Eligibility Of Gratuity - Gratuity Eligibility - CiteHR
Industrial Relations And Labour Laws
Korgaonkar K A
Talent Acquisition / Consultant - Catalis
Balvant Dodiya
Hr Manager

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I would like to know whether i am eligible to get gratuity from the company which was operating initially in proprietor firm for 3 years and then operating as private limited company. I have completed more than 05 years considering the working days of both the companies. Also i withdrawn my PF from the proprietor ship firm and now PF Account, code number etc are separate in private limited. Whether my service will account in continuity? Employer saying your service is became discounted due to withdrawal of PF and not eligible for gratuity. Please guide me.
Hi Balvant,

From your post, I understand that you have been working in a firm for 5+ years.... and now wish to claim gratuity benefits.

The firm worked as proprietor for 3 years and thereafter it operates till date as Pvt. Ltd. Co.

Can you elaborate on:

1. What was your employment duration in the firm when it was under proprietorship?

2. What was your employment duration in the firm as Pvt. Ltd. Co.?

3. The company must have undergone certain changes like getting registered etc. As a result have they changed their name (minorly or majorly)?

4. During the transition, were you given a new offer letter from the Pvt. Ltd. Co.? Or were you given any letter which mentions that your previous employment will be considered?


For knowledge of others:-

Kindly note that whenever company changes its name / expands to ltd. co. / gets merged or acquired with another firm,

It is our duty to ask for our future with the HR.

You must ask if your previous employment will be continued or a fresh employment will be considered. In either case, we need to ask for such things in writing to produce it as proof.

Ideally in such scenario, HR produces new offer letter and mentions that now you are an employee of the new firm, mentioning that you have been previously working for the firm since X period and that will be considered for all the benefits to be given in future during separation (resignation / termination / retirement)

The basic thing to be done while making such changes in the management or constitution of the company is to ensure compliance as per section 25FF of the Industrial Disputes Act. The said section says that no employee shall be transferred to the new company without paying retrenchment compensation as prescribed under section 25F of the Act. However, if the service conditions are not altered and if the wages, and other service benefits are fairer than the earlier company there is no need of paying compensation but the services of the employees shall continue without any break in service. Unless otherwise settled and in the absence of any option given to the employees as to whether they would like to join the new company or not, and in the absence of any payment given to those who decided not to join the newly formed company as retrenchment compensation, all the employees are deemed to have joined the company on the date on which they joined the former company.

Second issue is that when the employees in the partnership firm were transferred to company, they closed the PF and allowed the employees to withdraw the PF and started new PF for them. It is okay that the newly formed company will have a new PF number, but what should have been done is to transfer the old PF accounts of each employee to the new ones by means of transfer forms, ie, form 13. For this workers cannot be blamed. This was a managerial adjustment.

In view of the above, I find that those who have completed 5 years service from the date of joining in the partnership establishment will be eligible to gratuity.


You are eligible for gratuity, since it seems the partnership firm was converted into a pvt ltd company, hence continuation of the organization.
Respected Madhu Sir,

My view is different here.

According to me, section 25FF is not applicable in this case. Section 25FF is applicable when there is a transfer of undertaking, when there is a transfer of ownership or management of the undertaking.

In a given case, the queriest has worked with proprietor for 3 years and then with Private Limited Company for 2 years. Both this undertakings i.e. Proprietary Firm and Private Limited Company are separate entities. Ownership of first one was with sole proprietor and of another one with board of directors. Entity of second one is created by registering a company with ROC and its commencement of business starts from the date of its incorporation as mentioned in the certificate issued by ROC.

Under this circumstances it can not be said that there is a transfer of undertaking or transfer of ownership or management.

Moreover, it seems there is a settlement of dues of the queriest by his proprietor in full and final. PF is also settled. He has no ground to say that his service was transferred from one company to another one with some understandings.

According to me there is no chance to queriest to claim gratuity by law.

Hope you will agree with my contention.

Dear sir/madam Can we claim gratuity under proprietorship?
Dear sir/madam Can we claim gratuity under proprietorship?
am i eligible for gratuity under proprietorship?
If you have worked for the minimum qualifying period of service required, you will get it irrespective of whether the establishment is a proprietorship or company. Only thing to be noted is that if your establishment is not a factory, plantation or mine, there should be at least ten employees in your establishment for coverage of the Act.
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