Section 8 IBC: Demand Notice and Insolvency Resolution by Operational Creditor
Section 8 of the Insolvency and Bankruptcy Code, 2016 (IBC) establishes the demand-notice procedure that an operational creditor must follow before seeking initiation of the corporate insolvency resolution process (CIRP) under Section 9.
Who is an operational creditor?
Under Section 5(20), an operational creditor is a person to whom an operational debt is owed, including a person to whom that debt has been legally assigned or transferred. Section 5(21) defines operational debt to include a claim relating to goods or services (including employment), or specified statutory dues payable to government or a local authority. A default under Section 3(12) generally means non-payment of a debt when it has become due and payable.
Section 8 explained, subsection by subsection
Section 8(1): Demand notice or invoice
On occurrence of a default, an operational creditor may deliver to the corporate debtor a demand notice of unpaid operational debt or a copy of an invoice demanding payment of the amount involved in the default, in the prescribed form and manner. The wording allows a demand notice without an invoice where appropriate; the notice should clearly identify the debt, amount, date of default and supporting particulars.
Section 8(2): Corporate debtor's ten-day response
Within ten days of receipt of the demand notice or invoice, the corporate debtor must bring to the operational creditor's notice either:
- Section 8(2)(a) - dispute: the existence of a dispute, if any, and the record of pendency of a suit or arbitration proceeding filed before receipt of the notice or invoice in relation to that dispute; or
- Section 8(2)(b) - payment: repayment of the unpaid operational debt, evidenced by an attested copy of the record of electronic transfer from the debtor's bank account, or an attested record showing that the creditor encashed a cheque issued by the debtor.
Explanation to Section 8: A "demand notice" is a notice served by an operational creditor on the corporate debtor demanding repayment of the operational debt in respect of which default has occurred.
How to serve the notice: Rule 5
Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 provides for a Form 3 demand notice or a Form 4 notice accompanied by an invoice. The rule provides for delivery at the registered office by hand, registered post or speed post with acknowledgement due, or by email to specified corporate officers. Preserve proof of delivery. The applicable rules also address filing a copy with an information utility, if any.
What counts as a pre-existing dispute?
Section 5(6) addresses disputes relating to the existence or amount of debt, quality of goods or services, or breach of a representation or warranty. Under the Supreme Court's decision in Mobilox Innovations Private Limited v. Kirusa Software Private Limited (2017), the adjudicating authority considers whether there is a genuine, plausible contention requiring investigation, rather than a patently feeble legal argument or unsupported assertion. A dispute existing before the demand notice may prevent admission under Section 9.
What happens after ten days? Section 9
If payment is not received and no notice of a qualifying dispute is received within the statutory period, an operational creditor may apply to the National Company Law Tribunal (NCLT) under Section 9, subject to all statutory conditions, the prescribed Form 5, supporting evidence and the applicable minimum default threshold. The threshold for ordinary corporate CIRP applications has been Rs. 1 crore under the notification dated 24 March 2020; verify any later changes before filing.
A Section 8 demand notice does not itself commence CIRP. Commencement follows an admission order under the applicable provisions. The IBC is a collective insolvency-resolution mechanism, not an ordinary debt-collection substitute.
Practical compliance checklist
- Confirm the claim is an operational debt and identify the correct corporate debtor.
- Check contractual payment terms, default date, limitation and the current statutory threshold.
- Prepare Form 3 or Form 4 with accurate particulars and supporting documents.
- Serve the notice using an authorised method and preserve delivery evidence.
- Examine any timely response and any documentary evidence of an earlier dispute or payment.
- Before filing under Section 9, review the latest rules, prescribed forms and IBBI notifications.