Best Sending (or Answering) an IBC Demand Notice Lawyer

For suppliers and service providers owed large sums by a company, the demand notice under Section 8 of the Insolvency and Bankruptcy Code is often the most effective step available. It is a formal notice, in a prescribed form, demanding payment of an unpaid operational debt. If the company neither pays nor shows a genuine dispute that existed before the notice within ten days, the creditor can apply to the National Company Law Tribunal (NCLT) under Section 9 to start the corporate insolvency resolution process, which would take control of the company away from its management. Faced with that prospect, many companies pay.

This page is for operational creditors considering a demand notice, and companies that have received one. In short: the notice must be in Form 3 or Form 4, sent to the company's registered office and, where possible, to its officers; it must state the debt, the date of default and the supporting documents; the company has ten days to pay or point to a dispute that existed before the notice; an application under Section 9 can be filed only if the default is ₹1 crore or more; and a notice should not be used where there is a genuine dispute, because the NCLT will reject the application.

A demand notice is a serious step. Used for a clear, undisputed debt, it works. Used as a threat in a disputed matter, it usually fails.

Is this your situation?

How the demand notice works

What counts as a pre-existing dispute

In Mobilox Innovations v Kirusa Software (2017), the Supreme Court held that the NCLT must reject a Section 9 application if the corporate debtor shows that a dispute existed before receipt of the demand notice, in the form of a pending suit or arbitration, or a genuine dispute raised in correspondence. The NCLT does not decide who is right; it only asks whether there is a plausible contention requiring further investigation, and not a patently feeble legal argument or an assertion of fact unsupported by evidence.

So a creditor should check the correspondence before sending the notice. If the debtor complained about quality, delay or quantity before the notice, in writing, the Section 9 application may fail. If the debtor never disputed the invoices, confirmed balances, or made part payments without objection, the creditor is in a strong position. Disputes raised for the first time in reply to the demand notice are treated with suspicion, though the NCLT will still look at whether they are genuine.

How we handle demand notices

Time and typical cost range

Our fees are agreed in writing at the start, stage by stage, and are not linked to the outcome.

Documents needed

Reply to a demand notice: options for the debtor

Demand notice or civil recovery?

The demand notice and Section 9 application are not a debt recovery tool in the strict sense. The IBC's purpose is the resolution of insolvent companies, not recovery for individual creditors, and the NCLT has said so many times. But because admission puts the company into the insolvency process, with the board suspended and an insolvency professional in charge, the threat is powerful against solvent companies that are simply delaying payment.

If the debtor company is genuinely insolvent, a Section 9 application may lead to a resolution process in which operational creditors often recover only a small fraction. In that case, a civil suit or arbitration may be no better, but the creditor should file its claim in the resolution process. If the debt is genuinely disputed, the demand notice will not work, and a commercial suit, summary suit or arbitration is the right route. See money recovery suit and summary suit.

MSME creditors and demand notices

Micro and small enterprises owed money by companies often have two routes: the MSME Facilitation Council under Section 18 of the MSMED Act, with interest at three times the bank rate, and the IBC demand notice if the default is ₹1 crore or more. The two can sometimes be used in sequence, for example a council award followed by a demand notice based on the award debt, though the NCLT will look at whether the award is under challenge.

For smaller amounts, below ₹1 crore, the council route is usually better. For larger amounts against a solvent company, a demand notice can bring quicker payment. See MSME delayed payment.

Laws that apply

How we work

We are a litigation and advisory practice led by Advocate BK Singh, with offices in Dwarka (New Delhi) and Vaishali (Ghaziabad). This is what you can expect:

• Honest assessment: whether the debt is strong enough for a demand notice.
• Correct notices: proper forms, contents and delivery.
• Fast follow-through: Section 9 applications filed if there is no payment.
• Settlement focus: turning the notice into payment.
• Written fee terms: agreed stage by stage, never linked to the outcome.

Mistakes with demand notices

Form 3 or Form 4

The Adjudicating Authority Rules provide two forms. Form 3 is a demand notice setting out the particulars of the operational debt, the date of default, documents relied on, and a demand for payment within ten days. Form 4 is a covering demand with a copy of the invoice. Form 3 is more common and allows the creditor to set out a fuller account, especially where several invoices are involved.

Whichever form is used, it must contain the particulars required: the creditor's name and address, the amount claimed, the date or dates of default, a list of documents attached, and a statement that if the amount is not paid or a dispute raised within ten days, the creditor may start the insolvency process. Errors in these particulars are a common ground of objection at the Section 9 stage.

Delivery of the notice

Rule 5 of the Adjudicating Authority Rules requires the demand notice to be delivered at the registered office of the corporate debtor by hand, registered post or speed post with acknowledgment due, or by e-mail to a whole-time director or designated partner or key managerial personnel. In practice, creditors send the notice by speed post to the registered office and by e-mail to all directors whose addresses are available, and keep tracking reports.

The ten days run from delivery. A company that claims it never received the notice will find it hard to sustain that claim if speed post tracking and e-mail delivery are on record. Check the company's registered office address on the MCA portal on the date of sending, because companies sometimes change it.

Calculating the default

The default for the purpose of the ₹1 crore threshold is the amount of debt that has become due and payable and is not paid. It can include principal and interest where the contract provides for interest on delayed payment. Where interest is claimed under the MSMED Act or a contract clause, show the calculation. Do not include amounts that are genuinely disputed, unbilled amounts or amounts not yet due.

The NCLT will look at the invoices, the payment terms and the ledger. If, after removing disputed items, the default falls below ₹1 crore, the application will be dismissed. A careful calculation before the notice avoids this.

For debtors: replying to the notice

A company that receives a demand notice should act within the ten days. Read the notice and attachments, check the company's records for any dispute raised earlier in writing, and decide whether to pay, dispute or negotiate. A reply that points to a pre-existing dispute should attach the earlier correspondence or describe the pending proceedings. A reply that raises new disputes for the first time is weaker but should still be made if the disputes are genuine.

If the debt is genuine and the company can pay, paying, or agreeing a short payment plan, is almost always better than allowing a Section 9 application. Once an application is admitted, the board loses control, and withdrawal is far more difficult after the 2026 amendment. See defending an insolvency petition.

Employees and workmen as operational creditors

Employees and workmen owed unpaid salaries, wages or dues by a company are operational creditors. They can send a demand notice and, where the default meets the threshold, apply under Section 9. Groups of employees can join together, and the Supreme Court has allowed a single application by a trade union on behalf of its members in JK Jute Mill Mazdoor Morcha v Juggilal Kamlapat Jute Mills (2019). For individual employees, the ₹1 crore threshold usually means a demand notice is useful only for senior employees with large dues, or for groups acting together.

After the ten days

If the company does not pay or raise a dispute within ten days, the creditor can file an application under Section 9 in Form 5, with the demand notice, proof of delivery, an affidavit that no dispute was raised, a copy of the bank certificate or other record showing non-payment where available, and the proposed interim resolution professional's consent. The application is filed before the NCLT bench with territorial jurisdiction over the registered office of the company.

The NCLT will hear the corporate debtor before admitting the application. Many companies settle at this stage. See insolvency petition.

Limitation for operational debts

The Limitation Act applies to applications under Section 9, and the period is generally three years from the date of default under Article 137, as the Supreme Court held in B.K. Educational Services v Parag Gupta (2018). Old invoices, unpaid for more than three years without any written acknowledgment, may not support an application. A balance confirmation, an e-mail admitting the dues, or a part payment with a written note can extend the period under Sections 18 and 19 of the Limitation Act, if made before the period expired.

Before sending a demand notice, check the age of each invoice and the dates of any acknowledgments. Include only invoices within time, or those saved by acknowledgment, in the default amount.

When the debtor is a group company

Operational creditors sometimes supply to one company in a group, invoice another, and receive payments from a third. The demand notice must be sent to the company that owes the debt, which is usually the company that placed the orders and received the invoices. If the paperwork is mixed, review the purchase orders, delivery records and ledger to identify the correct debtor before sending the notice. A notice to the wrong company is a wasted step, and the NCLT will not admit an application against a company that is not the debtor.

Using the demand notice responsibly

Because a Section 9 application can lead to the insolvency of the debtor, the NCLT and appellate courts have repeatedly cautioned against using the IBC as a debt recovery shortcut in disputed matters. A creditor who sends a demand notice for a clearly disputed debt, or who files a Section 9 application to pressure a solvent company in a genuine dispute, risks dismissal and, in extreme cases, a penalty under Section 65. We advise on the demand notice route only where the debt is clear and undisputed; otherwise we recommend arbitration, a commercial suit, or the MSME council.