NCLAT Dismisses CIRP Plea Against A.G. Pipes, Says Debt Cannot Be Aggregated Across Distinct Legal Entities

The National Company Law Appellate Tribunal (NCLAT) at Delhi on Tuesday dismissed an appeal filed by Bhushan Power & Steel Limited against A.G. Pipes Pvt. Ltd., holding that the operational debt attributable to the corporate debtor was below the Rs 1 crore threshold under the Insolvency and Bankruptcy Code (IBC) and that debts of separate legal entities cannot be combined to meet this limit.

A bench of Judicial Member Justice N. Seshasayee and Technical Member Arun Baroka observed that most of the claimed dues related to A.G. Pipes, a proprietorship concern, and not the company.

“A.G. Pipes Private Limited is a separate legal entity. The debts of A.G. Pipes Private Limited cannot be combined with the debts of a separate legal entity, which is A.G. Pipes. Both are separate independent legal entities, and for that reason the debt owed by A.G. Pipes will be loaded onto the CD for reaching the threshold," the tribunal noted. 

Bhushan Power & Steel Limited submitted that it had supplied steel products pursuant to purchase orders issued by the respondent and that a total amount of Rs. 1.49 crore remained outstanding as per its ledger accounts.

A demand notice was first issued in March 2019, followed by another demand notice dated October 7, 2021. It subsequently filed a Section 9 application before the National Company Law Tribunal (NCLT).

The NCLT dismissed the petition, holding that the debt attributable to A.G. Pipes Pvt. Ltd. was below Rs.1 crore, and therefore the application was not maintainable under Section 4 of the IBC.

Before the appellate tribunal, Bhushan Power submitted that the entire Rs. 1.49 crore constituted operational debt and was due and payable. It stated that there was no pre-existing dispute prior to the demand notices. It further submitted that the respondent had raised the contention regarding distinct entities during the proceedings before the NCLT. It also referred to its records to state that supplies were made to two units and separate ledger accounts were maintained.

Opposing the appeal, A.G. Pipes Pvt. Ltd. submitted that it is a separate legal entity from A.G. Pipes, a proprietorship concern. It stated that the invoices relied upon by Bhushan Power reflected different GST numbers and that most invoices were issued in the name of the proprietorship. It submitted that only a part of the claimed amount pertained to the company and that debts of different entities cannot be combined.

The debtor also relied on documents including GST registrations and invoices to show that A.G. Pipes Pvt. Ltd. and A.G. Pipes are distinct entities.

After examining the material on record, the tribunal noted that the operational creditor had relied on invoices to claim an outstanding of about Rs. 1.49 crore. It found that the majority of these invoices pertained to A.G. Pipes, the proprietorship concern.

The tribunal recorded that about Rs 1.42 crore was attributable to the proprietorship, while Rs 13,09,505 pertained to A.G. Pipes Pvt. Ltd. It found that the appellant had not established how the amount relating to the proprietorship could be claimed against the corporate debtor.

The tribunal observed that the appellant's reliance on the absence of a pre-existing dispute did not assist its case. It held that the issue in the present matter was whether the statutory threshold under Section 4 of the IBC was met.

It further found no infirmity in the NCLT's order and held that the minimum threshold requirement had not been satisfied. The judgments cited by the appellant were held to be not relevant in the facts of the case.

Accordingly, the tribunal dismissed the appeal and upheld the order of the NCLT rejecting the insolvency application.