The Supreme Court has held that employees of the Heavy Water Plant (HWP), Tuticorin, functioning under the Department of Atomic Energy (DAE), Government of India, are not entitled to gratuity under the Payment of Gratuity Act, 1972 (PG Act) as they fall within the exclusionary clause of Section 2(e) of the Gratuity Act.
The Bench of Justice Pankaj Mithal and Justice S.V.N. Bhatti dismissed a batch of civil appeals filed by retired employees seeking differential gratuity under the PG Act in addition to benefits received under the Central Civil Services (Pension) Rules, 1972.
Background of the Dispute
The controversy arose when retired employees of the Heavy Water Plant, Tuticorin, received gratuity under the CCS (Pension) Rules, 1972. Contending that the amount payable under the PG Act was higher, certain retirees approached the Controlling Authority under the PG Act seeking payment of the differential amount.
The Controlling Authority ruled in favour of the employees, holding that HWP was an “industry” under the Industrial Disputes Act, 1947, and therefore covered under Section 1(3)(b) of the PG Act. The Appellate Authority upheld this finding.
However, the Madras High Court, in writ proceedings, reversed these orders. The Division Bench held that HWP employees were Central Government servants holding civil posts and governed by CCS Rules, thereby falling within the exclusion under Section 2(e) of the PG Act. The High Court’s decision was challenged before the Supreme Court.
Core Legal Issue
The central question before the Court was:
Whether employees of the Heavy Water Plant, Department of Atomic Energy, are covered by the definition of “employee” under Section 2(e) of the Payment of Gratuity Act, 1972?
Section 2(e) defines “employee” but expressly excludes persons who hold posts under the Central or State Government and are governed by any other Act or rules providing for gratuity.
Supreme Court’s Analysis
1. Interpretation of Section 2(e): Exclusionary Clause
The Court emphasised that Section 2(e) contains both inclusive and exclusionary components. The phrase “but does not include” makes the exclusion clause decisive.
The Bench observed that any person:
- Holding a post under the Central or State Government, and
- Governed by any other Act or Rules providing for gratuity
is excluded from the ambit of the PG Act.
The Court held that where such exclusion applies, the PG Act does not operate at all.
2. Status of Heavy Water Plant
The Court examined whether HWP was an autonomous industrial establishment or an adjunct of the Central Government.
Referring to the Atomic Energy Act, 1962 and the Office Memorandum constituting the Heavy Water Projects Board, the Court held:
- HWP is not incorporated under the Companies Act.
- It is not a Public Sector Undertaking or Government Company.
- It does not possess attributes of a separate legal entity.
- It functions directly under the Department of Atomic Energy.
The Bench concluded that HWP is an adjunct/ancillary unit of the Department of Atomic Energy, and its employees are Central Government servants holding civil posts.
3. Jurisdictional Fact Doctrine
Relying on Arun Kumar v. Union of India (2007), the Court held that the applicability of the PG Act depends on the existence of a “jurisdictional fact” — namely, whether the employee falls within the statutory definition.
If the jurisdictional fact does not exist, authorities under the PG Act cannot assume jurisdiction.
The Court ruled that since HWP employees are excluded under Section 2(e), authorities under the PG Act lacked jurisdiction to entertain their claims.
4. Inapplicability of Sections 5 and 14 of PG Act
The employees had argued that in the absence of a specific exemption notification under Section 5, the PG Act must apply, and that Section 14 (overriding effect) would prevail over CCS Rules.
Rejecting this contention, the Court held:
- Section 5 (exemption) becomes relevant only if the Act applies in the first place.
- Section 14 cannot override the definition clause.
- Since the employees are excluded at the threshold under Section 2(e), neither Section 5 nor Section 14 is attracted.
5. Distinguishing the MCD Precedent
The appellants relied on Municipal Corporation of Delhi v. Dharam Prakash Sharma (1998).
The Court distinguished the decision, noting that MCD was a separate corporate entity that had merely adopted CCS Rules. In contrast, HWP is part of the Central Government itself, and its employees are civil servants from inception.
Refund Direction
The High Court had directed that employees who had already withdrawn differential gratuity amounts need not refund the sums. Employees who had not withdrawn the deposited amounts would not be entitled to claim them.
The Supreme Court did not interfere with this aspect.
Upholding the Madras High Court’s judgment, the Supreme Court held employees of Heavy Water Plant, Tuticorin, are Central Government servants. They fall within the exclusionary clause under Section 2(e) of the Payment of Gratuity Act. Gratuity is payable only under the CCS (Pension) Rules, 1972. The PG Act does not apply.
Accordingly, the civil appeals were dismissed.
Case Details
Case Title: N. Manoharan, Etc. Versus The Administrative Officer And Another
Case No.: Special Leave Petition (Civil) Nos. 22628 – 22637 Of 2024
Date: 11/02/2026
