dear Premlata,
More than the said part of your post, I would like to write on unsaid part of the post.
It appears that management is more interested in driving the person away and through his posting at some other place, they wanted to teach him a lesson.
Most companies insert clause in the appointment letter stating that they are free to transfer employee from one section to another, from one business unit to another and employee will not have any say in these matter. However, this clause reduced its importance because employees started leaving their job. Therefore, transfer of employee became cause of manpower attrition. To contain this double loss, now a days many employers do not force employees to relocate.
Your case appears to be different. They are not much interested in this person. Probably they knew well employee has compelling reasons to stay in that particular city. Therefore, rather than following direct route of taking disciplinary action, they found this as better way of removal.
The employee in question whether he serves notice period at old place or new place does not matter here because management is not interested in this person. They appear to be quite inclement in his case. Therefore, they may take disciplinary action against this employee for failure to obey the rightful orders. Management wants to see transfer order and resignation as two separate issues and do not want to link them together. Employee wants opposite.
Thanks,
Dinesh V Divekar