Inclusion of Gratuity — Central Government Employees

Source:  Supreme Court  

Why in News? 

A Bench comprising Justices Pankaj Mithal and S.V.N. Bhatti, in N. Manoharan v. The Administrative Officer & Anr. (2026), held that retired employees of the Heavy Water Plant (HWP), Tuticorin, operating under the Department of Atomic Energy (DAE), are not entitled to gratuity under the Payment of Gratuity Act, 1972 (PG Act). Being Central Government servants governed by the CCS (Pension) Rules, 1972, they fall squarely within the exclusionary clause of Section 2(e) of the PG Act.

What was the Background of the N. Manoharan v. The Administrative Officer & Anr. (2026) Case? 

• The appellants were retired employees of the Heavy Water Plant (HWP), Tuticorin, functioning under the Department of Atomic Energy (DAE). 
• They challenged the computation of their gratuity under the CCS (Pension) Rules, 1972, contending they were entitled to a higher amount under the Payment of Gratuity Act, 1972, and demanded payment of the differential amount. 
• The Controlling Authority and Appellate Authority ruled in favour of the employees, holding that HWP qualified as an "industry" and therefore fell within the ambit of the PG Act. A Single Judge of the Madras High Court upheld this view. 
• However, a Division Bench of the Madras High Court reversed the decision, holding that since the retired employees of HWPs are Central Government employees governed by the CCS Pension Rules, they fall within the exclusion clause of Section 2(e) of the PG Act, and are therefore not "employees" entitled to claim gratuity under the PG Act. 
• This led to the appeal before the Supreme Court. 
• It may be noted that as per Section 2(e) of the PG Act, the definition of employee 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. 

What were the Court's Observations? 

• The Supreme Court declined to interfere with the Division Bench's finding and dismissed the appeal. 
• The judgment authored by Justice Bhatti observed that the exclusionary clause under Section 2(e) of the Payment of Gratuity Act clearly keeps Central Government employees outside its ambit, thereby making it evident that the appellants were not "employees" entitled to claim gratuity under the PG Act. 
• The Court endorsed the respondent's argument: "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." 
• The appellants had relied on Municipal Corporation of Delhi v. Dharam Prakash Sharma (1998), where the Court had extended PG Act benefits despite the adoption of CCS Rules. The Bench distinguished that case on facts, noting that MCD employees were not Central Government servants but employees of a statutory corporation. In contrast, HWP staff are directly part of the governmental framework. 
• The Court observed: "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." 
• Accordingly, the appeal was dismissed. 

What is the Payment of Gratuity Act, 1972? 

About: 

• The Payment of Gratuity Act, 1972 is a Central legislation that provides for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops, or other establishments. 
• Gratuity is a lump sum payment made by an employer to an employee as a token of gratitude for the services rendered over a continuous period. 
• An employee becomes eligible for gratuity upon completion of five or more years of continuous service, and it is payable at the time of resignation, retirement, death, or disablement. 
• The Act aims to provide social security and financial support to employees after long years of service. 

Gratuity as a Ground for Exclusion under Section 2(e): 

• Under the Payment of Gratuity Act, 1972, Section 2(e) defines who qualifies as an "employee" for the purpose of claiming gratuity under the Act. 
• The definition specifically excludes any 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. 
• This provision ensures that Central Government employees who already receive gratuity benefits under their own service rules, such as the CCS (Pension) Rules, 1972, are not permitted to claim the higher or differential benefits available under the PG Act. 
• The exclusion reflects the legislative intent that the PG Act was designed to cover employees who had no other statutory protection for post-retirement benefits, not those already covered by a comprehensive governmental scheme.