In the employment letter there is always a clause on notice period in which it is clearly stated that the employee/employer have to give a notice of certain period [1,2 or 3 months] or amount in lieu of the period, in some cases.
Notice period is basically to cover the employer from having to suffer unexpected loss to his business and also to see that the person who is going to take over the position should be properly trained and handed over the responsibilities. while on the employee point of view it has to be seen that he/she gets enough notice to look out for another job during the period.
In the above case the employee is availing the clause 'amount in lieu of notice period[though only a part] and so he will be getting salary up to his last working day. All his leaves will be exhausted against the notice period due.
Thanks and Regards