I am joining late, but have recently got some experience of resigning with 3 months notice period and would like to share.
I worked in a PVT LTD company, now having registered office in Gujarat, for 17 years. I resigned on 13 May, giving 3 months notice as per written company policy. In that policy company has not written that they can or they may or they will relieve that employee earlier ( before end of notice period ). In fact company policy on the contrary insist that those employee who resign will not be relieved earlier even if employee wants to pay " notice pay " to company in lieu of notice period he does not want to serve and would have to serve full notice period. However in my case they decided to relieve me on 31st June, full 42 days before end of 3 months notice period.
Further they offered to pay only basic pay for balance 42 days of notice period as " notice pay ".
On this site, many learned and professional HR managers have clarified that it is not correct to relieve an employee during notice period if employee wants to serve full notice period as was specified by company in its policy. During my search, I also stumbled upon references to Honorable judgments of Supreme Court on lawyersclubindia.com. And as per these references by lawyers on the website, it is illegal to relieve an employee during notice period if employee wants to serve full notice period as was specified by company in its policy. I am searching for one such judgment and will post it later as soon as I find it. As per Singapore law ( refer ; mom.gov.sq ) it is illegal to relieve an employee during his notice period he served by resignation.
As regard to " notice pay " to be paid by employer if employer wants to part way with employee before end of his notice period, it has been clarified at several places in this web site, that it shall be basic pay + DA + HRA + all other benefits, which employee would have earned naturally had he been allowed to serve till end of his notice period. Also refer Wikipedia for " pay in lieu of notice " as per UK law. Same definition is used on nidirect.gov.uk.
Unfortunately in India, it has become a matter of " company policy " to decide unilaterally whatever suits company managers. Company has every right to protect their interests, but for that one need not be unilateral, and unethical / unjust. The company where I last served as General Manager - Sales, the company policy itself is not complete, not written properly, and HR manager himself says that our company policy is to do whatever we have been doing earlier and we need not write it down and communicate to employees and employees can not debate on it. This is one such example of how HR managers talk as " employer" and they forget that they are professionals / employees like one who has just resigned and as professional they have to ensure transparent, ethical and fair settlement of dues of employees leaving.
21st August 2014 From India, Mumbai