount of such leave availed of during the
period of extension; and
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(b) any leave earned during the period of extension
as has been formally applied for a preparatory
to final retirement in sufficient time during the
extension and refused to him on account of the
exigencies of the public service.
32. Leave during a period of re-employment after
retirement –
In the case of a Government servant re-employed after
retirement, the provisions of these rules shall apply as if
he had entered government service for the first time on
the date of his re-employment.

xx xx xx xx
36. Cash payment in lieu of unutilized earned leave
and half pay leave on the date of retirement –
The Government may sanction to a Government servant
who retires from service under the Sikkim Government
Service Rules, 1974, cash equivalent of the leave salary
in lieu of the period of earned leave on full pay standing
at his credit on the date of his retirement subject to a
maximum of 300 days.”
17. On bare reading of the Leave Rules, it is clear that government
servant may earn leave for the period on which he is on duty. Under
Rule 17, a government servant in department may be eligible for
earned leave on full pay to the extent of 1/11th of the period spent on
duty. In addition, he may also be entitled 20 days half-pay leave in
each calendar year on medical ground or on private affairs. The note
appended to it makes it clear that on accumulation of maximum of
300 days of earned leave, it may not be accrued in leave account of
an employee. Rule 18 has relevance to the extent of how calculation
of the earned leave can be made for the purpose of Rule 17(1).
18. Rule 31 applies for extension of service which is not specified in Rule
102 of the Service Rules. Thus, a government servant whose service
is extended may be granted earned leave subject to a maximum of
300 days including the extended period of service. Therefore, in case
of extension of service, Leave Rule 36 applies with a rigor that on
adding the period of extension of service, leave encashment beyond
[2025] 4 S.C.R. 2359

The State of Sikkim v. Dr. Mool Raj Kotwal

300 days is not permitted. As per Rule 32 of the Leave Rules, if the
government servant is re-employed after retirement, the provision of
Leave Rules shall apply as if he had entered in government service
for the first time on the date of re-employment for the purpose of
granting leave during the period of re-employment. To understand
the inter-play of these rules, it’s important to examine them carefully.
19. Rule 36 quoted as above consists of two limbs – (i) the retirement
of the government servant ought to be under Sikkim Government
Service Rules, 1974 and; (ii) the earned leave on full pay standing
at his credit on the date of retirement, maximum of 300 days may
be granted. On fulfillment of these twin requirements, the retired
government servant may be allowed cash equivalent to leave salary
at his credit for leave encashment maximum upto 300 days.
20. On analysis of the first limb as indicated, it is clear that the government
servant ought to retire under the Service Rules. The government
servant as specified in Leave Rule 36 for sanction of earned leave are
those who are in regular service as employed in terms of the Service
Rules. The re-employed government servants are not included in
the said Rule, however, inclusive benefit of leave encashment may
be available only to those employees whose services have been
extended as per Rule 31 of Leave Rules, subject to a maximum of
300 days. It is not out of place to note that Rule 99 of Service Rules
deals with compulsory retirement in public interest and Rule 99A
with voluntary retirement. The former may be on discretion of the
government analyzing the utility of service in public interest, while
later on a choice or request of the employee to continue in regular
service after completion of 20 years.
21. The re-employment in the service has been prescribed in Rule 102 of
Service Rules, by which, the government servant who stood retired
under Rule 98 but not under Rules 99 or 99A, on the discretion of
the government. In the said rule, the entitlement of salary has also
been prescribed. After perusal of the above referred rules, mere
applicability of Leave Rule 32 would not ipso facto bring an employee
within the connotation “government servant” to whom Leave Rule 36
applies. The said fact is discernable from the language employed
in Leave Rule 32 which specifies “government servant re-employed
after retirement” and “the provision of these rules shall apply as if he
had entered in government service for the first time on the date of his
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re-employment”. So, Leave Rule 36 shall apply to those government
servants who were in regular service prior to their retirement upto
attaining the age of superannuation, i.e., 58 years.
22. The second limb of Rule 36 of Leave Rules makes it clear that an
employee may get cash equivalent of the period of earned leave on
full pay maximum of 300 days at his credit on the date of retirement.
Meaning thereby, the benefit of cash equivalent to leave salary which is
in other words known as leave encashment, is available on retirement
to a regular government servant, maximum upto 300 days, inclusive
of those whose service has been extended and for the purpose of
Rule 31 of Leave Rules. The language of Leave Rule 36 makes it
clear that the unutilized earned leave which is in the credit of the
employee on the date of retirement, including extension of service,
maximum upto 300 days may be granted. By using the words “the
government may sanction to a government servant who retires from
service under the Sikkim Government Service Rules, 1974”, makes
the legislative intent clear that the government servant can get leave
encashment on retirement from regular service and not on relieving
after re-employment. Thus, 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.
23. The language of Leave Rule 32 makes it clear that grant of leave
during the period of re-employment shall be alike a new entry of an
employee in service on the date of re-employment, whereas, Leave
Rule 36 specifies cash payment of un-utilized earned leave and
half pay leave on the date of retirement of a regular government
servant subject to a maximum of 300 days. In view of the foregoing
discussion, we have no hesitation to say that, Rule 32 cannot be
read in a manner to revive the 300 days of unutilized leave afresh
for the re-employed employees who have already availed the benefit
of leave encashment maximum of 300 days during regular service.
As such, there is no interplay of Rule 32 with Rule 36 and both are
independent and apply in different spheres. The unutilized leave in
credit beyond period of 300 days during re-employment would not
be inclusive for leave encashment under Rule 32 of Leave Rules.
Therefore, in our view Rule 36 cannot be read in conjunction to
Rule 32.
[2025] 4 S.C.R. 2361

The State of Sikkim v. Dr. Mool Raj Kotwal

24. In view of the above discussions, learned Single Judge was not
correct to interpret Rule 32 and 36 by applying deeming fiction for
the re-employed government servant. Hence, those findings cannot
be countenanced, and the Division Bench erred in affirming the
same. In our opinion, Leave Rule 32 does not ipso facto deal with
the applicability of Leave Rule 36 for grant of leave encashment.
25. In the said sequel, the philosophy and purpose of granting encashment
of unutilized earned leave also warrants attention. Leave encashment
is a legal entitlement that exists within the framework of service law
and in the welfare of the employee. It allows employees to receive
a monetary benefit in exchange for leave they have earned but not
taken during regular employment. This right is based on the principle
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. This entitlement is often established
in statutory provisions, service rules (such as Rule 36 of the Leave
Rules) or employment contracts, ensuring that employees are fairly
compensated for their unutilized leave.
26. A three-judges Bench of this Court in ‘State of Rajasthan and
Another Vs. Senior Higher Secondary School, Lacchmangarh
and Others’4, although in context of Section 29 of Rajasthan Non-
Government Education Institutions Act, 1989, interpreted Leave
Encashment as ‘nothing but salary for the un-availed leave to the
credit of the employee’. Nonetheless, something more is required to
understand the full import behind grant of Leave Encashment, which
is the benefit after retirement to a devoted employee. Jurisprudentially,
leave encashment is grounded in two key principles: equity and
economic security. The principle of equity ensures that employees
who forgo their right to take leave for the benefit of the organization
are not deprived of its monetary value. The principle of economic
security treats leave encashment as a form of deferred wages, similar
to gratuity or pension benefits. This reinforces the employer’s duty to
maintain fair labour practices and protects employees’ financial rights.
27. Interpreting leave encashment provisions goes beyond financial
compensation and connects to broader legal principles of dignity and

4 (2005) 10 SCC 346, (Para 21)
2362 [2025] 4 S.C.R.

Supreme Court Reports

welfare during service. However, such interpretations must carefully
balance the interests of both employees and the financial stability
of the organization, especially when public exchequer is involved.
Courts must tread carefully to prevent employees from claiming leave
encashment multiple times for the same accrual, which could lead to
unjust enrichment and may go against the public interest of largesse.
28. Therefore, while leave encashment ensures that extra-ordinary
work ethic of an employee is rewarded, it must be applied in a way
that upholds both employee rights and institutional sustainability.
Naturally, courts must interpret leave encashment rules and statutes
in a manner that prevents undue financial burden on employers while
ensuring that employees receive what they are lawfully entitled to.
29. Thus, Leave Rules recognize benefit of leave encashment to a
government servant whose service has been extended and who
has retired from regular service under the Service Rules, but not to
the re-employed retired government servant. Therefore, the leave
encashment is permissible maximum upto 300 days of leave and not
beyond as on the date of retirement, including the case of extension
of service.
30. In view of the discussions made hereinabove, in our considered
opinion, clarificatory order issued by State in the matter of grant of
leave encashment for the earned leave to government employees
on ‘extension of service’ subject to maximum period of 300 days and
not beyond, is completely in consonance with the spirit of Rules 31,
32 and 36 of Leave Rules.
31. In the present case, the respondent was in the regular employment and
superannuated on completion of 58 years of age on 31.01.2005 under
Service Rules. He was granted benefit of leave encashment maximum
of 300 days under Rule 36 of the Leave Rules. On re-employment, he
was continued for more than 14 years and relieved on 28.05.2019. On
relieving after re-employment, the benefit of leave encashment was
again sanctioned on 31.05.2019. The government on realising the
mistake and interplay of Rules 32 and 36 with the spirit of the Leave
Rules, issued clarificatory order on 27.02.2020 denying the benefit of
leave encashment beyond 300 days, is in consonance with the spirit
of Rule 36, which is just and reasonable to the extent as indicated
above. Therefore, cancellation of sanction of leave encashment order
dated 31.05.2019 is also in consonance to the law.
[2025] 4 S.C.R. 2363

The State of Sikkim v. Dr. Mool Raj Kotwal

32. Lastly, it is impressed upon that the leave encashment benefit
granted to the respondent has been cancelled without affording due
opportunity, and in violation of natural justice. In our view, the said
argument appears attractive on first blush, but of no substance. 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 granting
leave encashment second time. As such, the argument of not granting
an opportunity and violation of natural justice is hereby repelled.
33. In view of the foregoing, 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. If the government servant
is re-employed after 58 years of age and continued for a long time
and get leaves accumulated during the period of re-employment,
he/she cannot get benefit of leave encashment second time merely
because he/she is having leave in his/her credit during the period
of re-employment. Consequently, the orders passed by the learned
Single Judge and the Division Bench stand set-aside and both these
appeals stand allowed. The pending application(s), if any, shall also
stand disposed of. In the facts, there is no order as to costs.

Result of the case: Appeals allowed.

†
Headnotes prepared by: Divya Pandey