Section 8 & 9 - Corporate Insolvency Resolution Process (CIRP) under IBC, 2016

 

Section 8 of the Insolvency and Bankruptcy Code, 2016 deals with the process to be followed by an Operational Creditor before initiating Corporate Insolvency Resolution Process (CIRP) against a corporate debtor. This section mandates that an operational creditor must first deliver a demand notice or invoice demanding payment to the corporate debtor before filing an application to NCLT.

An operational creditor (e.g., supplier or service provider) can issue a demand notice to the company if they owe money and have defaulted.

Requirements:

Before filing an application under Section 9, an operational creditor must:

1. Deliver a Demand Notice of unpaid operational debt or copy of invoice demanding payment to the corporate debtor. The notice must clearly state the details of operational debt and the amount in default.
2. The notice can be sent by:

a) Hand delivery, registered post, or speed post at the registered office of the corporate debtor, or

b)  Electronic mail (email)

This notice must comply with the format prescribed under the Code, including clear identification of the debt and outstanding amount. The operational creditor must also ensure that the corporate debtor has not paid the amount or raised a valid dispute within 10 days of receiving the notice.

Procedure:

The operational creditor initiates the process by issuing a formal demand notice or invoice to the corporate debtor specifying the outstanding amount payable. This notice must be served in the manner prescribed by law and should include details such as the amount due, invoice date, and nature of the debt. Once served, the operational creditor must wait for a period of ten days, during which the corporate debtor can either pay the amount or respond by raising a legitimate dispute supported by documents. If the corporate debtor fails to make payment or raise a valid dispute within this time frame, the operational creditor is entitled to move to the next step of filing an application under Section 9 to initiate insolvency proceedings.

Time Limit:

If no payment or dispute, proceed to file an application under Section 9.

Section 9 of the Insolvency and Bankruptcy Code, 2016 lays down the procedure by which an Operational Creditor can initiate the Corporate Insolvency Resolution Process (CIRP) against a Corporate Debtor, after complying with Section 8.

Requirements:

The operational creditor must provide proof that the demand notice was served properly and that there was no payment or valid dispute raised within the 10-day period. The minimum amount of default should be ₹1 crore.  There must not be any pre-existing dispute regarding the debt.

Procedure:

The operational creditor must prepare an application for submission to the National Company Law Tribunal. This application should include-

i.  the original demand notice or invoice served on the corporate debtor

ii. proof that there was neither payment nor a valid dispute raised within the stipulated ten days.

iii.  an affidavit stating that there is no notice of dispute from the corporate debtor

iv. Certificate from a financial institution maintaining accounts of the operational creditor, confirming that no payment has been received.

The operational creditor must also propose the name of an Interim Resolution Professional to be appointed in case the application is admitted. The decision to admit or reject the application must be made within fourteen (14) days. If admitted, the NCLT appoints the Interim Resolution Professional who assumes control of the company’s affairs and initiates the insolvency resolution process. On Admission, Moratorium under Section 14 comes into effect and a public announcement is made inviting claims.

Time Limit:

NCLT must decide within 14 days of receiving the application.