In a significant judgment that delineates the boundaries between general welfare legislation and specific service rules governing government servants, the Supreme Court of India has conclusively held that employees of the Heavy Water Plant, Department of Atomic Energy, are not entitled to gratuity under the Payment of Gratuity Act, 1972. The Court ruled that these employees, being holders of civil posts under the Central Government and governed by the CCS (Pension) Rules, 1972, stand expressly excluded from the definition of "employee" under Section 2(e) of the PG Act. The judgment is a masterclass in the interpretation of exclusionary clauses, the doctrine of jurisdictional fact, and the distinction between a government department and an autonomous corporate entity.
I. The Genesis: A Tale of Two Gratuity Regimes
The dispute traces its origins to
a pension payment order dated 25.07.2014 issued by the Heavy Water Plant,
Tuticorin, in favour of a retired employee, N. Manoharan. The order quantified
retirement benefits, including gratuity, under the Central Civil Services
(Pension) Rules, 1972. The employee, however, discovered that the gratuity
payable under the CCS Rules was significantly lower than the amount payable
under the Payment of Gratuity Act, 1972.
Aggrieved, the employee
approached the Controlling Authority under the PG Act, claiming the
differential amount. The Controlling Authority allowed the application, holding
that:
a. The Heavy Water Plant (HWP)
constitutes an "industry" under the Industrial Disputes Act, 1947.
b. Consequently, its employees
are "industrial employees" covered by the first limb of Section 2(e)
of the PG Act.
c. The benefit under the PG Act
was thus payable.
HWP challenged this order before
the appellate authority and, thereafter, before the Madras High Court. The High
Court, by its impugned judgment dated 21.06.2023, reversed the findings of the
Controlling Authority and held that employees of HWP are not covered by the PG
Act. It reasoned that:
1.The employees hold civil posts
under the Central Government and are governed by the CCS (Pension) Rules, 1972.
2.They thus fall within the exclusionary
clause of Section 2(e) of the PG Act.
3.The Heavy Water Plant is not an
autonomous corporate entity but a unit of the Department of Atomic Energy,
functioning directly under the Central Government.
4.Having accepted retirement
benefits under the CCS Rules without protest, the employees are estopped from
claiming higher benefits under a different statute.
Aggrieved by this judgment, over
sixty retired employees approached the Supreme Court.
II. The Core Question: Are HWP Employees
"Employees" Under the PG Act?
The sole question before the
Supreme Court was deceptively simple: Do the employees of the Heavy Water
Plant, Department of Atomic Energy, fall within the definition of
"employee" under Section 2(e) of the Payment of Gratuity Act, 1972?
The answer to this question
depended upon a proper understanding of:
a. The constitutional and
statutory status of the Heavy Water Plant.
b. The definitional architecture
of Section 2(e) of the PG Act.
c The concept of jurisdictional
fact and its application to the case.
III. The Anatomy of the Dispute: Understanding
the Heavy Water Plant]
I. The Atomic Energy Act, 1962 and the
Department of Atomic Energy
The Atomic Energy Act, 1962 (AE
Act) was enacted by Parliament to provide for the development, control, and use
of atomic energy for the welfare of the people of India and for other peaceful
purposes. Section 3 of the AE Act vests the Central Government with
comprehensive powers to:
a. Produce, develop, use, and
dispose of atomic energy either by itself or through any Authority or
Corporation established by it, or a Government Company.
b. Carry out research into any
materials connected with atomic energy.
c. Manufacture or produce any
prescribed or radioactive substance.
The Department of Atomic Energy
(DAE) is the nodal department through which the Central Government discharges
these functions.
II. The Constitution of the Heavy Water
Projects Board
On 01.05.1969, the Government of
India/DAE issued an Office Memorandum constituting a Board of Management to be
known as the Heavy Water Projects Board. The operative portion of the
memorandum read:
"The Government of India
have decided to constitute a Board of Management to be known as the Heavy Water
Projects Board for the efficient management of the Heavy Water Projects of the
Department of Atomic Energy. The Board will function under the administrative
control of the Department of Atomic Energy and will be responsible for the
execution of the Heavy Water Projects."
The Heavy Water Plant at
Tuticorin is one such project under this Board.
III. The Critical Fact: HWP is Not a Separate
Corporate Entity
The retired employees admitted,
both before the High Court and the Supreme Court, that:
a. HWP is not incorporated under
the Companies Act.
b. It is not recognised as a
Public Sector Undertaking (PSU) .
c. It does not function as a
Government Company.
d. It possesses none of the
attributes of a separate legal entity—no perpetual succession, no common seal,
no transferability of shares.
The appointment orders of the
employees uniformly stated that they were governed by the Central Civil
Services Rules. Their retirement benefits, including pension and gratuity, were
paid under the CCS (Pension) Rules, 1972.
IV. The Definitional Battle: Section 2(e) of
the Payment of Gratuity Act
Section 2(e) of the PG Act
defines "employee" in the following terms:
"employee" means any
person (other than an apprentice) employed on wages, in any establishment,
factory, mine, oilfield, plantation, port, railway company or shop—
(i) to do any skilled,
semi-skilled, or unskilled, manual, supervisory, technical or clerical work,
whether the terms of such employment are express or implied; and
[but does not include] any such
person—
(i) who holds a post under the
Central Government or a State Government and is governed by any other Act or by
any rules providing for payment of gratuity."
The Supreme Court's
interpretation of this provision is the jurisprudential heart of the judgment.
I. "Means" and "Does Not
Include": An Exhaustive Definition
The Court applied the settled
canons of statutory interpretation. Where a definition uses the word "means"
coupled with "does not include" , it denotes an exhaustive definition.
The provision does not merely illustrate; it circumscribes and delimits. The
first limb ("means") includes certain categories; the second limb
("does not include") expressly excludes certain categories.
II. The Three-Fold Exclusion
The exclusionary clause operates
in three distinct, disjunctive scenarios. A person is excluded from the
definition of "employee" if he:
1.Holds a post under the Central
Government or a State Government; AND
2.Is governed by any other Act OR
by any rules providing for payment of gratuity.
The Court emphasised the use of
the word "or" —it is not cumulative. Even if one of the conditions is
satisfied, the exclusion operates. Thus:
a. If a person holds a post under
the Central Government and is governed by any other Act or any rules providing
for gratuity, he is excluded.
b. It is not necessary that the
"other Act" or "rules" be a complete code for retirement
benefits; it is sufficient if it provides for payment of gratuity.
III. The CCS (Pension) Rules, 1972: A
"Rule Providing for Payment of Gratuity"
The Court held, without any
hesitation, that the CCS (Pension) Rules, 1972 are indeed "rules providing
for payment of gratuity." Rule 50 of the CCS (Pension) Rules specifically
deals with the quantification and payment of retirement gratuity and death
gratuity. Therefore, any person governed by these rules stands excluded from
the ambit of the PG Act.
V. The Doctrine of Jurisdictional Fact
The Supreme Court invoked the doctrine
of jurisdictional fact to underscore the importance of correctly determining
the status of HWP before applying the PG Act.
I. What is a Jurisdictional Fact?
Citing Arun Kumar v. Union of
India, the Court explained:
"A jurisdictional fact is a
fact which must exist before a court, tribunal, or authority assumes
jurisdiction over a particular matter. It is the fact upon which an
administrative agency's power to act depends. If the jurisdictional fact does
not exist, the court, authority or officer cannot act. If a court or authority
wrongly assumes the existence of such a fact, the order can be questioned by a
writ of certiorari. The underlying principle is that by erroneously assuming
the existence of such a jurisdictional fact, no authority can confer upon
itself jurisdiction which it otherwise does not possess."
II. Application to the Present Case
The jurisdictional fact in this
case was: What is the true status of the Heavy Water Plant? Is it an
independent industrial establishment, or is it an adjunct of the Department of
Atomic Energy?
The Controlling Authority and the
appellate authority erroneously assumed that HWP is an "industry"
under the Industrial Disputes Act and, therefore, its employees are
"industrial employees" covered by the PG Act. This assumption, the
Supreme Court held, was jurisdictionally flawed. The existence of functional
freedom or the label "Board" does not transmute a government
department into an autonomous corporation.
VI. HWP: Departmental Adjunct, Not Autonomous
Entity
The Supreme Court conducted a meticulous
examination of the constitutional and administrative status of HWP. Its
findings are decisive:
I. No Separate Legal Personality
HWP was not incorporated under
any statute. It has no common seal, no perpetual succession, no capacity to sue
or be sued in its own name. It is a project under the Heavy Water Projects
Board, which itself functions under the administrative control of the
Department of Atomic Energy.
II. The Choice Vesting in the Central
Government
Section 3 of the AE Act vests a
choice in the Central Government. It may undertake atomic energy activities:
a.By itself (directly through its
departments); OR
b. Through any Authority or
Corporation established by it; OR
c. Through a Government Company.
The Department of Atomic Energy chose
the first option. It did not establish a separate corporation or government
company for heavy water production. The Heavy Water Projects Board and the
individual plants are internal organisational units, not external entities.
III. Functional Freedom Does Not Confer
Autonomy
The retired employees argued that
HWP enjoys "functional freedom" and, therefore, should be treated as
an independent establishment. The Court rejected this argument:
"For the limited purpose of
gratuity, the larger and comprehensive establishment of atomic energy
facilities by the Central Government is not replaced with a very narrow
construction of the functional freedom given to the Heavy Water Projects Board or
individual Heavy Water Plants. The jurisdictional fact, on appreciation, leads
us to the conclusion that HWP is an adjunct or ancillary operating through the
Heavy Water Projects Board of the DAE."
Functional freedom is a matter of
administrative convenience and efficiency; it does not alter the constitutional
and legal character of the entity.
VII. The Fallacy of the MCD Precedent
The appellants heavily relied
upon Municipal Corporation of Delhi v. Dharam Prakash Sharma (1998) 7 SCC 221,
wherein it was held that the employees of the Municipal Corporation of Delhi
were entitled to gratuity under the PG Act despite the Corporation being a
statutory body.
The Supreme Court distinguished
this precedent with clinical precision:
"It is axiomatic that a
decision is an authority for what it decides and not what can be logically
deduced therefrom. In our view, the decision in MCD cannot be an authority for
deciding the applicability of the PG Act to the employees of HWP. We cannot
logically also deduce the similarity of circumstances in the corporate entity
of Municipal Corporation of Delhi and an annexe of the DAE."
The Municipal Corporation of
Delhi is a statutory corporation, a separate legal entity capable of owning
property, entering into contracts, and suing and being sued. The Heavy Water
Plant is none of these. Precedents must be applied to factual similarity, not
abstract propositions.
VIII. Section 14: The Overriding Effect That
Never Triggered
The appellants invoked Section 14
of the PG Act, which provides that the provisions of the Act shall have effect notwithstanding
anything inconsistent therewith contained in any other enactment.
The Court held that Section 14
operates only after the PG Act is found applicable. It does not operate to confer
applicability where none exists. If a person is excluded at the threshold by
the definition clause, the overriding effect under Section 14 is never
triggered. A specific exclusion in the definition cannot be defeated by a
general overriding provision. This is a fundamental principle of statutory
interpretation: generalia specialibus non derogant (general things do not
derogate from special things).
IX. The Doctrine of Estoppel: A Supporting,
Not Primary, Ground
The High Court had also invoked
the doctrine of estoppel, holding that the employees, having accepted
retirement benefits under the CCS Rules without protest, could not turn around
and claim higher benefits under the PG Act.
The Supreme Court did not rest
its judgment solely on estoppel, but it observed that the argument had considerable
force. An employee cannot approbate and reprobate. He cannot, for decades,
enjoy the status, pensionary benefits, and other privileges of a Central
Government servant and, upon retirement, claim to be an "industrial
employee" for the limited purpose of gratuity. Consistency is the hallmark
of legal rights.
X. The Final Verdict: Appeals Dismissed
The Supreme Court, finding no
error in the impugned judgment of the Madras High Court, dismissed all the
civil appeals. It held:
1.HWP is an adjunct of the
Department of Atomic Energy, not a separate corporate entity.
2.The employees of HWP hold civil
posts under the Central Government.
3.They are governed by the CCS
(Pension) Rules, 1972, which provide for payment of gratuity.
4.They thus fall squarely within
the exclusionary clause of Section 2(e) of the PG Act.
5.Consequently, the PG Act does
not apply to them, and they are not entitled to claim gratuity thereunder.
6.Section 14 of the PG Act cannot
override the express exclusion in the definition clause.
XI. Key Takeaways: The Law Restated
1.Definitional Exclusions are
Sacrosanct: Where a welfare legislation expressly excludes a class of
persons from its ambit, courts cannot, by interpretative ingenuity, bring them
back within the fold. The exclusion must be given full effect.
2.Jurisdictional Fact is
Paramount: The jurisdiction of a tribunal or authority depends on the
existence of a jurisdictional fact. A wrong assumption of such a fact vitiates
the entire proceeding.
3.Government Department vs.
Autonomous Entity: Functional freedom and internal administrative
restructuring do not transform a government department into an autonomous
corporation. Incorporation under a statute or the Companies Act is the
determinative test.
4.Specific Exclusion Overrides
General Overriding Clause: A specific exclusion in the definition clause
(Section 2(e)) prevails over a general non-obstante clause (Section 14). The
overriding provision operates only after applicability is established.
5.CCS (Pension) Rules are
"Rules Providing for Gratuity": There is no ambiguity. Rule 50 of
the CCS (Pension) Rules explicitly provides for gratuity. Any person governed
by these rules is excluded from the PG Act.
6.Precedents are Authorities
on Facts: A decision is an authority for what it decides on its specific
facts. Abstract propositions cannot be mechanically transplanted to dissimilar
factual contexts.
7.Consistency in Claiming
Status: An employee cannot claim the status of a Central Government servant
for pension and other benefits and, simultaneously, claim the status of an
industrial employee for gratuity. Legal rights must be claimed consistently.
XII. Conclusion: A Victory for Statutory
Precision
The Supreme Court's judgment in N.
Manoharan v. The Administrative Officer is a resounding affirmation of the
principle that welfare legislation, however benevolent its objectives, must
operate within its defined jurisdictional limits. The Payment of Gratuity Act,
1972, is a beneficial legislation, but its benefits are not universal.
Parliament, in its wisdom, expressly excluded certain classes of
employees—including those holding civil posts under the Central Government and
governed by rules providing for gratuity.
The Heavy Water Plant employees
are Central Government servants. Their gratuity is governed by the CCS
(Pension) Rules. They are rightly and justly excluded from the PG Act. Any
other interpretation would render the exclusionary clause otiose and defeat the
clear legislative intent.
The judgment also serves as a
timely reminder to all adjudicatory authorities: jurisdiction cannot be assumed
on erroneous premises. The status of an entity must be determined before the
law is applied to it. A wrong determination of a jurisdictional fact vitiates
the entire exercise, no matter how noble the objective.
In dismissing these appeals, the
Supreme Court has not denied gratuity to the employees; it has merely affirmed
that their gratuity is payable under the CCS (Pension) Rules, 1972, the rules
that have governed their service conditions throughout their careers. There is
no grievance to redress, for they have already received what the law prescribes
for them.
Judgment Name: N.
Manoharan & Ors. v. The Administrative Officer & Anr. (Civil Appeal
Nos. arising out of SLP (C) Nos. 22628-22637 of 2024 and connected matters),
Supreme Court of India, decided on February 11, 2026.
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