Central Government Employees under CCS Pension Rules Excluded from Gratuity under Section 2(e) PG Act: Supreme Court

Introduction

The Supreme Court of India , in a judgment delivered on February 11, 2026 , ruled that retired employees of the Heavy Water Plant (HWP) in Tuticorin, operating under the Department of Atomic Energy (DAE) , are not entitled to gratuity benefits under the Payment of Gratuity Act, 1972 (PG Act). A Bench comprising Justices Pankaj Mithal and S.V.N. Bhatti, with the latter authoring the opinion, dismissed appeals by the retired employees who sought a higher gratuity amount under the PG Act in addition to what they received under the Central Civil Services (Pension) Rules, 1972 (CCS Rules). The case, N. Manoharan v. The Administrative Officer & Anr. (2026 LiveLaw (SC) 137), underscores the exclusion of Central Government servants from the PG Act's ambit, resolving conflicts over dual gratuity claims.

Case Background

The appellants were retired employees of the HWP, Tuticorin, a unit established under the DAE to produce heavy water for India's atomic energy program, as per the Atomic Energy Act, 1962 . Upon retirement, they received gratuity calculated under the CCS (Pension) Rules, 1972, applicable to Central Government servants. Dissatisfied with the lower amount compared to what the PG Act would provide, they approached the Controlling Authority under the PG Act for the differential sum, arguing that HWP qualified as an "industry" and its employees fell within the Act's scope.

The Controlling and Appellate Authorities ruled in their favor, holding HWP as an industrial establishment under the Industrial Disputes Act, 1947 , and thus covered by the PG Act. A Single Judge of the Madras High Court upheld this in 2016 . However, a Division Bench reversed it in 2023 , finding the employees to be Central Government servants excluded by Section 2(e) of the PG Act. This led to the Supreme Court appeals, filed by groups including N. Manoharan, G. Arockiasamy, and others, challenging the denial of higher gratuity. The core legal questions were: Whether HWP employees qualify as "employees" under Section 2(e) of the PG Act, and if Central Government servants under CCS Rules can claim PG Act benefits additionally or alternatively.

Arguments Presented

The appellants, represented by Senior Advocate Ms. Haripriya Padmanabhan , contended that HWP operates as an autonomous industrial establishment with functional freedom in appointments and service conditions, despite adopting CCS Rules. They argued the PG Act, as beneficial welfare legislation, should apply liberally, and the absence of an exemption notification under Section 5 reinforced coverage. Heavily relying on Municipal Corporation of Delhi v. Dharam Prakash Sharma (1998) 7 SCC 22, they claimed adoption of CCS Rules does not exclude PG Act benefits, especially since HWP's industrial nature distinguishes it from core government posts. They asserted employees could opt for the more favorable scheme without violating the exclusion clause.

The respondents, represented by Additional Solicitor General Mr. S.D. Sanjay , countered that HWP is an integral adjunct of the DAE, not a separate corporate entity or PSU, with employees holding civil posts under the Central Government and governed by CCS Rules from inception. Section 2(e)'s exclusionary clause bars PG Act applicability outright, as jurisdictional facts confirm their government servant status. They invoked the principle against approbation and reprobation , arguing employees cannot cherry-pick benefits—enjoying CCS status for pension while seeking PG Act gratuity. Distinguishing the MCD case, they noted MCD employees were statutory corporation workers, not direct government servants, and emphasized that Sections 5 and 14 of the PG Act are irrelevant once exclusion applies.

Legal Analysis

The Court focused on interpreting Section 2(e) of the PG Act, which defines "employee" exhaustively and excludes those holding posts under the Central Government governed by other rules providing gratuity, such as CCS (Pension) Rules. It examined HWP's character under the Atomic Energy Act, 1962 , noting its constitution via a 1969 Office Memorandum as a board managing DAE projects, without separate incorporation or PSU status. This positioned HWP as an ancillary unit of the DAE, making its employees Central Government servants by jurisdictional fact , as clarified in Arun Kumar v. Union of India (2007) 1 SCC 732.

The Bench distinguished Municipal Corporation of Delhi v. Dharam Prakash Sharma , holding it inapplicable since MCD employees were not government servants but corporation staff who adopted CCS Rules voluntarily. Here, HWP employees were inherently under CCS governance, triggering the exclusion. The Court rejected liberal interpretation arguments, applying the golden rule to the exclusionary language ("means" and "does not include"), which strictly bars dual claims. It affirmed that once excluded, authorities under the PG Act lack jurisdiction, rendering prior orders void. No delving into individual appointment orders was needed, as institutional character sufficed.

Key Observations

• "The employees cannot claim to have the benefit of CCS Rules, status of a Central Government employee, while for gratuity, the benefits under the PG Act." (Endorsing respondents' argument on selective benefits.)
• "On examination of constitution, establishment, and continuation, we notice the character of HWP as an adjunct of the Department of Atomic Energy... Therefore, the employees fall within the exclusionary clause of Section 2(e) of the PG Act." (On HWP's governmental nature.)
• "A jurisdictional fact is a fact which must exist before a court, tribunal, or authority assumes jurisdiction over a particular matter." (Referencing Arun Kumar v. Union of India , emphasizing threshold exclusion.)
• "The exclusionary clause ... excludes employees of the Central and State Governments from the meaning of 'employee' under the PG Act." (Interpreting Section 2(e)'s structure.)
• "The decision in MCD (supra) 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..." (Distinguishing precedent.)

Court's Decision

The Supreme Court dismissed the appeals, upholding the Madras High Court 's Division Bench judgment. It held that HWP employees are Central Government servants excluded from the PG Act under Section 2(e), entitled only to CCS Rules gratuity, with no jurisdiction for PG Act claims. Practically, this bars retired employees from recovering differential amounts already paid (no refunds ordered for those withdrawn) and directs return of undrawn deposits to HWP. The ruling reinforces statutory boundaries, preventing similar claims by government workers, and clarifies that industrial character does not override exclusion for DAE adjuncts, potentially stabilizing pension administration across atomic energy units while limiting welfare law expansions for public servants.