N Manoharan etcv.The Administrative Officer & Anr

Citation:: 2026 INSC 143
Date:: 11 February 2026

Synopsis

This judgment resolves the recurring question whether employees of a unit established and directly administered by the Department of Atomic Energy (DAE)—specifically the Heavy Water Plant (HWP), Tuticorin—are entitled to gratuity under the Payment of Gratuity Act, 1972 (PG Act) or are excluded from its ambit because they hold civil posts under the Central Government and are governed by the CCS (Pension) Rules, 1972. The Supreme Court, affirming the Madras High Court, holds that HWP is not a separate legal entity but an adjunct/annexe of the DAE. Consequently, its employees are “persons who hold a post under the Central Government” and are expressly excluded from the definition of “employee” under Section 2(e) of the PG Act. The Court delineates the concept of “jurisdictional fact” as the pre‑condition for the applicability of the PG Act and reaffirms that a general overriding provision (Section 14) cannot bring within the Act those who are excluded at the threshold definitional stage.

1. Basic Information of the Judgment

Case Title N. Manoharan etc. v. The Administrative Officer & Anr. (along with connected appeals)

Citation 2026 INSC 143

Jurisdiction Civil Appellate Jurisdiction, Supreme Court of India

Coram Division Bench: Hon’ble Mr. Justice S.V.N. Bhatti (author) and Hon’ble Mr. Justice

Bench Strength Division Bench (two Judges)Civil Appeal Nos. Arising out of SLP (C) Nos. 22628‑22637, 22638‑22669 & 22670 of 2024

Date of Judgment February 11, 2026

Impugned Order Common Judgment dated 21.06.2023 of the Division Bench of the High Court of Judicature at Madras in Writ Appeal No.1687 of 2021 and batch

2. Legal Framework and Precedents

A. Statutes and Statutory Provisions

The Payment of Gratuity Act, 1972 (PG Act)
Section 1(3)(b): Applicability to every factory, mine, oilfield, plantation, port, railway company, shop or establishment to which the Industrial Disputes Act, 1947 applies.
Section 2(e) – Definition of “employee” (as amended):
“employee” means any person (other than an apprentice) employed on wages … in any establishment, factory, mine, oilfield, plantation, port, railway company or shop—
(i) to do any skilled, semi‑skilled or unskilled, manual, supervisory, technical or clerical work …;
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 judgment clarifies that the exclusionary limb is disjunctive in effect: the words “or” appear in the clause, and the Court reads it as “does not include … who holds a post under the Central Government … or is governed by any other Act or by any Rules providing for payment of gratuity”.]
Section 5: Power of the appropriate Government to exempt any establishment from the operation of the Act.
Section 14: Overriding effect – the provisions of the PG Act shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than this Act.
The Atomic Energy Act, 1962 (AE Act)
Section 3: General powers of the Central Government to produce, develop, use and dispose of atomic energy either by itself or through any Authority or Corporation established by it or a Government Company.
The DAE is the administrative department through which the Central Government exercises its powers under the AE Act.
The Central Civil Services (Pension) Rules, 1972
Provide for retirement benefits including gratuity to Central Government employees.
The appointment orders of the appellants explicitly stated that they were governed by the CCS Rules.
Office Memorandum dated 01.05.1969 (DAE)
Constituted a Board of Management called “Heavy Water Projects Board” to administer the Heavy Water Production Projects of the DAE.
The Memorandum vested functional autonomy in the Board, but did not create a separate corporate entity.

B. Precedents Referred to and Distinguished

CasePrinciple / DistinctionMunicipal Corporation of Delhi v. Dharam Prakash Sharma (1998) 7 SCC 22MCD, though a local authority, was held to be an “industry” and its employees were covered under the PG Act because MCD is a separate legal entity distinct from the Central Government. The employees were not holders of civil posts under the Central Government. Distinguished: HWP is not a separate legal entity; it is an adjunct of DAE.Arun Kumar v. Union of India (2007) 1 SCC 732Defined jurisdictional fact: a fact the existence of which is necessary to confer jurisdiction upon a court, tribunal or authority. If the jurisdictional fact is erroneously assumed, the resultant order is liable to be quashed by certiorari.

C. Doctrinal Concepts Applied

Jurisdictional Fact: The applicability of the PG Act depends on whether the employee falls within the inclusive definition or the exclusive limb of Section 2(e). The status of HWP—whether it is a part of the Central Government or a separate autonomous body—is a jurisdictional fact.
Exhaustive Definition: When a definition uses both “means” and “does not include”, it is exhaustive and strictly excludes the categories enumerated.
Overriding Effect (Section 14) cannot expand the threshold definition: Section 14 operates only if the person is first an “employee” under Section 2(e). It cannot override the express exclusion contained in the definition clause.

3. Basic Relevant Facts

A. Hierarchy and Status of Heavy Water Plant (HWP)

The Department of Atomic Energy (DAE) is the administrative arm of the Central Government for executing the Atomic Energy Act, 1962.
On 01.05.1969, the DAE issued an Office Memorandum constituting the Heavy Water Projects Board to manage its Heavy Water Production Projects.
The HWP at Tuticorin is one such project. It is not incorporated under the Companies Act, is not a Government company, and has no separate legal personality (no common seal, perpetual succession, etc.).
The Board enjoys functional autonomy, but ultimate control, funding, and policy direction vest in the DAE / Central Government.

B. Employment and Retirement Benefits

The appellants were appointed as employees of HWP, Tuticorin. Their appointment orders expressly stated that they were governed by the Central Civil Services (CCS) Rules.
Upon retirement, they received gratuity computed under the CCS (Pension) Rules, 1972.
In 2014, one of the employees (N. Manoharan) claimed that the gratuity payable under the PG Act was higher and filed an application before the Controlling Authority under the PG Act.

C. Proceedings Before Authorities and High Court

Controlling Authority: Held that HWP is an “industry” under the Industrial Disputes Act, 1947; therefore, the PG Act applies. Directed payment of the differential gratuity.
Appellate Authority (Deputy Chief Labour Commissioner): Affirmed the Controlling Authority’s order.
Single Judge of the High Court: Dismissed HWP’s writ petitions, following an earlier order dated 29.01.2016 which had taken the same view.
Division Bench of the High Court (Impugned Judgment): Allowed HWP’s writ appeals, holding that:
HWP is not a separate legal entity; it is a unit of DAE.
Employees hold civil posts under the Central Government and are governed by CCS (Pension) Rules, thus squarely fall within the exclusion clause of Section 2(e) PG Act.
Section 14 (overriding effect) cannot be invoked because the Act never applies to them.
Having accepted gratuity under CCS Rules without protest, the employees are estopped from claiming under the PG Act (though the Supreme Court did not rest its decision on estoppel).

4. Issues Before the Supreme Court

The Court framed the sole jurisdictional question (para 2 & 10):

“Whether the employees of Heavy Water Plant, Department of Atomic Energy, Government of India, are covered by the definition of ‘employee’ under Section 2(e) of the Payment of Gratuity Act, 1972?”

This overarching issue involved the following sub‑questions:

Whether HWP is a separate legal entity / autonomous body distinct from the Central Government, or is it an adjunct / annexe of the Department of Atomic Energy?
Whether the employees of HWP are “persons who hold a post under the Central Government” and are governed by the CCS (Pension) Rules, thereby falling within the exclusionary limb of Section 2(e) of the PG Act?
Whether the judgment in Municipal Corporation of Delhi v. Dharam Prakash Sharma is applicable to HWP?
Whether Section 14 of the PG Act (overriding effect) can bring employees within the Act even if they are excluded by the definition clause?
What is the role of jurisdictional fact in determining the applicability of the PG Act?

5. Ratio Decidendi

The Supreme Court dismissed all the appeals, upholding the Division Bench of the Madras High Court. The ratio can be summarised in the following propositions:

Status of HWP – A Question of Jurisdictional Fact
The existence of the employer‑employee relationship for the purpose of the PG Act depends on a jurisdictional fact: whether the employer (HWP) is a part of the Central Government or a distinct entity.
HWP was constituted by an Office Memorandum of the DAE to manage heavy water projects. It has no corporate veil; it is not registered under the Companies Act, has no independent legal personality, and its employees are appointed under the CCS Rules.
Functional autonomy granted to the Board does not transform HWP into a separate legal entity. It remains an adjunct / annexe of the DAE.
Interpretation of Section 2(e) – Exhaustive and Exclusionary Definition
The definition of “employee” in Section 2(e) uses the formula “means … but does not include”. This is an exhaustive definition.
The exclusionary limb must be read strictly: any person who (i) holds a post under the Central/State Government or (ii) is governed by any other Act or (iii) is governed by any Rules providing for gratuity is not an “employee” under the PG Act.
The employees of HWP satisfy both the first and third conditions: they hold civil posts under the Central Government and are governed by the CCS (Pension) Rules which provide for gratuity. Hence they are expressly excluded.
Distinction from MCD
Municipal Corporation of Delhi v. Dharam Prakash Sharma is distinguishable on facts. MCD is a statutory body created by an Act of the legislature, possesses a separate legal personality, and its employees are not holders of civil posts under the Central Government.
HWP lacks these attributes. A decision is an authority for what it decides, not for what may be logically deduced from it. MCD cannot govern the present case.
Section 14 – Overriding Effect Cannot Supplanted the Definitional Threshold
Section 14 operates only after a person qualifies as an “employee” under Section 2(e).
If a person is excluded at the threshold by the definition clause, the question of overriding any other law does not arise. The general overriding provision cannot be used to drag excluded persons into the net of the Act.
No Requirement of an Exemption Notification
The argument that HWP ought to have obtained an exemption under Section 5 of the PG Act is misplaced. Exemption presupposes that the Act applies. Since the Act never applies to these employees (owing to the exclusion clause), no exemption is needed.

6. Legal Framework Established / Clarified

While the judgment does not create new statutory law, it authoritatively clarifies several important aspects of the PG Act and the law of statutory interpretation:

Definition of “Employer” in Government Undertakings – Substance over Form
The Court lays down a test to determine whether a government unit is a “separate entity” : incorporation, perpetual succession, common seal, and registration under the Companies Act are decisive. Mere functional autonomy or an administrative Board does not confer separate legal personality.
This test will guide future disputes involving entities like ordnance factories, other DAE plants, and similar departmental undertakings.
Jurisdictional Fact in Social Welfare Legislation
The judgment reinforces that even beneficial legislation like the PG Act cannot be applied without first establishing the jurisdictional fact of coverage. Assuming jurisdiction on an erroneous appreciation of a jurisdictional fact vitiates the entire proceeding and is amenable to writ of certiorari.
Exhaustive Definition – “Means … does not include”
The Court reiterates the rule of interpretation: when a definition uses “means” followed by “does not include”, it is exhaustive. The exclusionary part is not illustrative but strictly exclusionary.
Overriding Provision (Section 14) Cannot Cure Definitional Exclusion
A clear demarcation is drawn between the scope of the Act (determined by the definition clause) and the effect of the Act (overriding other laws). Section 14 addresses the latter; it cannot expand the former.
CCS (Pension) Rules as “Rules providing for payment of gratuity”
The Court affirms that the CCS (Pension) Rules, 1972 are indeed “Rules providing for payment of gratuity” within the meaning of Section 2(e). Hence any employee governed by those Rules is automatically excluded from the PG Act.

7. Supreme Court’s Examination and Analysis

The Court adopted a structured, three‑pronged analytical approach:

A. Determination of the Jurisdictional Fact – Status of HWP

Textual Analysis of the 1969 Office Memorandum:
The Memorandum speaks of “constituting a Board of Management” for “managing the Heavy Water Projects of the DAE”. It does not create a company or statutory corporation. The Board is described as an internal mechanism for efficient administration, not as an independent employer.
Absence of Corporate Attributes:
The appellants conceded that HWP is not incorporated, has no certificate of incorporation, no shares, no common seal, and no perpetual succession. It cannot sue or be sued in its own name. These are classic indicia of a non‑separate entity.
Comparison with Other DAE Entities:
The Court contrasted HWP with entities like NPCIL (Nuclear Power Corporation of India Ltd.), which is a Government company registered under the Companies Act and is a separate legal person. The choice of the Central Government to operate either “by itself” or “through a corporation/company” under Section 3 of the AE Act is deliberate. HWP was deliberately kept as a departmental undertaking.
Conclusion: HWP is an adjunct/annexe of the DAE; the employer is functionally the Central Government.

B. Application of Section 2(e) to the Employees

Admitted Facts: Appointment orders state “governed by CCS Rules”. Employees received pension and gratuity under CCS (Pension) Rules.
Interpretation of Exclusion Clause:
The clause uses “but does not include any such person who holds a post under the Central Government or is governed by any other Act or by any Rules providing for payment of gratuity”.
The word “or” is disjunctive. Even if the employee is not strictly a “holder of a post” (though they are), they are certainly “governed by … Rules providing for payment of gratuity”.
Hence, they are excluded by the plain language of the statute.

C. Distinguishing MCD and Rejecting the Overriding Effect Argument

MCD Distinguished:
MCD was created by a statute (Delhi Municipal Corporation Act) and possesses independent legal existence.
MCD’s employees were not holders of civil posts under the Central Government; they were employees of a local authority.
The judgment in MCD specifically noted that the CCS (Pension) Rules did not apply to MCD employees. Hence MCD is not an authority for the proposition that employees of a departmental undertaking are covered by the PG Act.
Section 14 – Limited Role:
The Court applied the “gateway” test: Section 2(e) is the gateway to the Act. If a person does not pass through this gateway, they cannot stand inside the Act to claim the benefit of Section 14.
A person excluded by the definition cannot be brought in by the overriding provision, because there is nothing to override—the other enactment (CCS Rules) applies, and the PG Act does not apply at all.

D. Rejection of the Exemption Notification Argument

The employees argued that since HWP had not obtained an exemption notification under Section 5, it must be covered by the Act.
The Court held that exemption presupposes coverage. If the Act does not apply ab initio owing to the exclusion clause, the question of exemption does not arise. Section 5 is irrelevant.

8. Critical Analysis and Final Outcome

Critical Analysis

Strengths of the Judgment:

Clarity on “Separate Legal Entity” Test:
The judgment provides a clear, objective test for determining whether a government unit is an independent employer or a department of the government. This will eliminate confusion in numerous pending litigations concerning ordnance factories, research establishments, and other departmental undertakings.
Fidelity to Textual Interpretation:
By giving full effect to the exclusionary clause of Section 2(e), the Court respects the legislative intent. The PG Act was never meant to apply to government servants who already have a gratuity scheme under the CCS Rules. This prevents double coverage and maintains the distinction between industrial workers and civil servants.
Jurisdictional Fact Doctrine – Proper Application:
The Court correctly applied the concept of jurisdictional fact. The Controlling Authority erroneously assumed jurisdiction based solely on the “industry” status under the ID Act, without examining the separate legal entity question. The Supreme Court rectified this fundamental error.
No Conflict with Beneficial Interpretation:
The judgment does not deny gratuity; it merely affirms that the employees are entitled to gratuity under the CCS Rules. The differential amount is a matter of policy, not a denial of a social security benefit.

Potential Concerns / Critique:

Reliance on “Adjunct/Annexe” Terminology:
The judgment does not elaborate on the precise legal nature of “adjunct” or “annexe”. While HWP clearly lacks incorporation, there may be grey‑area entities (e.g., registered societies, autonomous institutes) that enjoy greater autonomy. Future courts will have to apply the “substance over form” test, which the judgment has not exhaustively defined.
No Discussion on “Deemed Government Company” or “Other Authorities” under Article 12:
The employees did not argue that HWP is an “other authority” under Article 12 of the Constitution, which would bring it within the definition of “State”. The judgment does not address whether being “State” for fundamental rights purposes automatically means the employees are holders of civil posts under the Central Government. This remains an open question.
Estoppel – Not Decided:
The High Court had invoked the principle of estoppel (accepting benefits without protest). The Supreme Court did not rely on this ground, leaving the issue of whether estoppel can be pleaded against a statutory claim unresolved.
Impact on Employees of Other DAE Units:
The judgment will apply to all Heavy Water Plants and possibly to other DAE undertakings that are similarly unincorporated (e.g., Atomic Minerals Directorate, Indira Gandhi Centre for Atomic Research?). However, each such unit may have its own constituting instrument; the ruling is fact‑specific and may require individual examination.

Overall Assessment:
The judgment is a well‑reasoned, precedent‑driven decision that restores the original legislative scheme of the PG Act. It prevents the Act from being extended to a class of employees whom Parliament expressly intended to exclude. It is doctrinally sound and practically workable.

Final Outcome

All the Civil Appeals arising out of SLP (C) Nos. 22628‑22637, 22638‑22669 and 22670 of 2024 are dismissed.
The impugned common judgment dated 21.06.2023 of the Division Bench of the Madras High Court is affirmed.
It is declared that the employees of Heavy Water Plant, Department of Atomic Energy, are not covered by the definition of “employee” under Section 2(e) of the Payment of Gratuity Act, 1972, and are consequently not entitled to claim gratuity under that Act.
The payments, if any, made by HWP pursuant to interim orders of the High Court or this Court shall be subject to adjustment / recovery in accordance with law (though not specifically mentioned, this flows from the dismissal).
No order as to costs. Pending applications stand disposed of.

(MCQs)

1. Under Section 2(e) of the Payment of Gratuity Act, 1972, which of the following categories of persons is EXCLUDED from the definition of “employee”?
a) A person employed in a shop employing ten persons.
b) A person who holds a post under the Central Government and is governed by rules providing for gratuity.
c) A person employed in a mine on supervisory work drawing wages below the statutory ceiling.
d) A person employed in a factory on clerical work.

2. In N. Manoharan v. Administrative Officer, the Supreme Court held that Heavy Water Plant, Tuticorin, is NOT a separate legal entity because?
a) It was not established by a statute.
b) It is not registered under the Companies Act and lacks corporate attributes like perpetual succession and common seal.
c) It does not have a Board of Directors.
d) It is a public sector undertaking wholly owned by the Government.

3. The judgment in Municipal Corporation of Delhi v. Dharam Prakash Sharma was distinguished by the Supreme Court primarily on the ground that?
a) MCD is a local authority created by a statute, possessing independent legal personality, unlike HWP.
b) MCD employees were receiving higher gratuity under the CCS Rules.
c) MCD had obtained an exemption notification under Section 5 of the PG Act.
d) MCD was not an “industry” under the Industrial Disputes Act.

5. According to the Supreme Court, what is the correct relationship between Section 2(e) and Section 14 of the Payment of Gratuity Act, 1972?
a) Section 14 can override the exclusion clause in Section 2(e) if it is beneficial to the employee.
b) Section 2(e) is the threshold provision; a person must first qualify as an “employee” under Section 2(e) before Section 14 can operate.
c) Section 14 prevails over Section 2(e) because it is a non obstante clause.
d) Both provisions operate independently and an employee can choose to be covered under either.

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