Section 8 Demand Notices: Procedural Safeguards and Pitfalls in Initiating CIRP

A. Introduction

The issuance of a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) is the critical first step for an Operational Creditor seeking to initiate the Corporate Insolvency Resolution Process (“CIRP”) against a Corporate Debtor under Section 9 of the IBC. While the statutory requirement appears straightforward, practical application has revealed that even minor lapses in drafting or serving the notice can render subsequent proceedings defective. Section 8 not only obligates creditors to provide complete particulars of the debt and default but also affords the debtor a short but significant window to dispute the claim. Courts and tribunals have consistently emphasized that strict compliance with the procedural safeguards, such as correct identification of the debt, proof of default, and adherence to timelines, is essential to maintain the sanctity of the process. This article explores the framework, safeguards, and common pitfalls associated with Section 8 notices, offering practical insights for both creditors and debtors navigating the IBC.

B. Legal Framework Governing Demand Notice

Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (“Rules, 2016”) prescribes Form 3 and Form 4 as the statutory formats in which a demand notice must be issued by an Operational Creditor to the Corporate Debtor under Section 8 of the IBC.

Form 3 operates as a demand notice requiring repayment of unpaid operational debt. It must include: (i) particulars of outstanding debt and transaction details; (ii) amount and date of default with tabulated computation; (iii) details of any security interest with supporting ROC filings; (iv) retention of title arrangements, if any; (v) record of default with an Information Utility, if available; (vi) legal or contractual basis of debt; and (vii) supporting documents evidencing default.

Form 4 applies where invoices are central to the transaction and mandates their annexation, serving as a notice demanding payment within ten days. Courts have clarified that while Form 3 does not make invoices mandatory, they should be annexed if available to strengthen proof of debt.

For a valid application under Section 9, the operational debt must independently satisfy the Rs. 1 crore threshold under Section 4 of the IBC. Interest can only be included if expressly agreed, as clarified in Shitanshu Bipin Vora v. Shree Hari, 2025 SCC OnLine NCLAT 694. The notice must also specify the date of default, which is essential for computing limitation. The Supreme Court in In B.K. Educational Services v. Parag Gupta, (2019) 11 SCC 633, held that Article 137 of the Limitation Act applies, granting three years from the default date to filing a Section 9 petition.

Rule 5(2) governs service of notice, which may be effected at the registered office by hand, post, or email to key managerial personnel, with a copy to an IU if available. Courts have upheld service on directors and treated refusal to accept delivery as valid service. It is pertinent to note that the Supreme Court in Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd., (2018) 2 SCC 674 further clarified that advocates may issue demand notices.

Once a demand notice is served, the Corporate Debtor has ten days to either repay the outstanding debt or communicate the existence of a dispute. Raising a dispute does not preclude the Operational Creditor from proceeding, a Section 9 application can still be filed. At that stage, the NCLT examines whether the dispute is genuine, pre-existing, and supported by evidence, or whether it is illusory or speculative. Only where the dispute is bona fide will the application be rejected.

C. An Analysis of Avoiding Procedural Missteps in Section 8 Notices

Although the framework of Section 8 appears mechanical, judicial interpretation has added significant nuance to ensure that demand notices are both procedurally sound and substantively fair.

A key requirement is that the demand notice must specify the operational debt with exact computation. The Code requires that the Rs. 1 crore threshold under Section 4 be independently satisfied, without artificial inflation. The Hon’ble NCLAT in Shitanshu (supra) held that adding interest solely to cross the threshold, in the absence of a contractual clause permitting interest on delayed payments, would render the notice defective. Equally important is the identification of the date of default, which allows the Adjudicating Authority to test limitation. In Kodeboyina Srinivas Krishna v. PVM Innvensys Pvt. Ltd., (Company Appeal (AT) (Insolvency) No. 205 of 2020), the Hon’ble NCLAT observed that absence of a specific default date undermines the validity of the demand notice. This view aligns with the Supreme Court’s ruling in B.K. Educational Services (supra), which applied Article 137 of the Limitation Act, granting a three-year limitation from the default date for filing a Section 9 application.

On the evidentiary side, the annexation of documents is crucial. While Form 3 does not mandate invoices, the NCLT in Nr Switch N Radio Services v. ZTE Telecom India Pvt. Ltd., 2017 SCC OnLine NCLT 11995, clarified that invoices are the most reliable proof of debt, and that ledger entries alone are insufficient. Nonetheless, the law recognises that other documents, such as contracts, acknowledgments, or correspondence, may also substantiate the claim. Filing a record of default with an Information Utility, though optional, provides prima facie evidence and can expedite adjudication, though it remains rebuttable by the debtor.

Nonetheless, Section 8 of the IBC read with Rule 5 of the Rules 2016 does not make annexation of invoices mandatory under Form 3, and judicial interpretation has clarified that other documents, such as contracts, acknowledgments, or correspondence, may sufficiently substantiate the claim. Additionally, filing a record of default with an Information Utility under Section 215 of the IBC, though optional, provides prima facie evidence of default and can expedite adjudication, subject to rebuttal by the corporate debtor.

The choice between Form 3 and Form 4 has also generated judicial debate. In Neeraj Jain v. Cloudwalker Streaming Technologies Pvt. Ltd, 2024 SCC OnLine NCLAT 1356, the Hon’ble NCLAT held that the choice is dictated by whether invoices were raised in the transaction, and not by the creditor’s discretion. Conversely, in Tejinder Pal Setia v. Kone Elevator India Pvt. Ltd., 2023 SCC OnLine NCLAT 1790, it was held that the creditor retains discretion in form selection. A pragmatic synthesis of these rulings suggests that Form 4 should be confined to invoice-backed claims, and invoices must invariably be annexed, while Form 3 may be used where other documents suffice. In Air India Ltd. v. Sovika Aviation Services Pvt. Ltd., CP (IB) No. 628/MB/IV/2022, the Ld. NCLT upheld a notice based on contractual documents and acknowledgments, even in the absence of invoices, underscoring that substance prevails over form.

Courts and tribunals have also emphasised that minor defects in a Section 8 demand notice should not defeat an otherwise genuine claim. The IBC framework is aimed at resolution, and proceedings cannot be derailed by trivial technical lapses unless they materially prejudice the corporate debtor.

This approach was illustrated in Air India Ltd (Supra), where the Ld. NCLT clarified that incorrect form labelling or even citing the wrong provision does not affect jurisdiction, since Rule 5 of the 2016 Rules serves primarily to ensure proper communication of default. The hon’ble NCLAT in Rajendra Bhai Panchal v. Jay Manak Steel, Company Appeal (AT) (Insolvency) No. 592 of 2020, similarly held that errors in a notice cannot be treated as fatal defects unless prejudice is shown. The same principle was reaffirmed in Credberg Advisors India (P) Ltd. v. Platinum Holdings (P) Ltd., 2023 SCC OnLine NCLT 12, where a typographical error in the default date was permitted to be corrected without undermining maintainability.

At the same time, the line between curable irregularities and fatal defects remains clearly drawn. In Mr. Shailendra Sharma v. Ercon Composites & Ors., 2021 SCC OnLine NCLAT 3, the NCLAT categorically held that service of a demand notice is a mandatory precondition under Section 8, and its complete absence renders a Section 9 application unsustainable. This balance reflects the judicial intent that while substance should prevail over form, strict adherence to the statutory requirement of issuing and serving a demand notice is indispensable.

D. Key Takeaways on Section 8 Demand Notices

In view of the above, the following practical takeaways may be noted:

(i) Ensure the notice is issued strictly in Form 3 or Form 4 of Rules, 2016, with all required particulars including debt computation and date of default.

(ii) Verify that the Rs. 1 crore threshold is satisfied independently and avoid including interest unless expressly agreed in the contract.

(iii) Annex invoices where available; where not, rely on contracts, acknowledgments, or correspondence to establish the claim.

(iv) Consider filing a record of default with an Information Utility, even though optional, to strengthen evidentiary value.

(v) Effect valid service only through modes permitted under Rule 5(2) and preserve proof of delivery.