Employer cannot withhold leave encashment without specific statutory authority despite pendency of criminal proceedings.

The petitioner retired as Assistant Manager (Administration) from the National Textile Corporation Ltd. (the respondent) on December 31, 2009.

At the time of his retirement, a CBI criminal case (RC 2/1988) was pending against him. Consequently, the respondent withheld his gratuity and leave encashment benefits.

While the gratuity was later released via the Controlling Authority, the leave encashment of Rs. 2,82,470/- remained unpaid despite the petitioner’s acquittal from the criminal case on November 13, 2018.

The petitioner filed this writ petition seeking a direction for the release of the withheld amount with interest.

1. Whether an employer can withhold leave encashment benefits solely due to the pendency of criminal proceedings in the absence of specific service rules authorizing such withholding.

2. Whether the petitioner is entitled to interest on the delayed payment of retiral benefits.

The court relied on the Conduct, Disciplinary and Appeal Rules, 2009, noting the absence of any provision therein empowering the Corporation to withhold retiral dues during the pendency of a criminal case.

It applied the principle that retiral dues are not a bounty but a right, and their unauthorized withholding by the State or its instrumentalities constitutes an arbitrary action under Article 14 of the Constitution.

Furthermore, it applied the precedent established in D. D. Tewari (D) Thr. Lrs v. Uttar Haryana Bijli Vitran Nigam Ltd. (2014) 8 SCC 894, which mandates the payment of interest for delayed settlement of retiral benefits held without justifiable reason or legal authority.

The Court observed that the respondent failed to produce any specific rule under the Rules of 2009 that permitted the withholding of leave encashment pending criminal prosecution.

The respondent’s counsel candidly admitted the lack of such authority.

The Court reasoned that since the action was devoid of legal backing, it was inherently arbitrary.

The Court rejected the respondent's plea to waive interest on the grounds of being a "sick unit," holding that the petitioner was wrongfully deprived of the use of his money while the Corporation retained it for its own purposes.

Consequently, the delay necessitated compensatory interest to restore the petitioner to the position he would have occupied had the dues been paid at the time of superannuation.

The respondent was directed to make this payment by July 31, 2026; failure to comply will result in an increased interest rate of 9% p.a. from August 1, 2026, until realization.

The Court also granted liberty to the petitioner to initiate contempt proceedings in case of non-compliance.