IBC Appeal Against AG Pipes Rejected: NCLAT Finds Proprietorship Debts Separate, Company Liability Below ₹1 Crore [Read Order]

In a recent ruling, the National Company Law Appellate Tribunal (NCLAT) has upheld the NCLT’s decision dismissing the insolvency plea against A.G. Pipes Pvt. Ltd., holding that the claimed operational debt did not meet the ₹1 crore threshold under the Insolvencyand Bankruptcy Code (IBC).

The appellant, Bhushan Power & Steel Limited, had approached the tribunal seeking initiation of insolvency proceedings under Section 9 of the IBC, alleging that A.G. Pipes Pvt. Ltd. had defaulted on payments totalling ₹1.49 crore for steel supplies made under various purchase orders. The company argued that despite repeated demand notices in 2019 and 2021, the respondent failed to clear outstanding dues.

The National Company Law Tribunal (NCLT) had earlier dismissed the petition, holding that only ₹13.09 lakh of the claimed amount pertained to A.G. Pipes Pvt. Ltd.. At the same time, the remaining ₹1.42 crore was owed by A.G. Pipes, a sole proprietorship, a legally distinct entity.

On appeal, BPSL contended that both units were managed by the same person and operated under a common business structure, asserting that the debts should be treated collectively. BPSL contended that A.G. Pipes Pvt. Ltd. owed ₹1.49 crore for steel supplies made under various purchase orders. It argued that demand notices issued in 2019 and 2021 were duly served, enclosing invoices, ledgers, and goods receipts, yet no payment was made.

The respondent argued that the appellant wrongly claimed that the respondent never distinguished between A.G. Pipes (proprietorship) and A.G. Pipes Pvt. Ltd. (company). In fact, replies to demand notices in March 2019 and October 2021 were expressly made on behalf of A.G. Pipes Pvt. Ltd., denying any liability.

The respondent pointed out that it had already made an RTGS payment of ₹3,00,000 and rejected material worth ₹7,00,000, as confirmed in an email dated 06.09.2019.

After examining the invoices and affidavits, the appellate bench led by Member (Technical) Arun Baroka observed that the majority of invoices indeed pertained to A.G. Pipes, not A.G. Pipes Pvt. Ltd. The tribunal stated that even though both businesses were managed by the same individual, they were independent legal entities, and their debts could not be merged to meet the insolvency threshold.

Citing settled principles that insolvency proceedings cannot be used as a debt recovery mechanism, the NCLAT upheld the NCLT’s decision, concluding that the petition was not maintainable under Section 9 of the IBC since the debt against the corporate debtor was below ₹1 crore.

Accordingly, the appeal was dismissed, reaffirming that corporate insolvency proceedings require strict compliance with statutory thresholds and entity distinctions.

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