When a notice is required, what it must contain, how to prove service, and why it neither extends limitation nor replaces pre-institution mediation.
A demand notice is usually the first formal step in a recovery matter, and it is often prepared in a hurry. A careful notice fixes the date of default, states the claim in a form that can later be proved, and starts the clocks that some statutes attach to it. A careless one can undermine the claim it was meant to support. This note describes what a notice should contain, how it should be sent, and what it does and does not achieve. It is general information, not advice on a particular claim.
Is a notice required?
For an ordinary suit on a contract there is no general rule that a notice must precede it, unless the contract itself provides for one. Notice is nonetheless good practice. It records the demand, gives the debtor a last opportunity to pay or to state a defence in writing, and shows a court that the claimant acted reasonably. In four situations the notice is not optional:
- Dishonoured cheques. A complaint under Section 138 of the Negotiable Instruments Act, 1881 cannot succeed without a demand notice sent within thirty days of the bank's information that the cheque was returned.
- Operational debt under the Insolvency and Bankruptcy Code. Section 8 requires a demand notice, or a copy of the invoice, before an application under Section 9 can be filed.
- Contractual conditions. Many commercial contracts require written notice of default, and a cure period, before a remedy can be exercised.
- Invocation of a guarantee or an arbitration clause. The instrument usually prescribes how a demand is made and what it must say.
What the notice should contain
- The parties and the contract, identified by name, date and any reference number, with the invoices or instalments in default listed.
- The amount claimed, with principal and interest shown separately, and the rate and its basis (the contract, or the statute) stated.
- The date of default for each sum. This fixes the starting point for interest and for limitation.
- The demand and the period allowed. Fifteen days is common; where a statute prescribes a period, the notice must follow it exactly.
- The consequence of non-payment, stated as the steps the claimant will take, without exaggeration. A notice that threatens a remedy the law does not provide invites an objection.
- Reservation of rights, so that the notice is not read as a waiver of any other remedy.
A notice should be confined to the facts and to the law. It should not accuse the debtor of an offence that the claimant cannot establish, and it should not be sent with an intention to pressure the debtor with a criminal complaint that has no basis.
How it should be sent
The claimant must be able to prove that the notice was sent and, ideally, received. Section 27 of the General Clauses Act, 1897 raises a presumption of service where a notice is properly addressed, prepaid and sent by registered post, unless the contrary is shown. It is prudent to use more than one channel: registered post or speed post to the address in the contract and to the registered office, a courier with a tracking record, and an email to the address the parties have used for the contract. The postal receipts, the tracking record and the sent email should be kept with the file. If the debtor has changed address, the notice should also go to the last known address and to the address on the company's records.
What a notice does not do
- It does not extend limitation. Time continues to run from the date of default. Only a written acknowledgment by the debtor (Section 18 of the Limitation Act, 1963) or a part-payment acknowledged in writing (Section 19) starts a fresh period.
- It does not oblige the debtor to reply, though silence, or a reply that does not dispute the claim, is useful evidence.
- It does not substitute for pre-institution mediation where the Commercial Courts Act, 2015 requires it. Section 12A makes mediation a precondition of a commercial suit unless urgent interim relief is sought.
Handling the reply
A reply should be read for what it admits as much as for what it denies. An unqualified admission of part of the debt, or a promise to pay by a stated date, is valuable and, if signed, may amount to an acknowledgment. A reply that raises a genuine dispute should be answered promptly and in writing, because in an insolvency application a dispute that existed before the demand notice can defeat the application, and in a suit the correspondence will be read by the court as a whole.
A demand notice is a short document with long consequences. It is best prepared with the contract, the ledger and the limitation date in front of the advocate, and sent only when the claim has been checked against them.
This note is general information on the law at the date of publication. It is not legal advice, and it should not be relied on without advice on the facts of a particular matter.
