In a significant ruling on service benefits of government-linked establishments, the Supreme Court on Tuesday held that employees of the Heavy Water Plant (HWP) under the Department of Atomic Energy (DAE) are not covered by the Payment of Gratuity Act, 1972.
The bench of Justice Pankaj Mithal and Justice S.V.N. Bhatti dismissed a batch of civil appeals filed by retired employees who sought higher gratuity under the central law instead of benefits under the Central Civil Services (Pension) Rules, 1972.
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Background of the Case
The dispute began when several retired employees of the Heavy Water Plant at Tuticorin challenged the gratuity paid to them under the CCS (Pension) Rules, 1972. They argued that the Payment of Gratuity Act (PG Act) offered a higher amount and should apply to them.
Initially, the Controlling Authority under the PG Act agreed with the employees. It held that the Heavy Water Plant functioned as an “industry” and directed payment of the difference in gratuity. The appellate authority affirmed this view.
However, the Madras High Court reversed those findings. It ruled that HWP employees were Central Government servants holding civil posts and were therefore excluded from the definition of “employee” under Section 2(e) of the PG Act. The retired employees then approached the Supreme Court.
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How HWP Was Set Up
The Court examined the structure of the Department of Atomic Energy in detail. As recorded in the judgment , the Atomic Energy Act, 1962 empowers the Central Government to develop and manage atomic energy projects directly or through corporations or government companies.
The Heavy Water Projects Board was constituted through an Office Memorandum dated May 1, 1969, to manage heavy water production projects of the DAE. The Court noted that HWP is not incorporated under the Companies Act, nor is it a public sector undertaking or government company. It functions directly under the Department of Atomic Energy.
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Court’s Observations
Justice S.V.N. Bhatti, writing for the bench, focused on the definition of “employee” under Section 2(e) of the Payment of Gratuity Act.
The provision excludes persons who hold posts under the Central or State Government and are governed by any other Act or rules providing for gratuity.
The Court explained that the case hinged on what it termed a “jurisdictional fact.” Referring to earlier precedent, the bench observed that such a fact must exist before an authority can exercise power.
On interpreting the exclusion clause, the bench stated that a person governed by other gratuity rules does not fall within the scope of the Act. “The word ‘means’ coupled with ‘does not include’ is exclusionary in nature,” the Court explained.
It found that HWP is “an adjunct or ancillary operating through the Heavy Water Projects Board of the DAE.” The employees, therefore, hold civil posts under the Central Government.
The bench also rejected reliance on earlier rulings involving municipal corporations. It observed that those entities were separate corporate bodies, unlike HWP, which is part of a central government department.
On Exemption and Overriding Effect
The employees had argued that since there was no specific exemption notification under Section 5 of the PG Act, the Act must apply.
The Court disagreed. It held that Sections 5 and 14 (which gives the Act overriding effect) would arise only if the employees first qualified under the definition clause.
Since they were excluded at the threshold, the question of exemption or overriding effect did not arise.
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Final Decision
After examining the structure, legal framework, and service conditions, the Supreme Court upheld the Madras High Court’s judgment.
“The employees fall within the exclusionary clause of Section 2(e) of the PG Act,” the bench concluded.
The civil appeals were dismissed. Pending applications, if any, were also disposed of.
Case Title: N. Manoharan & Ors. v. The Administrative Officer & Anr.
Case No.: Civil Appeal arising out of SLP (C) Nos. 22628–22637 of 2024 & connected matters
Decision Date: February 11, 2026
