Central Govt Employees Governed By CCS Rules Excluded From Payment Of Gratuity Act : Supreme Court

The Supreme Court on Wednesday (February 11) held that the retired employees of the Heavy Water Plant (HWP), Tuticorin, functioning under the Department of Atomic Energy (DAE), are not entitled to gratuity under the Payment of Gratuity Act, 1972 (PG Act), as they are Central Government servants governed by the Central Civil Service (Pension) Rules, 1972.

A Bench comprising Justices Pankaj Mithal and S.V.N. Bhatti heard the matter, in which the appellants, retired employees of the Heavy Water Plant, challenged the computation of their gratuity under the CCS (Pension) Rules, contending that they would have been entitled to a higher amount had their gratuity been determined in accordance with the Payment of Gratuity Act. Thus, they demanded the payment of the differential amount.

The Controlling Authority and the 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 reversed the decision, holding that since the retired employees of the HWPs are the Central govt. employees being governed by the CCS Pension Rules, therefore they are covered within the exclusion clause. Therefore, they do not come within the meaning of “employees” under Section 2(e) of the PG Act to make themselves eligible for pension, leading to an 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.

Declining to interfere with the impugned finding, 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 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.”, Respondent's argument endorsed by the Court.

The Appellants relied heavily on Municipal Corporation of Delhi v. Dharam Prakash Sharma (1998) 7 SCC 22, 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.

“On examination of constitution, establishment, and continuation, we notice the character of HWP as an adjunct of the Department of Atomic Energy, and by choice, we are not adverting to the appointment orders or any other circulars for deciding the jurisdictional fact of “employees”. Therefore, the employees fall within the exclusionary clause of Section 2(e) of the PG Act.”, the court observed.

Accordingly, the appeal was dismissed.

Cause Title: N. MANOHARAN VERSUS THE ADMINISTRATIVE OFFICER & ANR. (with connected cases)

Citation : 2026 LiveLaw (SC) 137

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Appearance:

For Petitioner(s) Ms. Haripriya Padmanabhan, Sr. Adv. (argued by) Mr. K. Paari Vendhan, AOR Mr. Aayushman Aggarwal, Adv. 55 Mr. Shrutanjay Bhardwaj, Adv. Mr. Raghunatha Sethupathy B, AOR Mr. Siddhi Nagwekar, Adv.

For Respondent(s) Mr. S.D. Sanjay, A.S.G.(argued by) Mr. Khushal Kolwar, Adv. Parthvi Ahuja, Adv. Ms. Nikita Sethi, Adv. Mr. Shubham Prakash Mishra, Adv. Mr. Akshsat Aggarwal, Adv. Ms. Arunima Diwedi, Adv. Mr. Rajeev Ranjan, Adv. Mr. Dharmendra Kumar Pandey, Adv. Mr. Raman Yadav, Adv. Mr. Raj Bahadur Yadav, AOR Mr. Gurmeet Singh Makker, AOR Mr. S.D Sanjay, A.S.G. Ms. Aurnima Diwedi, Adv. Mr. Rajeev Ranjan, Adv. Mr. Dharmendra Kumar Pandey, Adv. Mr. Raman Yadav, Adv. Mr. Saurabh Kumar Kaushik, Adv. Mr. Amrish Kumar, AOR