The subject has been discussed at length many times. Still, I would like to clarify some points. Let me start with your comments that "however Sunday is defined as the weekly rest day as per various acts." Yes, Sunday (not necessarily that it should be Sunday but any day after six days of continuous working) is a weekly off, or it should be given as a day of rest. But where is it written that it should be a paid one? No.
Main Point: Leave Policies and the Sandwich Rule
If you are following the Factories Act and referring to annual leave with wages or simply earned leave, then the weekly off or holidays intervening two leave days, say Saturday and Monday, should not be counted as leave. But if it is any other leave, say sick leave, casual leave, or maternity leave, you can treat the sandwich day as leave. You can take sick leave if you are sick, and if you are medically unfit, you should not come to the office. If you are medically unfit on Saturday and Monday, naturally you will be so on Sunday also. You cannot say that you were fit on Sunday but being a holiday, you did not come! Similarly, an employee on maternity leave is physically not fit to come to work, and she cannot be fit on holidays and off days only!
Common Practices and Misunderstandings
However, the common practice is that casual leave will not be sandwiched, but earned leave will be sandwiched. This is wrong because CL/SL, etc., are a total number, say 12 days a year, but EL depends on the number of days worked in the preceding year, and it is a leave earned by an employee that can be used as he wishes. That is why he is allowed the encashment of unavailed earned leave.