Key points
- The default must be at least one crore rupees and the claim must be an operational debt: goods, services, employment dues or statutory dues.
- Serve Form 3 (or Form 4 with a copy of the invoice) on the registered office by hand, post and email to the company's registered address.
- If the debtor raises a genuine pre-existing dispute within 10 days, a Section 9 application will fail; a moonshine dispute will not.
Step by step
- Confirm eligibility
Check that the debtor is a company or LLP, the debt is operational, the amount in default is one crore or more, and the claim is within limitation (three years from default, subject to acknowledgments). - Draft the notice
Use Form 3 under the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, or Form 4 with invoices. State the amount, date of default, particulars of the debt and the documents relied on, and attach a statement of account. - Serve on the registered office
Send by registered post or speed post and by email to the registered email address on the MCA portal; also deliver by hand if possible. Keep all proofs. - Wait 10 days
The debtor may pay or send a notice of dispute referring to an existing suit, arbitration or dispute about the goods, services or amount. Evaluate the reply carefully with counsel. - File under Section 9
If no payment or valid dispute is received, file Form 5 before the NCLT bench having jurisdiction over the debtor's registered office, with an affidavit that no dispute notice was received, the bank certificate or other proof of non-payment, and propose an interim resolution professional if you wish.
The dispute defence
In Mobilox Innovations v. Kirusa Software (2017) the Supreme Court held that the NCLT must reject a Section 9 application if there is a plausible contention requiring investigation, provided the dispute is not spurious, hypothetical or illusory. The dispute must pre-date the demand notice. Debtors commonly point to earlier emails complaining about quality or delay; whether those amount to a genuine dispute is the central question in most contested applications.
After admission
Admission triggers a moratorium and the appointment of an interim resolution professional. The creditor who filed becomes one claimant among many, and operational creditors rank below financial creditors in the waterfall. For that reason, the notice is often most effective as a means of extracting payment before filing.
Frequently asked questions
Can I use the IBC for a debt below one crore?
No. For smaller debts use a summary suit, a Section 138 complaint if a cheque exists, or the MSME Facilitation Council if you are a registered MSE.
Does an arbitration clause bar a Section 9 application?
No, but a pending arbitration on the same debt is a pre-existing dispute that will defeat the application.
Related practice area: Insolvency & Bankruptcy
This article is for general information and does not constitute legal advice. Laws, rules and limitation periods change and depend on the facts; please take advice on your own situation before acting. Reading this article does not create a lawyer-client relationship with Akhtars Legalitarian.