The Insolvency and Bankruptcy Code, 2016 (IBC) is a transformative piece of legislation in India that has reshaped how insolvency and bankruptcy are managed for companies, partnerships, and individuals. A key element of this framework is Form 3 Insolvency and Bankruptcy Code, 2016 which is a document that plays a pivotal role in the insolvency process for operational creditors. This article provides a clear and simple explanation of what Form 3 Insolvency and Bankruptcy Code, 2016 is along with its purpose, how it is used and its significance within the broader IBC framework.
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What is Insolvency and Bankruptcy Code, 2016?
The IBC, enacted on May 28, 2016, was introduced to address the inefficiencies of India’s previous insolvency laws which were scattered across multiple statutes like the Sick Industrial Companies (Special Provisions) Act, 1985, and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. These older laws often led to prolonged resolution processes with insolvency cases in India taking an average of 4.3 years to resolve as of 2015, compared to just one year in the United Kingdom. The IBC is aimed to consolidate these laws into a single, streamlined framework with the following objectives:
Provide a time-bound process for resolving insolvency, typically within 180 days for companies and 90 days for smaller entities.
Maximize the value of the debtor’s assets to benefit creditors.
Promote entrepreneurship by allowing viable businesses to be revived rather than liquidated.
Balance the interests of all stakeholders, including creditors, debtors, and employees.
The IBC applies to companies, limited liability partnerships (LLPs), firms and individuals (excluding financial service providers). It introduced key processes like the Corporate Insolvency Resolution Process (CIRP) and established institutions such as the Insolvency and Bankruptcy Board of India (IBBI) to regulate the system. Within this framework, Form 3 Insolvency and Bankruptcy Code, 2016 is a critical tool for operational creditors to initiate the insolvency process.
Find out What Insolvency is.
What is Form 3 Insolvency and Bankruptcy Code, 2016?
Form 3 Insolvency and Bankruptcy Code, 2016 is officially titled the "Form of Demand Notice/Invoice Demanding Payment." It is part of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, and is used by operational creditors to formally demand payment of an unpaid operational debt from a corporate debtor. The form is governed by Section 8 of the IBC and Rule 5 of the Application to Adjudicating Authority Rules. Given below is the key features of Form 3
Aspect | Details |
Purpose | To demand payment of an unpaid operational debt from a corporate debtor. |
Section Reference | Section 8 and Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. |
Content | - Total debt amount and nature of the debt. |
Delivery Method | By hand, registered post, speed post with acknowledgment, or email to a whole-time director, designated partner, or key managerial personnel. |
Response Time | The debtor must respond within 10 days, either by paying, disputing, or demonstrating repayment. |
Next Steps | If there is no response or payment within 10 days, the creditor can file for CIRP under Section 9. |
How to Use Form 3
To use Form 3 Insolvency and Bankruptcy Code, 2016, the operational creditor must do the following and after that, the form must be served at least 10 days before filing the CIRP application, ensuring the debtor has adequate notice:
Prepare the Form: Include all required details such as the amount owed, transaction details and supporting documents like invoices or contracts.
Serve the Notice: Deliver the form to the corporate debtor’s registered office through one of the specified methods.
Wait for Response: Allow the debtor 10 days to respond. The debtor may pay the debt, dispute its existence, or provide evidence of repayment.
File for CIRP: If the debtor does not respond or pay, the creditor can file an application with the NCLT under Section 9, attaching a copy of Form 3 Insolvency and Bankruptcy Code, 2016 and proof of delivery.
Also read about Section 12A of IBC, 2016.
Process After Serving Form 3
Once Form 3 Insolvency and Bankruptcy Code, 2016 is served, the following steps occur. This process ensures fairness for both creditors and debtors which also align with the goal of IBC of efficient and transparent insolvency resolution:
10-Day Response Period: The corporate debtor has 10 days to pay the outstanding debt, dispute the debt (e.g., by claiming it does not exist or has been paid) or provide evidence of repayment.
Filing an Application: If the debtor does not respond or pay, the operational creditor can file an application with the NCLT under Section 9 to initiate CIRP. The application must include a copy of the demand notice and proof of delivery.
NCLT Review: The NCLT reviews the application and decides whether to admit it. If admitted, CIRP begins, and an interim resolution professional is appointed to manage the process.
Summary
Form 3 Insolvency and Bankruptcy Code, 2016 is a vital tool for operational creditors, enabling them to formally demand payment and initiate the Corporate Insolvency Resolution Process if necessary. By providing a clear and structured process, the form ensures fairness for both creditors and debtors while supporting the IBC’s broader objectives of efficient insolvency resolution and creditor protection. As the IBC continues to evolve through amendments and regulatory updates, Form 3 Insolvency and Bankruptcy Code, 2016 remains an important form of the framework, empowering operational creditors and contributing to a more robust financial ecosystem in India.
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Form 3 Insolvency and Bankruptcy Code: FAQs
Q1. What is Form 3 under the Insolvency and Bankruptcy Code, 2016?
Form 3 is a demand notice used by operational creditors to demand payment of unpaid debts from a corporate debtor, initiating the insolvency process. It must be served with evidence of debt and default as per IBC regulations.
Q2. Who can issue Form 3 and when?
An operational creditor, like a supplier or service provider, can issue Form 3 when a corporate debtor fails to pay a debt exceeding ₹1 crore within 10 days of the demand notice
Q3. Is Part III of IBC notified?
Part III of the Insolvency and Bankruptcy Code, 2016 has been partially notified, with some sections in effect since 2016. However, key provisions like Sections 94-187 are not fully enforced as of July 2025.indiankanoon.
Q4. What is Section 3(7) of the Insolvency and Bankruptcy Code, 2016?
Section 3(7) defines a "corporate person" as a company, limited liability partnership, or any other entity with limited liability under Indian law, excluding financial service providers. This term is key for identifying entities subject to corporate insolvency processes.
