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V Natarajan (Consultant)     04 July 2017


An employee was working for a propreitorship which was changed into a Pvt Ltd Co subsequently. At the time of change over, the employees resigned from the proprietorship and applied afresh to the Pvt Ltd company, which is now completed 2 years in existence. The employee has now completed over 5 years in the combined two entities - can they claim gratuity if they leave now from the Pvt Ltd Co?


 15 Replies

NATARAJAN IYER (Proprietor)     04 July 2017

Technically speaking YES.

Entity is the same.

Proprietorship changed ( status modification ) to Pvt.Ltd.,

Ltd., by shares.

Who is the director ? What does the articles of association and memorandum of association say ?

What is the paid up capital of the new entity ? for that paid-up capital, what is the source of funds ?

What is the PAN of the company ? What was the PAN of the proprietor ? What is the new PAN of the director who was earlier the proprietor ?


So legally if some employee goes to court, and pulls out all records, one after the other, and establishes that his/her contribution as an employee

has been to the same BUSINESS ENTITY ( but with status modification from proprietor to ltd., firm ) then YES, the employee has a huge chance of winning the matter in court.


But, strictly speaking, as per the payment of gratuity act, you may say NO since the five year term comes in-between as an obstacle.


To avoid future complications, if they write to you seeking gratuity or even voluntarily you may make the pay-out.

In fact it helps in the future to even prove your credentials as one of an ethical businessman.


For more practically legal tips, I suggest, you speak to any retired ( recently retired ) labour commissioner and then meet a few advocates.

But first meet a retired labour commissioner since it is better that you get practically legal tips.

V Natarajan (Consultant)     05 July 2017

Thank you. Your feedback was useful

V Natarajan (Consultant)     05 July 2017

Thank you. Your feedback was useful

Kumar Doab (FIN)     05 July 2017

The Gratuity is permissible or not is to be decided by employer or authority appointed under the Act, on merits………………….. 

If you are on side of employee advise to submit FormI under proper acknowledgment and mention that Notice of Determination of Gratuity and payment has not been supplied and employee has been with establishment (Prop) from dated...........and  establishment (Pvt Ltd) from dated..........

Kumar Doab (FIN)     05 July 2017

The efforts and post of Mr. NATARAJAN IYER are apreciated.

The Gratuity is permissible or not is not to be decided by anyone in this thread….

darshana sawant (associate consultant)     22 July 2017

Dear Sir,


While changing the constitution of the company, why did the employees resign from the proprietory firm, what was the reason cited in the resignation?  Since there is no continuity of service in the establishment for 5 years, gratuity will not be admissible technically.  Therefore it will not be payable

Kumar Doab (FIN)     22 July 2017

The employee and employer both would in knowledge of extent reason for resignation/ asking to resign..........................and if possible both may resolve amicably.....


Kumar Doab (FIN)     22 July 2017

GO thru:

Payment of Gratuity Act,1972;4(5).

V Natarajan (Consultant)     23 July 2017

Thanks for your feedback

V Natarajan (Consultant)     23 July 2017

Thanks for your feeedback

V Natarajan (Consultant)     23 July 2017


Employees agreed to change into a new company. No such information mentioned in creation. Just similar business information provided in MOA



V Natarajan (Consultant)     23 July 2017

Thanks for the feedback. The act does not cover this aspect specifically. Only mentions continuous service. Your detailed assessment would have helped more

Kumar Doab (FIN)     25 July 2017

There was NO need to resign by employee.

If MOA can suffice to establish the break was artificial so as to avoid payment of Gratuity there might be some chance.


Take help of a local very able senior counsel of unshakable repute and integrity specializing in service matters.


Does not seem to be a fit case for gratuity.


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