Where in Ar 635-200 does it states about APFT failure?

It does not look like the AR specifically mentions the APFT. However, it can be applied to Chapter 13: Separation for Unsatisfactory Performance. It is a broad subject and can be said that they are unable to perform their duties effectively; chances of them being promoted are unlikely, etc. As always, there are certain provisions such as their leaders giving them ample opportunities to correct the behaviors. This includes counseling and possibly specialized PT programs and scheduled sessions with the nutritionist. I hope this helps and good luck!