IBC Section 9 Petition Dismissed: Debt of Separate Legal Entity Cannot Be Clubbed to Meet Statutory Threshold Under Section 4
Case Overview
Case: Bhushan Power & Steel Limited Vs A.G. Pipes Private Limited
Forum: National Company Law Appellate Tribunal (NCLAT), Delhi
Provision in Question: Section 9 read with Section 4 of the Insolvency and Bankruptcy Code, 2016
This matter arose from a challenge to the dismissal of an insolvency petition filed by an operational creditor against a corporate debtor, where the core issue revolved around whether the claimed operational debt crossed the mandatory minimum threshold under Section 4 of the Insolvency and Bankruptcy Code, 2016 (IBC). The NCLAT upheld the Adjudicating Authority's finding that the petition was not maintainable, reaffirming the principle that debts of legally distinct entities cannot be consolidated to satisfy the statutory pecuniary threshold.
Background and Facts of the Case
Bhushan Power & Steel Limited (BPSL), the appellant-operational creditor, had itself undergone a Corporate Insolvency Resolution Process (CIRP) pursuant to an order under Section 7 of the IBC. Following approval of the resolution plan and takeover by new management, BPSL initiated recovery efforts against A.G. Pipes Private Limited (the respondent/corporate debtor) for supplies of steel products allegedly made under various purchase orders.
BPSL maintained in its ledger that a sum of Rs. 1,49,04,757/- was outstanding from the respondent, classified under two internal SAP account codes:
- SAP Code 1000224 – Outstanding balance of Rs. 1,42,02,230/-, with the last payment recorded on 30.11.2019
- SAP Code 1000579 – Outstanding balance of Rs. 7,02,527/-, with the last payment recorded on 23.09.2019
BPSL issued a demand notice dated 07.10.2021 under the IBC, served both via email and speed post, enclosing tax invoices, goods receipts, ledger accounts, and a calculation sheet. The respondent replied on 13.10.2021, disputing the outstanding amount.
Earlier, during the CIRP period, the erstwhile Resolution Professional of BPSL had also issued a demand notice dated 04.03.2019, to which the respondent replied on 08.03.2019 denying any outstanding liability. An email dated 06.09.2019 from the respondent's side referenced an RTGS payment of Rs. 3,00,000/- and rejection of material worth approximately Rs. 7,00,000/-.
BPSL subsequently filed a company petition being CP (IB) No. 277/2022, which the NCLT dismissed on 12.07.2024 on the ground that the debt attributable to the corporate debtor did not meet the minimum threshold of Rs. 1 crore prescribed under Section 4 of the IBC. Aggrieved, BPSL filed the present appeal before the NCLAT.
Submissions of the Appellant – Bhushan Power & Steel Limited
On the Quantum of Debt and Demand Notices
BPSL contended that as per its internal accounting records, a total principal amount of Rs. 1,49,04,757/- was outstanding against the corporate debtor across the two SAP-coded units. It argued that supplies were made to the respondent's units located at Faridabad and Palwal, and separate ledger accounts were maintained only for operational convenience, not because separate entities were involved.
BPSL further emphasized that:
- The demand notice dated 07.10.2021 was accompanied by all supporting documentation including tax invoices, goods receipts, and ledger accounts
- The demand notice dated 04.03.2019 had expressly mentioned that steel products were supplied to "M/s A.G. Pipes Private Limited, Faridabad & Palwal"
- No pre-existing dispute had been raised by the respondent prior to the demand notices