Can I Claim Gratuity After Company Transitioned from Proprietary to PVT LTD?

Last month, I resigned from a company where I had worked for 6.5 years. When I joined the company, it was a proprietary company. After 3 years of joining, they registered as a PVT LTD and asked me to resign from the proprietary company. I was given a fresh appointment letter from the PVT LTD and served another 3.5 years in that capacity.

After resigning, when I asked for the gratuity, they denied it, stating that I had not completed five years. Is this true? No settlement has been made while moving from the proprietary to the PVT LTD.

Dear Chalya,

Change in the Constitution of the establishment from one form to another is only a cosmetic change and it cannot affect the continuity of the services of the employees therein. However, you ought not have resigned as insisted by the management. Better file a claim for gratuity before the Controlling Authority under the Act and try to establish that the resignation was obtained by the management by coercion. Chances are there.

Here you have made a mistake: "when asked to resign from proprietary, earlier company." Normally, in such a situation, the new company, when issuing a new appointment order, includes a clause stating that for the purpose of gratuity, the earlier company's services would be included. However, in your case, that was not done.

If the proprietor of the earlier company is still one of the directors of the present Private Limited Company, then you have a chance to file a claim before the Controlling Authority under the Payment of Gratuity Act.

Dear Mr. Umakanthan,

Thank you for your valuable suggestion. I will claim as suggested.

One more favor, have you ever come across this kind of situation where an employee was awarded gratuity? If so, please let me know.

Regards,
Chalya

Dear Chalya,

Your further post confirms the change in the mere constitution of the establishment only and not that of the transfer of the undertaking, if any, involving a change of ownership. But you have to prove that you were coerced to put down papers. If those employees who are still in service also faced the same situation just before the change of the Constitution of the establishment, it would strengthen the plea of coercion so as to deprive the continuity of service.

Dear Friend, there is no doubt you have worked for 6.5 years. Your work of 6.5 years is divided between two business setups: 3 years in a proprietorship and 3.5 years in a Pvt Ltd Company. You resigned from the proprietary firm after 3 years and joined a new establishment thereafter. In this new establishment, you worked for 3.5 years.

Due to your employment of 3.5 years in the Pvt Ltd Company, your employer is deemed not eligible for gratuity. This is a fact that must be accepted. How could an establishment that is only 3.5 years old be expected to pay gratuity?

The proprietorship firm and Pvt Ltd are two distinct entities of different natures. Your resignation marks a break in service. Furthermore, the Proprietary establishment has not closed to date. How then can it be claimed that both are not separate but one?

Based on the above facts, you are deemed ineligible for gratuity.

Mr. Prabhat,

Thank you for your kind reply. I agree that I will not be eligible for the gratuity given the current circumstances. However, this is not acceptable. As suggested by Mr. Umakanthan and Mr. Babu Alexander, what is your opinion on claiming gratuity before the Controlling Authority under the Act?

Regards, Chalya

Dear Chalya,

It does not matter whether my opinion is acceptable to you or not. The opinion provided is based upon facts provided by you. There is nothing wrong to claim. If you succeed, it would open an avenue for others who have not considered a similar condition.