The Supreme Court on September 26, 2022 in the matter of Jagdish Prasad Saini v. State of Rajasthan held that that leave encashment is part of salary.

In the instant matter, an appeal was filed against a judgment of the Rajasthan High Court, Jaipur Bench dismissing the Appellant’s plea by holding that neither gratuity nor leave encashment was covered by the expression “salary”, under Rule 10 of the Rajasthan Voluntary Rural Education Service Rules, 2010 or under the Rajasthan Non-Government Educational Institutions (Recognition Grant-In-Aid and Service Conditions, Etc.) Rules, 1993.

It was contented by the Appellants that the expression “salary” included both components, i.e., gratuity, as well as leave encashment and that leave encashment had, “to be read and understood with the definition of the word salary”. Further, it was contented by the Respondents that leave encashment and gratuity could not be said to form part of “salary” on the grounds that in terms of Rule 5(viii), the employees could seek payment of leave encashment of balance of privileged leave only from the private institutions and that privileged leave cannot be included within the term salary which under Section 2(r) of Rajasthan Non-Governmental Educational Institutions Act,1989 means “aggregate of the emoluments of an employee”.

The Court held that the condition in clause (viii) of Rule 5 i.e., carry forward of balance privilege leave and requiring employees to seek encashment from their previous employer, i.e., aided institutions, is an arbitrary and unconscionable condition, which cannot be enforced. It observed that:

“Rule 5(viii), carry forward of existing privilege leave is denied; likewise, the period of service in aided institutions is not to be reckoned for the purpose of gratuity under Rule 5(ix). Every employee had to furnish an undertaking in the prescribed form to accept the terms and conditions. Ordinarily no public employer can be faulted in imposing pre-conditions before it recruits an employee.”

Thus, the Court allowed the appeal and directed the Respondents to pay the amount of gratuity and leave encashment to the Appellants.