There is no violation of contract since the contract states notice period or pay in lieu of notice period. An employee is within his right to chose what he desires. Similarly law of limitation does not apply for employment as per the Supreme Court judgement given in SBI vs S R Ramanujachari. In this case the employee resigned and asked the bank to adjust the notice period against leave due and balance to be paid for. The bank insisted on the serving of notice period. Obviously bank did not issue relieving order. ( incidentally relieving order is required only by Public Sector and government and many private companies do not require them). The employee had set up his own business and so he did not bother. The bank owes the employee the final settlement. After about five and a half years the employee asked for his settlement and the bank stated the claim is barred by limitation and also that the employee violated the contract by not serving the notice period. The employee decided to go to court and at every court he won the case and finally the SC gave the judgement and the two things it highlighted is
a) that there is no violation of contract when an employee choses not to serve the notice period since in the terms of appointment made by the employer, a choice is given, either to serve the notice period or pay compensation in lieu of notice. And the employee chose to pay. The choice is left to the employee here since the person working is the employee and contract was made by the employer., implying that the choice is with the employee when making the choice in terms of this clause.
b) the law of limitation does not apply to appointments/employments in India and the spirit of the labour law will prevail.
There are numerous cases where the courts have given judgements based on this premise. There have been some Lawyers and companies who have been trying to invoke the appointment of employees as if its a contract. The Supreme Court has also observed that when there is an endeavor today to abolish the contract employment act itself, trying to assign the appointment/employment as a contract would be a paradox. So it's very clear that the spirt of the labour laws will prevail. This was also quoted once again by the SC in the now famous Titan Industries vs Vasant Nangia case, when Titan sued their former COO by applying the appointment under the contracts act violated the contract of employment. The SC clearly stated that irrespective of the level of the employee, the spirit of labour law will apply and not the contract act. And also that under the contract act you don't pay PF, Gratuity etc, since the intent of contract act was not to cover employees.
So you are within your rights to demand. Don't have to now down in front of unscrupulous employers. We are a free country. British left more than 65 years back. You don't have to lose your self esteem and beg under, ' humanitarian' conditions. It's your right and demand it with courage.