ET OnlineJustice Sanjeev Narula of the Delhi High Court ruled on July 17, 2026 that an employer can't just hold back a retired employee's leave encashment for nine years and then pay it without interest, all the while ignoring the legal steps outlined in the CCS (Pension) Rules, 1972.
The high court ruled that if the payment for the withheld leave encashment is made late and without proper authority, the employee is entitled to receive 6% interest per annum on the withheld amount.
This article goes into detail about the case and explains why the leave encashment was delayed. Keep reading to fully understand what happened with the employee and how his family won the case, especially since he passed away while the case was still ongoing.
When this conviction order came, the employer withheld Chander's pension and gratuity permanently, but didn't mention anything about his leave encashment.
Chander then demanded his leave encashment money since the employer didn't expressly deny it as they did with his gratuity and pension. After nine years, the employer finally paid it but without any interest. Chander however, felt he deserved interest for the huge delay and this sparked the current dispute.
The Delhi High Court pointed out that leave encashment falls under CCS (Pension) Rules, 1972 and in this regardm Rule 39(3) says that an employer is permitted to withhold the whole or part of that amount only where disciplinary or criminal proceedings are pending and the competent authority feels that some money may be recoverable from the employee once the proceedings are concluded.
Also read: Rules for faster full and final settlement, annual leave encashment & other provisions are already effective under new labour code even without state government notification, know what it means
However, none of the orders passed by Chander's employer could be construed as a request, much less consent, to withhold leave encashment. The court saw that the final order dated December 30, 2015 issued by his employer was confined to permanent withholding of pension and gratuity under Rule 9 of the CCS (Pension) Rules, 1972. It neither dealt with nor authorised withholding of leave encashment.
So the Delhi High Court said that the eventual conviction of the employee cannot retrospectively supply the statutory satisfaction which was never recorded under Rule 39(3). So, on this ground, the court ruled in the employee's favour and said he should get 6% interest for this delay.
Also read: Gratuity, leave encashment not part of CIRP cost: NCLAT
August 2007
Mr Chander, worked for a Delhi government company and his retirement date was August 31, 2007. On August 23, 2007 when he checked his leave encashment balance, it showed Rs 1.32 lakh balance, corresponding to 300 days of earned leave, but the amount was marked as withheld.
The reason his employer marked the leave encashment amount as withheld was because at that time, criminal proceedings relating to disproportionate assets were pending against him.
The pending criminal case of disproportionate assets ultimately resulted in Chander's conviction as the Delhi High Court convicted him on disproportionate assets charge.
November 2014
Chander had appealed against his conviction but his criminal appeal was dismissed on November 10, 2014, though the sentence of imprisonment was reduced. A Special Leave Petition (SLP) preferred against that judgment was dismissed on February 16, 2015.
December 30, 2015
Since the criminal conviction became final, Chander's employer issued an order which said that their board of directors decided to withhold Chander's pension and gratuity permanently under Rule 9 of the CCS (Pension) Rules, 1972. This order however, did not provide for withholding of his leave encashment.
January 2016-August 2016
Since the order did not specifically say anything about withholding the leave encashment, Chander wanted the money to be released to him. His employer still didn't pay the amount and so he had to take legal action.
He instituted a case (W.P.(C) 4632/2016) against his employer for getting the leave encashment money. This case was decided in his favour. The court upheld the employer's action concerning pension and gratuity, but directed them to consider his claim for leave encashment and to communicate their decision within eight weeks.
December 2016
The company still did not pay him the leave encashment amount due, and so Chander initiated contempt proceedings. During the course of those proceedings, a sum of Rs 2,02,200 was credited to his account on December 21, 2016.
January 2017
The Delhi High Court asked Chander's employer to give a computation of the amount paid to him. In response to the court's question, the company said that Rs 2.02 lakh which they paid to Chander represented leave encashment for 300 days, calculated in accordance with the revised pay scales.
However, the company said that interest was declined on the ground that the CCS (Pension) Rules, 1972 contained no provision for payment of interest on withheld leave encashment.
This is where the dispute started; Chander wanted interest on the leave encashment amount that he received after nine years, while his employer did not want to pay it since CCS (Pension) said nothing about interest on withheld leave encashment.
The dispute between Chander and the company again reached the Delhi High Court. Advocates Ms. Amrita Sarkar, Mr. Ashish Kumar Singh, Mr. Gitesh Sinha and Mr. Kartik Gupta represented him in this case.
Chander's advocates argued that there was no lawful order authorising the withholding of leave encashment and that the amount, having remained with Chander's employer for more than nine years, must carry interest. In this regard, Chander's advocates cited the case of S.K. Dua v. State of Haryana ((2008) 3 SCC 44).
In that case (S.K Dua), the Supreme Court had observed that even in the absence of statutory rules or administrative instructions, interest on delayed retiral dues may be claimed under Part III of the Constitution, since such benefits are not a bounty.
Chander's employer said that the leave encashment amount was withheld because criminal proceedings were pending against him. His employer further contended that Chander had himself requested them to maintain status quo until disposal of his criminal appeal. Lastly, his employer said that their Pension Trust was responsible for disbursement, and that no statutory provision permits payment of interest on leave encashment.
Also read: Earned leave encashment is a constitutional right; it's like property that employers can't deny: HC
Under Rule 39(2) the competent authority upon an employee's superannuation (retirement), must issue an order granting the cash equivalent of earned leave standing to the credit of the employee.
Moreover, the court explained that under Rule 39(3), an employer is permitted to withhold the whole or part of that amount only where disciplinary or criminal proceedings are pending and the competent authority forms the view that some money may become recoverable from the employee upon conclusion of those proceedings.
The Delhi High Court said: "The mere pendency of criminal or disciplinary proceedings does not, by itself, authorise withholding. There must be a conscious decision by the competent authority, founded upon the possibility of a monetary recovery from the employee."
Case law cited:
The court observed that the subsequent proceedings initiated by the Respondent do not cure this defect. The memorandum dated August 20, 2009 proposed withholding only pension and gratuity.
Chander's request dated September 8, 2009 to await the outcome of his criminal appeal was made in response to that proposal and sought continuance of provisional pension and medical facilities.
The Delhi High Court said: "It cannot be construed as a request, much less consent, to withhold leave encashment."
The final order dated December 30, 2015 was likewise confined to permanent withholding of pension and gratuity under Rule 9 of the CCS (Pension) Rules, 1972. It neither dealt with nor authorised withholding of leave encashment.
The Delhi High Court said: "The eventual conviction of the petitioner cannot retrospectively supply the statutory satisfaction which was never recorded under Rule 39(3)."
More recently, in Narottam Singh Shami v. Government of NCT of Delhi, W.P.(C) 13125/2019 decided on September 16, 2025, a Division Bench of Delhi High Court held that an administrative clarification stating that the CCS (Leave) Rules do not provide for interest does not prohibit its award.
Interest in such cases is compensatory. It recompenses the employee for being deprived of the use of money which ought lawfully to have been made available to him.
The Delhi High Court said: "Once the withholding is found to be unsupported by the governing rules, the Respondent (employer) cannot retain the benefit of the amount during the intervening period without compensating the employee."
Delhi High Court Order:
The high court ruled that if the payment for the withheld leave encashment is made late and without proper authority, the employee is entitled to receive 6% interest per annum on the withheld amount.
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Think you don't need to file an ITR for FY 25-26? These 8 benefits may change your mindThis article goes into detail about the case and explains why the leave encashment was delayed. Keep reading to fully understand what happened with the employee and how his family won the case, especially since he passed away while the case was still ongoing.
Why was his leave encashment withheld?
The main reason Mr Chander's (employee) leave encashment was held back and paid nine years he retired is that he was accused of having disproportionate assets at the time of his retirement. This accusation was later proved in court, leading to his conviction on criminal charges.Before you continue reading
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When this conviction order came, the employer withheld Chander's pension and gratuity permanently, but didn't mention anything about his leave encashment.
Chander then demanded his leave encashment money since the employer didn't expressly deny it as they did with his gratuity and pension. After nine years, the employer finally paid it but without any interest. Chander however, felt he deserved interest for the huge delay and this sparked the current dispute.
The Delhi High Court pointed out that leave encashment falls under CCS (Pension) Rules, 1972 and in this regardm Rule 39(3) says that an employer is permitted to withhold the whole or part of that amount only where disciplinary or criminal proceedings are pending and the competent authority feels that some money may be recoverable from the employee once the proceedings are concluded.
Also read: Rules for faster full and final settlement, annual leave encashment & other provisions are already effective under new labour code even without state government notification, know what it means
However, none of the orders passed by Chander's employer could be construed as a request, much less consent, to withhold leave encashment. The court saw that the final order dated December 30, 2015 issued by his employer was confined to permanent withholding of pension and gratuity under Rule 9 of the CCS (Pension) Rules, 1972. It neither dealt with nor authorised withholding of leave encashment.
So the Delhi High Court said that the eventual conviction of the employee cannot retrospectively supply the statutory satisfaction which was never recorded under Rule 39(3). So, on this ground, the court ruled in the employee's favour and said he should get 6% interest for this delay.
Also read: Gratuity, leave encashment not part of CIRP cost: NCLAT
Timeline of events
The timeline of the events is as follows:August 2007
Mr Chander, worked for a Delhi government company and his retirement date was August 31, 2007. On August 23, 2007 when he checked his leave encashment balance, it showed Rs 1.32 lakh balance, corresponding to 300 days of earned leave, but the amount was marked as withheld.
The reason his employer marked the leave encashment amount as withheld was because at that time, criminal proceedings relating to disproportionate assets were pending against him.
The pending criminal case of disproportionate assets ultimately resulted in Chander's conviction as the Delhi High Court convicted him on disproportionate assets charge.
November 2014
Chander had appealed against his conviction but his criminal appeal was dismissed on November 10, 2014, though the sentence of imprisonment was reduced. A Special Leave Petition (SLP) preferred against that judgment was dismissed on February 16, 2015.
December 30, 2015
Since the criminal conviction became final, Chander's employer issued an order which said that their board of directors decided to withhold Chander's pension and gratuity permanently under Rule 9 of the CCS (Pension) Rules, 1972. This order however, did not provide for withholding of his leave encashment.
January 2016-August 2016
Since the order did not specifically say anything about withholding the leave encashment, Chander wanted the money to be released to him. His employer still didn't pay the amount and so he had to take legal action.
He instituted a case (W.P.(C) 4632/2016) against his employer for getting the leave encashment money. This case was decided in his favour. The court upheld the employer's action concerning pension and gratuity, but directed them to consider his claim for leave encashment and to communicate their decision within eight weeks.
December 2016
The company still did not pay him the leave encashment amount due, and so Chander initiated contempt proceedings. During the course of those proceedings, a sum of Rs 2,02,200 was credited to his account on December 21, 2016.
January 2017
The Delhi High Court asked Chander's employer to give a computation of the amount paid to him. In response to the court's question, the company said that Rs 2.02 lakh which they paid to Chander represented leave encashment for 300 days, calculated in accordance with the revised pay scales.
However, the company said that interest was declined on the ground that the CCS (Pension) Rules, 1972 contained no provision for payment of interest on withheld leave encashment.
This is where the dispute started; Chander wanted interest on the leave encashment amount that he received after nine years, while his employer did not want to pay it since CCS (Pension) said nothing about interest on withheld leave encashment.
The dispute between Chander and the company again reached the Delhi High Court. Advocates Ms. Amrita Sarkar, Mr. Ashish Kumar Singh, Mr. Gitesh Sinha and Mr. Kartik Gupta represented him in this case.
Chander's advocates argued that there was no lawful order authorising the withholding of leave encashment and that the amount, having remained with Chander's employer for more than nine years, must carry interest. In this regard, Chander's advocates cited the case of S.K. Dua v. State of Haryana ((2008) 3 SCC 44).
In that case (S.K Dua), the Supreme Court had observed that even in the absence of statutory rules or administrative instructions, interest on delayed retiral dues may be claimed under Part III of the Constitution, since such benefits are not a bounty.
Chander's employer said that the leave encashment amount was withheld because criminal proceedings were pending against him. His employer further contended that Chander had himself requested them to maintain status quo until disposal of his criminal appeal. Lastly, his employer said that their Pension Trust was responsible for disbursement, and that no statutory provision permits payment of interest on leave encashment.
Also read: Earned leave encashment is a constitutional right; it's like property that employers can't deny: HC
Delhi High Court order discussion
A summary of the high court order is as follows:Mere pendency of criminal or disciplinary proceedings does not, by itself, authorise withholding of leave encashment
The Delhi High Court explained that since Leave Encashment is governed by the CCS (Leave) Rules, 1972, Rule 39(2) must be seen.Under Rule 39(2) the competent authority upon an employee's superannuation (retirement), must issue an order granting the cash equivalent of earned leave standing to the credit of the employee.
Moreover, the court explained that under Rule 39(3), an employer is permitted to withhold the whole or part of that amount only where disciplinary or criminal proceedings are pending and the competent authority forms the view that some money may become recoverable from the employee upon conclusion of those proceedings.
The Delhi High Court said: "The mere pendency of criminal or disciplinary proceedings does not, by itself, authorise withholding. There must be a conscious decision by the competent authority, founded upon the possibility of a monetary recovery from the employee."
Case law cited:
- In Government of NCT of Delhi v. Prem Nath Manchanda, 2018 SCC OnLine Del 13066
- Satya Prakash v. Chairman cum Managing Director, Bharat Sanchar Nigam Limited, 2019 SCC OnLine Del 8039
- Prof. Sachidanand Sinha v. Jawaharlal Nehru University W.P.(C) 16488/2024, decided on 28th November, 2024
Employer could not place any evidence about it satisfying Rule 39 (3)
No order satisfying the requirements of Rule 39(3) has been placed before the Delhi High Court. The mere notation "W/H" against the amount of leave encashment in the provisional payment order cannot substitute the statutory satisfaction. It neither identifies a decision of the competent authority nor records that any amount was likely to become recoverable from the Petitioner upon conclusion of the criminal proceedings.The court observed that the subsequent proceedings initiated by the Respondent do not cure this defect. The memorandum dated August 20, 2009 proposed withholding only pension and gratuity.
Chander's request dated September 8, 2009 to await the outcome of his criminal appeal was made in response to that proposal and sought continuance of provisional pension and medical facilities.
The Delhi High Court said: "It cannot be construed as a request, much less consent, to withhold leave encashment."
The final order dated December 30, 2015 was likewise confined to permanent withholding of pension and gratuity under Rule 9 of the CCS (Pension) Rules, 1972. It neither dealt with nor authorised withholding of leave encashment.
The Delhi High Court said: "The eventual conviction of the petitioner cannot retrospectively supply the statutory satisfaction which was never recorded under Rule 39(3)."
Supreme Court precedent says if statutory rules or administrative instructions say nothing about interest on delayed retiral dues, then also interest can be claimed
The Delhi High Court said that the company's principal reason for declining interest is that the applicable rules do not provide for it. That contention is answered by the S.K. Dua case. The Supreme Court observed that even in the absence of statutory rules or administrative instructions, interest upon delayed retiral dues may be claimed under Part III of the Constitution, since such benefits are not a bountyMore recently, in Narottam Singh Shami v. Government of NCT of Delhi, W.P.(C) 13125/2019 decided on September 16, 2025, a Division Bench of Delhi High Court held that an administrative clarification stating that the CCS (Leave) Rules do not provide for interest does not prohibit its award.
Interest in such cases is compensatory. It recompenses the employee for being deprived of the use of money which ought lawfully to have been made available to him.
The Delhi High Court said: "Once the withholding is found to be unsupported by the governing rules, the Respondent (employer) cannot retain the benefit of the amount during the intervening period without compensating the employee."
Delhi High Court Order:
- The petition is, accordingly, allowed. The Respondent is directed to pay simple interest at the rate of 6 per cent per annum on the leave encashment amount of ?2,02,200, from September 1, 2007 until December 21, 2016.
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