The Allahabad High Court has clarified that delayed payment of leave encashment to government employees attracts interest as a natural consequence of delayed capital, even if such payment is not strictly statutory. This ruling reinforces the principle that equitable relief must follow unjust enrichment, regardless of technical classifications.
Background & Facts
The Dispute
The petitioner, Ambika Singh, a former employee of the Union of India, retired on superannuation on 31.01.2017. Upon retirement, she was entitled to leave encashment as per the Central Civil Services (Leave) Rules, 1972. The amount due was calculated and processed, but payment was not made until 29.12.2022 - a delay of over five years and eleven months. While the principal amount of leave encashment was eventually paid, no interest was disbursed for the period of delay.
Key Facts
The petitioner retired on 31.01.2017 after completing qualifying service under the CCS (Leave) Rules
The leave encashment amount was computed and sanctioned by the concerned department
The payment of principal amount was made only on 29.12.2022
No interest was paid for the period from 31.01.2017 to 29.12.2022
The petitioner raised representations seeking interest, which were rejected on the ground that leave encashment is not a statutory payment
The rejection was based on a circular issued by the Department of Personnel and Training (Respondent No. 2), which states that interest is not payable on non-statutory dues
Procedural History
31.01.2017: Petitioner retired from service
2017 - 2022: Repeated representations made for payment of interest - all rejected
2026: Writ Petition No. 5340 of 2026 filed before the Allahabad High Court, Lucknow Bench
02.07.2026: Hearing conducted before Hon’ble Justice Pankaj Bhatia
The Parties' Positions
For the Petitioner
Argued that delay in payment of any legitimate dues, even if not statutory, results in unjust enrichment of the State
Relied on the binding precedent of Nand Lal v. Indian Telephone Industries Limited and 2 Ors. (Writ-A No. 31490 of 2016), decided on 09.03.2018, wherein this Court held that interest is payable on delayed leave encashment
Contended that leave encashment is a contractual and service-related right, flowing from the terms of employment and recognized under administrative rules
Emphasized that interest is not a grant but a natural accrual on delayed capital
For the Respondents
Argued that leave encashment is not a statutory payment under any Act of Parliament
Relied on a departmental circular dated [not specified] which explicitly bars payment of interest on non-statutory dues
Submitted that since no statute mandates payment of interest, no legal obligation arises
Noted that a similar matter is pending before the Supreme Court in SLP(C) No. 004379 of 2019, and another case (Writ Petition No. 20927 (SS) of 2021) is under consideration
Relief Sought
The petitioner sought:
Payment of interest at a reasonable rate on the leave encashment amount for the period from 31.01.2017 to 29.12.2022
Direction to the Union of India to disburse the interest within a stipulated time
The Legal Issue
The central question was whether interest is payable on delayed payment of leave encashment to a government employee when such payment is not classified as a statutory debt under any Act, but arises from service rules and administrative policy.
Arguments Presented
For the Petitioner
The petitioner’s counsel relied on the binding precedent of Nand Lal v. Indian Telephone Industries Limited and 2 Ors., wherein this Court held that interest is a natural consequence of delayed payment of dues, irrespective of statutory status. The counsel argued that the State cannot retain the benefit of delayed payment without compensating the employee for the loss of use of funds. The petitioner emphasized that leave encashment is not a discretionary grant but a vested right under the CCS (Leave) Rules, 1972, and that the circular barring interest is ultra vires the principles of natural justice and equity.
For the Respondent
The respondent’s counsel contended that since leave encashment is not a statutory payment under any Act, the State is under no legal obligation to pay interest. The circular issued by the Department of Personnel and Training was cited as a valid administrative policy to prevent arbitrary claims. The counsel further argued that allowing interest in such cases would open floodgates to similar claims and create fiscal burden on the exchequer.
The Court's Analysis
The Court examined the nature of leave encashment and its legal character. It observed that while leave encashment may not be created by a parliamentary statute, it is a well-established, non-discretionary entitlement under the CCS (Leave) Rules, 1972, which are framed under the authority of the President under Article 309 of the Constitution. The Court held that such rules have the force of law and create enforceable rights.
"Even otherwise, the payment of leave encashment flows out of the decisions taken and thus, cannot be said that it has no flavour of statutory enactment."
The Court rejected the argument that non-statutory status negates the right to interest. It held that interest is not a grant but a natural accrual on delayed capital, and the State, as a model employer, must not be permitted to unjustly enrich itself by retaining funds beyond a reasonable time. The Court distinguished the circular relied upon by the respondents, noting that administrative circulars cannot override established principles of equity and natural justice.
The Court further affirmed the precedent in Nand Lal, stating that it remains good law and binding on this Bench. The pendency of an SLP before the Supreme Court does not suspend the operation of a binding High Court precedent unless expressly stayed.
The Verdict
The writ petition was allowed. The Court directed the Union of India to pay interest at the rate of 7% per annum on the leave encashment amount for the period from 31.01.2017 to 29.12.2022. The interest shall be calculated on the principal amount due and paid to the petitioner within four months from the date of this judgment.
What This Means For Similar Cases
Interest Is Due on All Delayed Service Dues
Practitioners representing government employees can now confidently claim interest on delayed payments of leave encashment, gratuity, pension arrears, and other service-related dues, even if not explicitly mandated by statute
The principle that "delayed payment = unjust enrichment" applies regardless of whether the payment is labeled "statutory" or "administrative"
Circulars barring interest on non-statutory dues are now legally untenable in light of this ruling
Precedent Overrules Administrative Policy
Nand Lal v. ITI is now firmly established as binding authority in the Allahabad High Court jurisdiction
Administrative circulars that conflict with equitable principles or binding precedents cannot override judicial findings
Lawyers should cite this judgment when opposing departmental denials of interest on delayed service dues
Procedural Strategy for Future Claims
File writ petitions promptly upon denial of interest - delay in filing may invite limitation arguments
Always rely on Nand Lal and this judgment to counter the "non-statutory" defense
Demand interest from the date of entitlement (retirement or due date) until actual payment
Seek interest at 7% per annum as a reasonable benchmark unless higher rates are justified by evidence
