On February 11, the Supreme Court ruled that retired employees of the Heavy Water Plant (HWP), Tuticorin, cannot claim gratuity under the Payment of Gratuity Act, 1972 (PG Act). The Court held that these employees serve under the Department of Atomic Energy (DAE) as Central Government servants and remain governed by the Central Civil Services (Pension) Rules, 1972 (CCS Rules). Therefore, Section 2(e) of the PG Act excludes them from its ambit.
A Bench of Justices Pankaj Mithal and S. V. N. Bhatti heard the appeal. Justice Bhatti authored the judgment.
The case is titled N. Manoharan v. The Administrative Officer & Anr. (with connected cases) and is reported as 2026 LiveLaw (SC) 137.
Dispute Over Differential Gratuity
The appellants, retired HWP employees, challenged the calculation of their gratuity under the CCS (Pension) Rules, 1972. They argued that if authorities had calculated gratuity under the Payment of Gratuity Act, they would have received a higher amount. Accordingly, they sought payment of the differential sum.
Initially, the Controlling Authority and the Appellate Authority ruled in favour of the employees. They held that HWP qualified as an “industry” and therefore attracted the provisions of the PG Act. A Single Judge of the Madras High Court affirmed this finding.
However, a Division Bench of the High Court reversed the decision. It held that HWP employees serve as Central Government personnel and remain governed by the CCS Pension Rules. Consequently, Section 2(e) of the PG Act excludes them from the definition of “employee.” The employees then approached the Supreme Court.
Scope of Section 2(e) of the PG Act
Section 2(e) of the Payment of Gratuity Act expressly excludes persons who hold posts under the Central or State Government and who are governed by separate gratuity rules.
Before the Supreme Court, the core question was straightforward: Can employees governed by the CCS (Pension) Rules simultaneously claim gratuity under the PG Act?
Supreme Court’s Findings
The Supreme Court declined to interfere with the Division Bench ruling. Justice Bhatti observed that Section 2(e) clearly keeps Central Government employees outside the scope of the PG Act.
The Court endorsed the respondents’ submission that employees cannot claim the status and benefits of Central Government servants under the CCS Rules while also seeking higher gratuity under the PG Act.
The appellants relied heavily on Municipal Corporation of Delhi v. Dharam Prakash Sharma (1998) 7 SCC 22. In that case, the Court extended PG Act benefits despite the adoption of CCS Rules. However, the Bench distinguished that decision. It noted that MCD employees were not Central Government servants but employees of a statutory corporation.
In contrast, the Heavy Water Plant functions as an adjunct of the Department of Atomic Energy. After examining its constitution, establishment, and continuation, the Court concluded that HWP forms part of the governmental framework. The Bench clarified that it relied on the institutional character of HWP rather than appointment orders or circulars to determine the jurisdictional issue.
Therefore, the Court held that HWP employees fall squarely within the exclusion clause under Section 2(e). Accordingly, it dismissed the appeal.
Appearance of Counsel
For the Petitioners:
Ms. Haripriya Padmanabhan, Senior Advocate (argued by); Mr. K. Paari Vendhan, AOR; Mr. Aayushman Aggarwal, Advocate; Mr. Shrutanjay Bhardwaj, Advocate; Mr. Raghunatha Sethupathy B, AOR; Ms. Siddhi Nagwekar, Advocate.
For the Respondents:
Mr. S.D. Sanjay, Additional Solicitor General (argued by); Mr. Khushal Kolwar, Advocate; Ms. Parthvi Ahuja, Advocate; Ms. Nikita Sethi, Advocate; Mr. Shubham Prakash Mishra, Advocate; Mr. Akshsat Aggarwal, Advocate; Ms. Arunima Diwedi, Advocate; Mr. Rajeev Ranjan, Advocate; Mr. Dharmendra Kumar Pandey, Advocate; Mr. Raman Yadav, Advocate; Mr. Raj Bahadur Yadav, AOR; Mr. Gurmeet Singh Makker, AOR; Mr. Saurabh Kumar Kaushik, Advocate; Mr. Amrish Kumar, AOR.
With this ruling, the Supreme Court has reaffirmed that Central Government employees governed by the CCS (Pension) Rules, 1972 cannot seek additional gratuity benefits under the Payment of Gratuity Act, 1972 where the statute expressly excludes them.
