IBC Demand Notice (Legal Assistant)

1 min

6 points

Relevance of The Draft:

The Insolvency and Bankruptcy Code, 2016 (IBC) mandates it for a complainant to send a demand notice under ibc to a creditor before initiating corporate insolvency resolution proceedings.

Section 8 of the Insolvency and Bankruptcy Code stipulates the following:

1. An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed.

2. The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor—

The existence of a dispute, if any, and record of the pendency of the suit or

Arbitration proceedings filed before the receipt of such notice or invoice in relation to

Such dispute;

The repayment of unpaid operational debt—

By sending an attested copy of the record of the electronic transfer of the unpaid amount from the bank account of the corporate debtor; or

By sending an attested copy of the record that the operational creditor has encashed a cheque issued by the corporate debtor.


Explanation—For the purposes of this section, a "demand notice" means a notice served by an operational creditor to the corporate debtor demanding repayment of the operational debt in respect of which the default has occurred.”

Rule 5 of the IBC Rules 2016 states as follows:
“Demand notice by operational creditor.—

1. An operational creditor shall deliver to the corporate debtor, the following documents, namely.-

A demand notice in Form 3; or

A copy of an invoice attached with a notice in Form 4.

2. The demand notice or the copy of the invoice demanding payment referred to in sub-section (2) of section 8 of the Code, may be delivered to the corporate debtor,

At the registered office by hand, registered post or speed post with acknowledgment due; or

By electronic mail service to a whole-time director or designated partner or key managerial personnel, if any, of the corporate debtor.

3. A copy of demand notice or invoice demanding payment served under this rule by an operational creditor shall also be filed with an information utility if any.”

A reading of Section 9 of the Code reveals that a financial creditor has the right to initiate insolvency proceedings against the debtor after the expiry of 10 days. The creditor has to file all the documents before the National Company Law Tribunal along with a copy of the demand notice sent to the debtor company.

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6 points