They resigned. The Bank said leave lapses. The High Court said pay.

Two resignations, 450 days of leave, and a bank that said no

Dattaram Atmaram Sawant and his wife Seema Sawant had worked for the Vidharbha Konkan Gramin Bank for over thirty years each. When they resigned — Seema in 2014, Dattaram in 2015 — they had accumulated 240 and 210 days of privilege leave respectively. They asked the Bank to pay them cash for that unused leave. The Bank refused. The reason: a circular that allowed leave encashment for resigned employees had only come into effect on 14 September 2015, after both had already resigned. The Sawants went to the Bombay High Court. The stakes were simple: nearly 450 days of earned leave, or nothing.

What the Bank's own regulations actually said

The Sawants had joined the Bank in the 1980s. By the time they left, they had each put in more than three decades of qualifying service. Under Regulation 61 of the Vidharbha Konkan Gramin Bank (Officers and Employees) Service Regulations, 2013, privilege leave was earned at a fixed rate for every completed quarter of service. The Bank did not dispute that the Sawants had earned this leave. It did not dispute the number of days. Its sole defence was that the Sawants had resigned, not retired, and that the regulations did not permit leave encashment upon resignation.

The Bank pointed to Regulation 67, which stated that "all leave at the credit of an employee shall lapse on the date of cessation of service." The Bank read this to mean that once service ended — by resignation, retirement, or any other mode — the leave simply vanished. No payment. No encashment. The Bank also relied on a circular dated 14 September 2015, which for the first time extended the facility of leave encashment to employees who resigned. Since the Sawants had resigned before that date, the Bank argued, they fell outside its scope.

The argument that changed everything

The learned Counsel for the Sawants, Mr. P.P. Kulkarni, did not argue that the circular should be applied retrospectively. Instead, he argued something more fundamental: that the right to leave encashment had already accrued during the Sawants' service, and that no subsequent circular — or regulation — could take it away without specific statutory authority. He pointed out that Regulation 67 spoke of leave "lapsing" on cessation of service, but that this could not mean the forfeiture of an already accrued right to encashment. The leave had been earned. The Bank had already received the service. The right to payment for unused leave was property, he argued, and could not be extinguished by a general lapse clause.

The Bank, represented by Mr. S.S. Patwardhan, countered with two Supreme Court decisions: BSES Yamuna Power Ltd. v. Ghanshyam Chand Sharma and Senior Divisional Manager, LIC v. Shree Lal Meena. In both cases, the Supreme Court had held that resignation could forfeit past service and the benefits attached to it. But there was a crucial difference: in both those cases, the service rules contained a specific provision stating that resignation would result in forfeiture of past service. The Vidharbha Konkan Gramin Bank Regulations had no such provision.

The witness rule the Supreme Court applied

The Division Bench of Justice Nitin Jamdar and Justice M.M. Sathaye began its analysis with a simple question: did the Regulations contain any provision that specifically forfeited the right to leave encashment upon resignation?

The answer was no.

The Court examined Regulation 67 carefully. It said that leave at the credit of an employee "shall lapse" on cessation of service. But the Court held that this provision dealt with the leave itself — the time off — not with the right to encashment that had already accrued. The distinction was critical. An employee earns leave by working. That leave, once earned, is a form of deferred compensation. The Bank could say that the employee could not take the leave after leaving service. But it could not say that the employee had no right to be paid for the leave already earned, unless a specific regulation said so.

The Court then turned to Article 300A of the Constitution, which guarantees that no person shall be deprived of property except by authority of law. Relying on State of Jharkhand v. Jitendra Kumar Srivastava (2013) 12 SCC 210 and D.S. Nakara v. Union of India (1983) 1 SCC 305, the Court held that accumulated privilege leave constitutes property. Depriving the Sawants of its encashment without a specific statutory provision authorising forfeiture would violate Article 300A.

The Court also found support in a Division Bench precedent of the same High Court: Ashok s/o Munjappa Potphale v. Chief Secretary, Union of India 2017 (3) Mh. L.J. 540. In that case, under identical Maharashtra Gramin Bank Regulations, the Court had held that even employees compulsorily retired by way of punishment were entitled to privilege leave encashment, because there was no provision for withholding it. If punitive termination could not defeat the right, the Court reasoned, resignation certainly could not.

A Karnataka High Court decision in Karnataka Vikas Grameena Bank v. Chandrashekhar 2021 SCC OnLine Kar 15842 was directly on point. There, under an identical lapse-of-leave regulation, the Court had held that there was no distinction between retired and resigned employees for leave encashment, since the benefit had already accrued.

THE PLAY: If your service regulations do not contain a specific provision forfeiting accrued leave encashment upon resignation, you are entitled to payment for unused privilege leave — even if a general "lapse" clause exists.

Why the circular didn't matter

The Bank had argued that the 14 September 2015 circular was the first time leave encashment was extended to resigned employees, and that the Sawants had resigned before that date. The Court rejected this argument in a single stroke. The circular, it said, did not create a new right. It merely reiterated the existing legal position. The right to leave encashment existed independently under the Regulations. The Bank could not use the date of a circular to confine a right that had already accrued during service.

The Court distinguished the two Supreme Court decisions relied upon by the Bank. In BSES Yamuna Power Ltd. and Shree Lal Meena, the service rules contained explicit forfeiture-on-resignation provisions. The Vidharbha Konkan Gramin Bank Regulations had no such provision. The distinction was not a technicality — it was the entire basis of the decision.

What this means for every employee who resigns

This judgment clarifies a point that has caused confusion across public sector banks and similar institutions. The default position is that leave encashment is an accrued right. It is not a gratuity or a bonus that the employer can choose to grant or withhold. It is deferred compensation for work already performed. If an employer wants to deny it upon resignation, it must point to a specific regulation that says so. A general clause saying "leave shall lapse" is not enough.

For advocates advising employees who have resigned from banks, public sector undertakings, or government corporations, the first question is always: do your service regulations contain a specific forfeiture-on-resignation provision? If they do not, this judgment is a powerful precedent. The Bombay High Court has now held, in clear terms, that the right to leave encashment survives resignation, and that any attempt to deny it without statutory backing violates Article 300A.

For CFOs and founders, the lesson is equally clear. If your organisation's service rules do not explicitly state that resignation forfeits accrued leave encashment, you are liable to pay it. A general "lapse" clause in your regulations will not protect you. The Sawants' case is a reminder that accrued employee benefits are property, and property cannot be taken away by implication.

The Court directed the Bank to calculate the amounts payable to the Sawants and pay them with interest at 6% per annum within six weeks. Rule was made absolute.

The bottom line: If your regulations don't say resignation forfeits leave encashment, you must pay it — no matter when you resigned.