Received a Section 8 Demand Notice? How a Company Should Respond

A demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 is not an ordinary reminder letter. It is the first formal step toward asking the National Company Law Tribunal (NCLT) to start corporate insolvency against your company, and it carries a ten-day deadline. Many companies treat such notices as routine commercial pressure, forward them to the accounts team, and discover weeks later that an application has been filed. Handled properly, however, a Section 8 notice is also an opportunity: a company with a genuine dispute can stop the process at this stage.

What Does a Section 8 Notice Mean?

A Section 8 notice is issued by an operational creditor, someone who supplied goods or services, or is owed dues under law. It demands payment of an unpaid operational debt, and it must be in the form prescribed under the Adjudicating Authority Rules, delivered to the company's registered office, by the creditor or someone authorised on the creditor's behalf. The notice may be accompanied by a copy of the invoice. The minimum default for starting insolvency against a company is now ₹1 crore, so a notice for a smaller amount cannot lead to an application, although it may still signal a recovery suit. Our guide to IBC Section 9 for operational creditors explains the creditor's side.

What Can the Company Do Within Ten Days?

Section 8(2) gives the company ten days from receipt of the notice to do one of two things:

• Pay the unpaid operational debt, and send the creditor proof of payment
• Notify the creditor of the existence of a dispute, or of a suit or arbitration filed before the notice was received

Proof of payment means an attested copy of the record of electronic transfer of the unpaid amount from the company's bank account, or an attested copy of a record that the creditor has encashed a cheque. If neither is done within the ten days, the creditor is free to file an application under Section 9.

What Is a Pre-Existing Dispute?

The Code defines a dispute to include a suit or arbitration relating to the existence of the amount of debt, the quality of goods or services, or a breach of a representation or warranty. In Mobilox Innovations v. Kirusa Software (2017), the Supreme Court held that the NCLT must reject a Section 9 application if there is a real dispute that existed before the demand notice was received. The Tribunal does not decide who is right; it asks whether there is a plausible contention requiring further investigation, as opposed to a patently feeble legal argument or a factual assertion unsupported by evidence.

For a company, the practical question is whether your objection can be shown on paper, with a date earlier than the notice. Evidence commonly used includes:

• Emails or letters raising defects, short supply or delay before the notice
• Rejection of goods or credit notes issued for defects
• A pending civil suit or arbitration filed before the notice
• A written counter-claim or set-off linked to the same contract
• Correspondence disputing rates, quantity or the invoice itself

A dispute raised for the first time in response to the notice, with no earlier trail, is much weaker. Tribunals have seen many dispute claims that look like afterthoughts, and they reject disputes that are moonshine or unsupported. Conversely, a company that has a real grievance but ignores the notice loses the benefit of its position.

How Should a Company Reply?

A sound reply to a Section 8 notice should be prompt, in writing, and precise. It should identify the notice, state that the amount is disputed, and set out the nature of the dispute with dates and documents. It should refer to any earlier correspondence, any pending proceedings, and any counter-claim. It should be sent by registered post or courier to the creditor's address, with a copy by email, and the company should retain proof of delivery within the ten-day period. A vague reply that merely says the amount is not due will not carry much weight.

What Mistakes Should Companies Avoid?

Several errors recur in these cases

• Ignoring the notice because it came from an unfamiliar sender or a junior officer
• Replying after the ten days have expired
• Making admissions in the reply that undermine a dispute raised elsewhere
• Raising a dispute that contradicts earlier acknowledgments or ledger confirmations
• Assuming a notice in the wrong format can be ignored without taking advice

Companies should also check the notice itself. A notice that is not in the prescribed form, was not delivered to the registered office, or claims less than the threshold may be vulnerable, but these technical points are not a safe basis for ignoring the notice altogether.

What If an Application Is Filed Anyway?

If the creditor files a Section 9 application, the company will be served with notice and can file a reply opposing admission, relying on the same documents. Because the Tribunal must admit the application if it is satisfied that the debt is due, there is no dispute and the application is complete, the company's task is to show a real pre-existing dispute, a defect in the application, or that the claim is time-barred or below the threshold. An order admitting the application triggers a moratorium and appointment of an interim resolution professional, and the board's powers are suspended. A company that is dissatisfied can appeal to the NCLAT within 30 days. Because of the severity of those consequences, preparation at the notice stage is far better than damage control later.

Should the Company Simply Pay?

Where the debt is genuinely due and the amount is within the company's means, paying within ten days removes the threat completely. Where the debt is disputed in part, consider paying the undisputed portion and disputing the rest, but get advice on how that is worded so the reply does not amount to an acknowledgment of the disputed portion. Where the creditor is using the notice as pressure on a genuine dispute, a measured reply backed by documents, followed if necessary by a civil proceeding of your own, is the usual response.

A Section 8 notice leaves very little time, so the first step is to bring it to a lawyer the day it arrives. Our NCLT & Corporate Litigation practice advises companies on demand notices and Section 9 proceedings, and you can request a consultation immediately. For the wider range of recovery options creditors may be considering, see our overview of recovering dues from a company that is not paying.