Encashment of Casual Leave in India

Encashment of Casual Leave in India: A Legal Analysis

I. Introduction

Casual Leave (CL) in the Indian employment landscape is primarily intended to allow employees to address unforeseen, short-term personal exigencies. Unlike earned leave or privilege leave, which is accrued over a period of service, casual leave is typically granted for a fixed number of days annually and is not designed for accumulation. The question of encashment of unutilized casual leave—receiving monetary compensation in lieu of availed leave—presents a complex legal issue, often debated in various judicial forums. This article seeks to analyze the legal position regarding the encashment of casual leave in India, drawing upon judicial pronouncements and prevailing service jurisprudence, with specific reference to the provided materials.

II. The Nature of Casual Leave

Casual leave is fundamentally distinct from other forms of leave, such as earned leave or privilege leave. Its primary characteristics include its grant for short durations to meet unexpected contingencies and, crucially, its general non-accumulative nature. As observed by the Madhya Pradesh High Court in M.S Bhaskaran v. State Industrial Court And Others (1991 SCC ONLINE MP 277), the claim for encashment of casual leave was not considered precisely because casual leave cannot typically be carried forward from one year to the next. This inherent feature means that unavailed casual leave usually lapses at the end of the calendar or service year, distinguishing it from earned leave, which is often viewed as a form of deferred wage.

The Central Administrative Tribunal in Maman Singh v. Union of India (Central Administrative Tribunal, 2014), while discussing entitlements for casual labourers with temporary status, noted that "casual or any other kind of leave, except maternity leave, will not be admissible" under that specific scheme, and further, "They will not be entitled to the benefits of encashment of leave on termination of service for any reason or on their quitting service." While this pertains to a specific class of employees and a particular scheme, it underscores that casual leave, by its nature, is not automatically presumed to be encashable.

III. General Principles of Leave Encashment (Primarily from Earned Leave Jurisprudence)

To understand the context of casual leave encashment, it is useful to briefly consider the general principles governing leave encashment, largely developed in the context of earned leave. The Supreme Court, in State Of Rajasthan And Another v. Senior Higher Secondary School, Lachhmangarh And Others (Supreme Court Of India, 2004), as cited in Amita Gupta v. State Of Himachal Pradesh And Others (Himachal Pradesh High Court, 2022) and Jagdish Prasad Saini v. State Election Commission Of Rajasthan (2019 SCC ONLINE RAJ 4759), articulated that "leave encashment is nothing but salary for the unavailed leave to the credit of the employee." This principle was reiterated by the Apex Court in Jagdish Prasad Saini v. State of Rajasthan (Civil Appeal No. 6953 of 2022, decided on 26.09.2022), as mentioned in Amita Gupta.

The Supreme Court in THE STATE OF SIKKIM v. DR MOOL RAJ KOTWAL (Supreme Court Of India, 2025) further elaborated that "Leave encashment is a legal entitlement... based on the principle of deferred compensation... for benefits of leave accumulated over time limited to 300 days maximum." The Bombay High Court in KISHOR NARAYANRAO SAWARGAONKAR AND OTHERS v. THE UNION OF INDIA DEPARTMENT OF FINANCIAL SERVICES THROUGH ITS SECRETARY AND OTHERS (Bombay High Court, 2024) went further to state that "Leave encashment is akin to a salary, which is property. Depriving a person of his property without any valid statutory provision would violate Article 300 A of the Constitution of India."

However, there exists a counter-narrative or at least a nuanced perspective. The Punjab & Haryana High Court in Hoshiar Singh v. Department Of Education (Punjab & Haryana High Court, 2016) observed, in the context of aided school teachers, that "The encashment of earned leave is concession, which cannot be claimed as a matter of right. There is no statutory requirement of encashing earned leave." This view is somewhat echoed in N GANGADHARA v. EMPLOYEES PROVIDEND FUND ORGANISATION (EPFO) (Central Administrative Tribunal, 2025), which noted that "there is no statutory provision rule or regulation providing for encashment of Earned Leave... It was stated that it is based on executive instructions and the statutory provision is only for granting Earned Leave..." These observations primarily relate to earned leave but highlight that the basis for encashment can vary, being rooted either in statutory provisions, rules, executive instructions, or as a mere concession.

IV. Encashment of Casual Leave: Specific Judicial Scrutiny

The encashment of casual leave, specifically, is less frequently litigated than earned leave, largely due to its inherent nature. However, judicial scrutiny reveals specific circumstances where it may or may not be permissible.

A. The General Prohibition and Its Rationale

The foundational principle that generally militates against the encashment of casual leave is its non-accumulative character and its tendency to lapse if unavailed within the stipulated period. The Madhya Pradesh High Court in M.S Bhaskaran v. State Industrial Court And Others (1991 SCC ONLINE MP 277) directly addressed this, stating, "The claim for encashment of casual leave was not considered because casual leave cannot be carried forward from the previous year." This implies that if leave cannot be carried forward, it cannot form a "credit" that is subsequently encashable in the same manner as accumulated earned leave.

Furthermore, for certain categories of employees, such as casual labourers conferred with temporary status under specific schemes, the rules may explicitly deny the benefit of leave encashment. The Central Administrative Tribunal in Maman Singh v. Union of India (Central Administrative Tribunal, 2014) noted that such employees "will not be entitled to the benefits of encashment of leave on termination of service for any reason or on their quitting service," which would logically include casual leave if it were otherwise considered for encashment.

B. Permissibility Through Custom, Practice, or Specific Dispensation

Despite the general rule, there are exceptions where the encashment of casual leave has been recognized or directed, primarily based on established customs, specific service rules, or particular judicial interventions.

A significant precedent is Ambur Co-Operative Sugar Mills Ltd. v. Ambur Co-Operative Sugar Mills National Workers' Union And Others (2009 SCC ONLINE MAD 179, Madras High Court, 2009). In this case, the Madras High Court upheld the workers' right to encashment of unavailed casual leave. The court noted that the benefit had been provided by a circular and paid uninterruptedly for 28 years, thereby establishing a customary right. It was held that such a customary right could not be unilaterally withdrawn, especially without adhering to procedures like issuing a notice under Section 9-A of the Industrial Disputes Act, 1947, if it amounted to a change in conditions of service.

While V.V.F Limited v. Sarva Shramik Sangh And Others (2001 SCC ONLINE BOM 665, Bombay High Court, 2001) primarily dealt with the encashment of privilege leave, the Industrial Court's direction, upheld in principle, was based on "custom, usage and practice applied in the company." This underscores the broader legal principle that established practices can create entitlements to leave encashment, potentially extending to casual leave if such a custom is proven.

There are also instances of specific judicial directions. In Lt. Col.A.K Tiwari (Retired) v. The Secretary, Ministry Of Welfare, Govt. Of India And Another (1996 SCC ONLINE ALL 874, Allahabad High Court, 1996), the court directed the respondents to pay the petitioner amounts including "encashment of Casual Leave," along with earned leave and half-pay leave. This direction was based on a disclosure by the respondents regarding amounts payable, suggesting that in the specific factual matrix of that case, or due to employer concessions or applicable rules, casual leave encashment was deemed permissible.

C. Claims in Industrial Adjudication and Characterization

The issue of casual leave encashment has surfaced in industrial disputes. For example, in Warden And Co. (India) Ltd., Bombay v. Akhil Maharashtra Kamgar Union, Thane (2001 SCC ONLINE BOM 153, Bombay High Court, 2001), the workmen’s prayers included "encashment of privilege leave and casual leave."

However, the characterization of such dues for statutory purposes can be critical. The Allahabad High Court in Hindustan Aluminium Corporation Ltd. v. Dy. Labour Commissioner (Allahabad High Court, 2009) held that amounts claimed towards, inter alia, "encashment of earn leave, casual leave" were not "wages" as defined under Section 2(y) of the U.P. Industrial Disputes Act. Consequently, such amounts could not be claimed in summary proceedings under Section 6-H(1) of that Act. This ruling pertains to the recovery mechanism rather than the substantive entitlement to encashment itself, but it highlights a potential procedural hurdle.

V. Distinguishing Casual Leave from Other Forms of Encashable Leave

The primary distinction between casual leave and other forms of leave like earned leave or privilege leave, which are more commonly encashable, lies in their purpose, accrual, and accumulation. Earned leave is 'earned' by an employee as a result of their service and is generally intended for rest and recuperation over longer periods. It is usually allowed to be accumulated up to a certain limit (e.g., 300 days, as noted in Amita Gupta v. State Of Himachal Pradesh And Others (2022) and THE STATE OF SIKKIM v. DR MOOL RAJ KOTWAL (2025)) and is widely recognized as encashable upon retirement or cessation of employment, subject to applicable rules.

Casual leave, on the other hand, is designed for short-term, unforeseen absences. Its non-accumulative nature and the principle of lapsing at the end of the year fundamentally differentiate it from earned leave concerning the general presumption of encashability. While earned leave encashment is often treated as deferred salary or property (KISHOR NARAYANRAO SAWARGAONKAR, 2024), such a characterization is not automatically extended to casual leave unless specific rules or binding customs dictate otherwise.

VI. Statutory Framework and Rules

There is no single, overarching central statute in India that universally mandates or prohibits the encashment of casual leave. The entitlement, where it exists, typically emanates from:

  • Specific service rules applicable to the particular establishment (e.g., Central Civil Services (Leave) Rules, 1972, State Government service rules, rules of Public Sector Undertakings).
  • Certified Standing Orders applicable to the industrial establishment.
  • Collective bargaining agreements or settlements between employers and employees/unions.
  • Established and consistently followed custom or practice within an organization.

For instance, the Central Civil Services (Leave) Rules, 1972, generally stipulate that casual leave cannot be carried forward, which, by implication, means it is not encashable for central government employees. Similar provisions are often found in state government rules and the regulations of various public and private sector entities. The Factories Act, 1948, under Section 79, deals with annual leave with wages (akin to earned leave) but does not specifically address the encashment of casual leave. Various State Shops and Establishments Acts also regulate leave provisions, but specific entitlements to casual leave encashment would depend on the precise wording of these state-level statutes and the rules framed thereunder, or the employer's specific policies.

The observation in N GANGADHARA v. EMPLOYEES PROVIDEND FUND ORGANISATION (EPFO) (Central Administrative Tribunal, 2025) that even earned leave encashment is often based on executive instructions rather than a direct statutory provision for encashment itself (the statute provides for the grant of leave) reinforces the critical role of specific rules and instructions. This principle would apply with even greater significance to casual leave, where the general presumption is against accumulation and carry-forward.

VII. Conclusion

The encashment of casual leave in India is not a universally established right. The inherent nature of casual leave—being non-accumulative and lapsing if unavailed within the designated period (typically a calendar year)—generally precludes its encashment. This position is implicitly supported by judicial observations such as in M.S Bhaskaran v. State Industrial Court And Others (1991).

However, this general rule is subject to exceptions. Encashment of casual leave may be permissible, and indeed enforceable, under specific circumstances, notably:

  1. Where a strong, consistent, and uninterrupted custom or practice of encashing casual leave has been established within an organization, thereby creating a legitimate expectation or a customary right, as affirmed in Ambur Co-Operative Sugar Mills Ltd. v. Ambur Co-Operative Sugar Mills National Workers' Union And Others (2009).
  2. Where specific service rules, certified standing orders, employment contracts, or binding settlements/agreements explicitly provide for such encashment.
  3. In instances where courts, based on the particular facts, employer concessions, or specific rules applicable to the litigants, have directed such payment, as seen in Lt. Col.A.K Tiwari (Retired) v. The Secretary, Ministry Of Welfare, Govt. Of India And Another (1996).

Unlike earned leave, which is frequently characterized as deferred salary or a property right of the employee, the encashment of casual leave remains largely contingent upon the specific policies adopted by the employer or upon well-established, legally recognized customs, rather than flowing from an inherent statutory entitlement applicable across all employment sectors. Therefore, determining the admissibility of casual leave encashment necessitates a meticulous examination of the governing service conditions, applicable rules, and any prevailing binding practices within the specific employment context.