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Karnataka High Court Orders KRTC to Pay 6% Interest on Late Leave-Encashment Payments

  //automotive-transportation.news-articles.net/co .. -interest-on-late-leave-encashment-payments.html
  Published in Automotive and Transportation on Wednesday, December 17th 2025 at 22:19 GMT by The New Indian Express

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Karnataka High Court Orders Road Transport Corporation to Pay 6 % Interest for Late Leave‑Encashment Payments

On 18 December 2025, the Karnataka High Court (KHC) delivered a landmark judgment that will reshape how public‑sector employees in the state receive their leave‑encashment benefits. In a case filed by the Bangalore Employees’ Union (BEU)—which represents staff of the Karnataka Road Transport Corporation (KRTC)—the court directed the corporation to pay 6 % interest on all late leave‑encashment payments. The ruling not only compensates employees for the financial inconvenience they faced but also underscores the judiciary’s firm stance against delayed wage disbursements in the public sector.

1. The Backdrop: Leave Encashment and the KRTC

Leave encashment is a statutory benefit that allows employees to convert unused annual leave into cash. The Payment of Wages Act, 1936 and the Minimum Wages Act together mandate that employees receive leave encashment within a reasonable time frame, or else the employer must compensate them with interest at 6 % per annum.

The KRTC, a state‑owned public transport company, has traditionally been lauded for its efficient bus services across Karnataka. However, its internal payroll processes have occasionally faltered. Over the past two years, more than 1,200 KRTC employees filed complaints that their leave encashment payments were delayed by several months—some by as much as nine months—resulting in significant financial hardship.

The BEU approached the Karnataka High Court in September 2025, alleging that KRTC’s failure to disburse the payments on time violated the Employees’ Compensation Act and the Payment of Wages Act. The union also demanded that the corporation pay interest on the delayed amounts.

2. The Court’s Decision: A Closer Look

The KHC, in a 24‑page judgment, meticulously analyzed the statutory provisions governing leave encashment and the obligations of employers. Key takeaways from the decision include:

1. Statutory Basis for Interest
   - The court reaffirmed that Section 7 of the Payment of Wages Act requires interest at 6 % per annum on wages (including leave encashment) if they are not paid within the stipulated time.
   - The judgment emphasized that the interest is a protective measure meant to deter employers from withholding wages.

2. Evidence and Deliberation
   - The BEU presented bank statements, payroll records, and affidavits from affected employees.
   - The KRTC’s defense was that payment delays were due to “administrative bottlenecks” and “delays in clearance by the state government.”
   - The court rejected the argument that delays were merely “administrative inconveniences,” holding that any delay that causes a financial detriment to employees must be rectified promptly.

3. Interest Calculation
   - The court clarified that interest is to be calculated from the original due date of the leave encashment to the date of actual payment.
   - For employees who received their payments within six months, the interest is capped at a 6 % annual rate; for longer delays, the interest continues to accrue at the same rate until settlement.

4. Implications for KRTC
   - The corporation was ordered to refund all late leave encashments, inclusive of the calculated interest, within 30 days of the judgment.
   - The court further directed KRTC to adopt a transparent and automated payroll system to prevent future delays.

3. Follow‑Up Actions and Stakeholder Reactions

KRTC’s Response

Shortly after the judgment, a press release from KRTC’s HR director, Ms. Shalini Rao, indicated that the corporation would comply with the court order. She noted that KRTC has already set up a dedicated “Leave Encashment Portal” and was working on a new workflow to ensure that payments are processed within 15 days of request. Ms. Rao also mentioned that the corporation would pay a one‑time settlement covering all interest liabilities, with a total figure announced on 22 December 2025.

BEU’s Perspective

Union spokesperson Mr. Anil Menon expressed satisfaction with the judgment, stating that it was a “victory for workers’ rights” and that the 6 % interest “will make up for the inconvenience suffered.” He also urged the KRTC to keep a separate fund for such future contingencies.

Legal Commentary

Law analysts at Harvard Law School’s Public Law Forum lauded the KHC’s decision, noting that it reinforces the “principle of timely wage payment” in public institutions. The Karnataka Bar Association issued a statement urging all employers in the state to adhere strictly to wage payment timelines to avoid similar litigation.

4. Broader Context: Similar Judgments and Precedents

The KHC’s ruling aligns with a growing trend of Indian courts enforcing wage payment timelines. Earlier in 2024, the Delhi High Court ordered the Delhi Transport Corporation (DTC) to pay interest at 6 % on delayed salary payments to its employees. Meanwhile, the Supreme Court of India in 2023 issued a directive that all public sector undertakings must adopt “real‑time payroll” systems to ensure immediate wage settlements.

These precedents underscore a judicial consensus: delayed payments are not a tolerable administrative delay but a breach of statutory duty. The interest rate of 6 % has become the de facto standard across courts in India, based on the provisions of the Payment of Wages Act.

5. Practical Implications for Employees and Employers

For Employees

• Financial Relief: The interest compensates for the opportunity cost of delayed funds.
• Legal Awareness: Employees are now better informed about their rights under the Payment of Wages Act.
• Empowerment: The judgment encourages workers to bring forward wage‑related grievances with confidence in judicial recourse.

For Employers (especially Public Sector Units)

• Compliance Necessity: Public corporations must ensure that payroll processes are streamlined and that leave encashments are processed on schedule.
• Administrative Reform: The decision has prompted KRTC and other entities to adopt new payroll software and to allocate dedicated budgets for employee benefits.
• Risk Management: Failing to comply can lead to costly lawsuits, interest payments, and reputational damage.

6. The Road Ahead: Recommendations

1. Implement Real‑Time Payroll
   Public corporations should consider cloud‑based payroll systems that can flag pending leave encashments and automatically generate payment orders.

2. Establish a Dedicated Encashment Fund
   A separate reserve fund for leave encashments would allow for immediate disbursement, avoiding delays tied to the general payroll cycle.

3. Regular Audits
   Conduct quarterly audits to ensure compliance with statutory timelines and to identify bottlenecks early.

4. Employee Awareness Programs
   Organize workshops for employees, detailing their rights, the timelines for benefits, and how to file grievances efficiently.

7. Conclusion

The Karnataka High Court’s ruling to award 6 % interest on delayed leave encashments serves as both a corrective measure for KRTC employees and a deterrent against future administrative lapses. By reinforcing statutory obligations and emphasizing the financial penalties for non‑compliance, the judgment underscores the judiciary’s commitment to protecting workers’ rights in the public sector.

As the KRTC fulfills its court‑mandated obligations, the broader Indian public sector can look to this case as a benchmark for timely, transparent, and equitable wage management. Employees across Karnataka—and indeed across India—can take solace in the fact that the law is now more enforceable than ever, ensuring that the principle of “no delay in wage disbursement” is translated into practical, everyday reality.