Dear Sasikumar,
" Leave ", irrespective of its nature and duration, is an employment benefit conferred upon the employees as a means of authorized absence from work. The primary objective behind such an employment concession is to enable the employees rejuvenate themselves occasionally from the monotony of work apart from permitting them to discharge certain personal and social obligations which are contingent in everyone's social life. Therefore, basically the facility of leave encashment is anathema to the very concept of leave in the realm of employment. That's why every establishment-specific labor law puts off the facility of leave encashment to the termination of employment only. Hence it is reasonable and legal as well.
Coming to the aspects of sanction of leave and its refusal, none can be idealised nor any straight-jacket formula can be given. No employer should refuse sanction of any leave mechanically is equally true as no employee can claim any leave as a matter of right. However, if any organization's leave policy permits annual encashment of any non-lapsable leave like EL/PL, it is not illegal.