Payment of Gratuity Act, 1972 — Section 2(e) — Definition of “employee” — Exclusionary limb — Person holding post under Central Government and governed by any other Act or Rules providing for gratuity — Employees of Heavy Water Plant (HWP), Department of Atomic Energy — Governed by CCS (Pension) Rules, 1972 — Held, excluded from definition — PG Act inapplicable (Paras 12–13).
Atomic Energy Act, 1962 — Section 3 — Heavy Water Plant (HWP) — Whether autonomous industrial establishment or adjunct of Department of Atomic Energy (DAE) — HWP not incorporated as Government company/PSU — Functions under DAE through Heavy Water Projects Board — Employees hold civil posts under Union — Held, HWP is adjunct of Central Government department (Paras 4–5, 13).
Jurisdictional Fact — Applicability of welfare legislation — Whether employees fall within definition clause — Determination of status of establishment and nature of employment foundational — If exclusion applies, authorities lack jurisdiction under PG Act (Paras 10–13).
Section 14 PG Act (Overriding effect) — Applicability — Overriding clause cannot operate unless person first qualifies as “employee” under Section 2(e) — Where definition excludes category, Section 14 not attracted (Para 13).
Section 5 PG Act (Exemption) — Necessity of notification — Where employees excluded by definition clause itself, exemption notification unnecessary (Para 13).
Distinction — Municipal Corporation of Delhi v. Dharam Prakash Sharma — Corporate entity adopting CCS Rules distinct from Central Government department — Ratio not applicable to HWP employees holding civil posts under Union (Para 11).
Result — Appeals dismissed — High Court judgment affirmed — Employees of HWP not entitled to gratuity under PG Act; governed exclusively by CCS (Pension) Rules, 1972 (Para 14).
ANALYSIS OF FACTS
The central issue before the Court was whether employees of the Heavy Water Plant (HWP), Tuticorin, functioning under the Department of Atomic Energy (DAE), Government of India, are covered by the Payment of Gratuity Act, 1972.
The appellants were retired employees of HWP who had received retirement benefits, including gratuity, under the CCS (Pension) Rules, 1972. The gratuity payable under the PG Act was higher than that under the CCS Rules. An employee approached the Controlling Authority under the PG Act seeking differential gratuity.
The Controlling Authority held that HWP constituted an “industry” under the Industrial Disputes Act and that employees were covered by Section 2(e) of the PG Act. The Appellate Authority affirmed this view. The High Court of Madras, however, reversed the authorities, holding that the employees were excluded under the definition clause of Section 2(e).
The appeals before the Supreme Court were filed by retired employees challenging the High Court’s decision.
The factual structure was undisputed:
HWP is not incorporated under the Companies Act.
It is not a Government company or PSU.
It functions under a Board constituted by Office Memorandum dated 01.05.1969.
Appointment orders expressly stated that employees are governed by CCS Rules.
Pension and gratuity were disbursed under CCS (Pension) Rules, 1972.
The controversy turned entirely on statutory interpretation and the jurisdictional fact of employment status.
ANALYSIS OF LAW
I. Jurisdictional Fact and Applicability of PG Act
The Court treated the question of coverage under Section 2(e) as a jurisdictional fact. Relying on the doctrine articulated in Arun Kumar v. Union of India, the Court observed that applicability of the PG Act depends upon whether the person qualifies as an “employee” within the statutory definition. If the foundational fact does not exist, the authority under the Act lacks jurisdiction.
Thus, the issue was not whether HWP is an “industry”, but whether employees fall within or are excluded from Section 2(e).
II. Construction of Section 2(e) — Exclusionary Clause
Section 2(e) defines “employee” but expressly provides that it “does not include” any person who:
Holds a post under the Central Government or State Government, and
Is governed by any other Act or by any rules providing for payment of gratuity.
The Court emphasized the interpretative principle that when the legislature uses “means” coupled with “does not include”, the definition is exhaustive and exclusionary.
The exclusion operates if:
The person holds a post under the Central Government, or
Is governed by rules providing for gratuity.
The Court held that HWP employees satisfy both conditions:
They hold civil posts under the Union of India.
They are governed by CCS (Pension) Rules, 1972, which provide gratuity.
Therefore, they fall squarely within the exclusionary clause.
III. Status of HWP under the Atomic Energy Framework
The Court examined the statutory framework under the Atomic Energy Act, 1962. Section 3 empowers the Central Government to undertake atomic energy functions either directly or through authorities or Government companies.
The Court found:
HWP was constituted through an Office Memorandum.
It lacks corporate personality.
It is not a PSU or Government company.
It functions as a project under the Heavy Water Projects Board of DAE.
The attributes of a separate legal entity — incorporation, perpetual succession, common seal, limited liability — are absent.
Thus, HWP is an adjunct or ancillary unit of the DAE, not an autonomous industrial establishment distinct from the Central Government.
The Court refused to dissect functional autonomy for limited statutory benefit. The character of HWP remains that of a departmentally controlled unit under the Union Government.
IV. Inapplicability of Section 14 (Overriding Clause)
Section 14 gives overriding effect to the PG Act. The Court held that this provision becomes relevant only if the person qualifies as an “employee” under Section 2(e).
Since the appellants were excluded at the threshold definition stage, Section 14 could not be invoked to override CCS Rules.
A specific exclusion in the definition clause cannot be nullified by a general overriding clause.
V. Exemption under Section 5 Not Required
The appellants argued absence of an exemption notification under Section 5.
The Court held that where the statute itself excludes a category from the definition, no exemption notification is required. Section 5 applies only where the Act otherwise applies but exemption is granted.
Here, the Act never applied.
VI. Distinguishing Municipal Corporation of Delhi Case
The Court distinguished Municipal Corporation of Delhi v. Dharam Prakash Sharma.
In MCD, employees were employees of a statutory corporation which had adopted CCS Rules. They did not hold civil posts under the Central Government.
In the present case, employees hold civil posts under the Union itself.
Therefore, MCD is not an authority for extending PG Act coverage to Central Government servants.
RATIO DECIDENDI
Employees of Heavy Water Plant, functioning as an adjunct of the Department of Atomic Energy under the Central Government, who hold civil posts under the Union and are governed by CCS (Pension) Rules, 1972 providing for gratuity, fall within the exclusionary clause of Section 2(e) of the Payment of Gratuity Act, 1972. Consequently, they are not “employees” under the PG Act, and the Act does not apply. Section 14 (overriding clause) and Section 5 (exemption provision) are inapplicable where exclusion operates at the definitional threshold.
OPERATIVE RESULT
The Civil Appeals were dismissed.
The judgment of the High Court of Madras was affirmed.
The retired employees of HWP are not entitled to claim differential gratuity under the Payment of Gratuity Act, 1972.
Gratuity remains governed exclusively by CCS (Pension) Rules, 1972.
Pending applications were disposed of.
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