Supreme Court: In civil appeals arsing from a common judgment of the Madras High Court regarding gratuity claim entitlement of retired employees of the Heavy Water Plant (“HWP”), Tuticorin, under the Payment of Gratuity Act, 1972 (“Payment of Gratuity Act”). The principal question before the Court was whether the employees of HWP, functioning under the Department of Atomic Energy, Government of India, fall within the definition of “employee” under Section 2(e) of the Payment of Gratuity Act, or whether they stand excluded by virtue of holding civil posts under the Central Government and being governed by the CCS (Pension) Rules, 1972 (“Pension Rules”). A Division Bench of Pankaj Mithal and S.V.N. Bhatti,* JJ., upheld the High Court’s judgment and held that the Payment of Gratuity Act does not apply to the employees of Heavy Water Plant, Tuticorin and therefore petitioners are not entitled to claim gratuity under the Payment of Gratuity Act.
The Atomic Energy Act, 1962 (“Atomic Energy Act”) was enacted “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 Atomic Energy Act empowers the Central Government to produce, develop and use atomic energy “either by itself or through any Authority or Corporation established by it, or a Government Company.”
The Department of Atomic Energy (DAE) discharges these statutory functions. On 01-05-1969, by Office Memorandum No. 12/7/69-(P), a Board of Management known as the Heavy Water Projects Board was constituted to administer HWP Projects. The Heavy Water Plant at Tuticorin functions under this structure.
The dispute arose when retired employees of HWP were granted gratuity under the Pension Rules. The amount payable under those Rules was less than what would be available under the Payment of Gratuity Act. One such retired employee approached the Controlling Authority under the Payment of Gratuity Act seeking the differential amount. The Controlling Authority held that HWP constituted an “industry” under the Industrial Disputes Act, 1947 (“Industrial Disputes Act”), and therefore its employees were covered under Section 1(3)(b) of the Payment of Gratuity Act and directed the payment of the difference in gratuity.
The Appellate Authority dismissed HWP’s appeal. The High Court initially dismissed the writ petitions filed by HWP. However, in writ appeals, the Division Bench reversed the earlier view and held that HWP employees were not “employees” under Section 2(e) of the Payment of Gratuity Act. The present appeals were filed by the retired employees challenging the Division Bench judgment.
The Court noted that Section 2(e) of the Payment of Gratuity Act defines “employee” and contains an exclusionary clause “but does not include any such person 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 Court observed that coupling “means” with “does not include” indicates strict exclusion.
The Court stated that the applicability of the Payment of Gratuity Act depends on whether the employee comes within the inclusive definition or the exclusive definition and the same is dependent on jurisdictional facts. Referring to Arun Kumar v. Union of India, (2007) 1 SCC 732, the Court reiterated that “a jurisdictional fact is a fact which must exist before a court, tribunal, or authority assumes jurisdiction.” If such fact does not exist, jurisdiction cannot be conferred by erroneous assumption.
The Court examined the structure of the Atomic Energy Act and the 1969 Office Memorandum and noted that HWP is not incorporated under the Companies Act, is not a PSU, and lacks attributes of a separate legal entity such as incorporated association, artificial person, limited liability, common seal, perpetual succession. The Court stated that “in substance, without any ambiguity, the HWP is created to manage the projects of the DAE for the production of heavy water.” The Court further stated that “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.”
The Court deliberately refrained from relying solely on appointment orders and instead examined the constitution, establishment, and continuation of HWP. The Court held that employees who hold a post under the Central Government; and are governed by any other Act or by rules providing for payment of gratuity stand excluded from the definition of “employee” under the Payment of Gratuity Act. Since the employees of HWP were appointed under the Central Civil Services Rules and were governed by the CCS (Pension) Rules, 1972, which provide for gratuity, they fell within the exclusionary clause of Section 2(e) and once excluded at the definitional stage, Sections 5 and 14 do not arise. Consequently, they could not invoke the Payment of Gratuity Act.
The Court upheld the High Court’s judgment and held that employees of HWP are excluded from the definition of “employee” under Section 2(e) of the Payment of Gratuity Act. Consequently, they are not entitled to claim gratuity under the PG Act.
[N. Manoharan v. Administrative Officer, Civil Appeal Nos. of 2026 @ SLP (C) Nos. 22628—22637 of 2024, Decided on 11-02-2026]
*Judgment by Justice S.V.N. Bhatti