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Kalyan Mitra
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Dera Friends
I have a issue which is belongs to one of my friend who was employed in a firm and subsequently this from was taken over by a pvt ltd company. The new employer has issued fresh appointment letter to all the employees of the firm. Now his concern is whether the payment of gratuity is applicable afresh or his previous service when he was an employee of the firm will also be considered? He was told that any gratuity claim pertaining to earliler employment should be settle with previous employer and can not be carried forward for new employemnt. Is it correct ?

Dear Mr. Ganapa25
I'm Bharti. I've been hearing various suggestions on gratuity laws pl. do u know anyone who could suggest or guide me correctly if teachers are entitled for gratuity or no.

Dear Ganapa25,
When this employer is issuing fresh appointment letters to the employees then he will not be required to pay gratuity for the previous service of the employees.


Hello Ganapa,

Normally take over which is also called"Merger of two companies" happen under certain legalities. In such cases both the companies apply to the Honorable High Courts and also to the Registrar Of Companies of their respective jurisdiction for the take over/ merger. The order issued by the HC clearly states what will be the status of the employees of the taken over/ merged companies. The order also states about the benefit of PF and Gratuity and continuation of service. Issue of separate letter of appointment to the employees of the merged companies by the new employer does not relieve the new employer of the responsibilities of payment of gratuity for the period of service rendered with the merged company. This is not a case of resignation by the employee but transfer of management only. Check with your friend and you will find that PF balances of all the employees of the previous company have been transferred to the new company. The employees have not resigned but their services have been transferred to the new management.
However, everything depends on the text of the agreement between the two companies regarding take over. If the previous employer has agreed to settle the Gratuity payments on merger then the new employer has no responsibility.
I feel the employees of the merged company should take up the matter with the new management and get it in writing about the fate of their gratuity payment for the services rendered with old company.

Dear Mr. Kalyan,
My query is how an employee will know the terms & conditions of order between to two companies ? Is there any provision to circulate the order/agreement or its certian portions to employee's.


The previous employer can equate some amount as gratuity to those who are eligible (served atleast 4 years and 6 months). The new employer need not pay or honor these obligations. If it is a group company then the second employer can mention the clause that ' Though your date of joining with us is dd/mm/yy, your service period continues without a break for service letter purpose'. Please check it out with your legal cell.
I have issued one such letter when a company was split into two.

There is also one thing this is retrenchment compensation which should be given by previous employer because when he close or merged his firm at that time he must have to pay gratuity or R.C.
Payment of gratuity is statutory requirement irrespective of the fact who owns the establishment. Change of ownership or the management doesn’t come in the way of this statutory rule
Dear friends,

Part-IX (Sections 565 to 581) of Companies Act 1956 provides for procedure for conversion of a partnership firm into a limited company. This can be followed only if the firm has 7 or more partners. In case the number is less, it has to be increased first by amending Partnership Deed. If this legal procedure is followed by the firm, then the effect will be as under:

- Registrar of Companies will issue certificate of registration u/s 574. The words "Private Limited" are added in company's name u/s 573.

- Existing assets & liabilities of the firm will become assets & liabilities of the company as per Sec.575 and 576 by operation of law.

- All employees of the firm will automatically become employees of the company and their service will be continued without any break

However from the query it appears that the firm has not followed this route (may be due to lesser number of partners). Then the only possibility is that assets are transferred to the company by agreement. In that case the effect will be:

- First new company is got registered

- Partnership firm enters into an agreement with the company for transfer of its assets to the new company on the appointed date against payment of consideration

- Liabilities are retained and settled by the firm since as per Contract Act liabilities cannot be transferred without the consent of all the concerned parties (viz. creditors, employees etc.)

- Full & final account is prepared & settled for the employees by the firm till the appointed date (and new appointment letters are issued by the company only if the employees are willing to accept the job in the company.)

- Company is a separate legal entity and is a different 'employer' under the Payment of Gratuity Act in this case and hence gratuity cannot be claimed from the company for service with the partnership firm.

Thus where only assets of the firm are transferred by agreement to the new company and legal procedure prescribed in Part-IX of Companies Act 1956 is not followed, the partnership firm will be liable to pay gratuity, leave encashment etc. of employees. However, since better terms can be offered to the employees, the company may at its absolute discretion provide in the agreement that in case of employees who have not completed 5 years of service with the firm, their service period with the firm will also be considered while calculating gratuity in the company.


dear gopalanis, As per the Amendment Act,2009 teachers are entitled to gratuity w.e.f 3-04-1997.

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