Hero Electric enters insolvency process following petition over unpaid dues

Hero Electric faces insolvency proceedings initiated by NCLT after Metro Tyres claimed unpaid dues of ₹1.85 crore.

Published On Dec 31, 2024 07:00:00 AM

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Hero Electric enters insolvency process following petition over unpaid dues

Hero Electric, a once leading Indian electric two-wheeler manufacturer, has been admitted to insolvency proceedings following a petition filed by Metro Tyres over unpaid dues amounting to Rs 1.85 crore. A Delhi bench of the National Company Law Tribunal (NCLT) initiated the process under the provisions of India’s Insolvency and Bankruptcy Code (IBC), suspending Hero Electric’s board and appointing Bhoopesh Gupta as the interim resolution professional to oversee the company’s operations, according to PTI.

Hero Electric case details

The case stems from Hero Electric’s purchase of tyres and tubes worth Rs 3.69 crore from Metro Tyres between August and December 2022, of which Rs 1.85 crore remained unpaid. Metro Tyres alleged that repeated requests for payment were met with resistance, with Hero Electric citing quality issues, such as tread separation, bubbles, and air leakage, in certain tyres as justification for withholding the dues.

In its ruling, the NCLT rejected Hero Electric’s defense, stating that the company had not raised any quality concerns at the time of delivery or during the months that followed. “In the facts and circumstances of the instant case, we are of the view that the corporate debtor has not been able to raise a plausible contention regarding the pre-existence of dispute between the parties. Hence, the present petition filed under Section 9 of the IBC, 2016 ought to be admitted,” the tribunal noted in its order.

The tribunal invoked a moratorium, which shields Hero Electric from decree or order of any court, tribunal or arbitration panel and ban on transferring, encumbering, alienating or disposing of its assets.

Quality claims dismissed as "Moonshine Defense"

The NCLT dismissed Hero Electric’s quality complaints as a "moonshine defense"—a legal term for a baseless or insubstantial argument often deployed to delay proceedings. The bench underscored that Hero Electric had not flagged any defects during inspections or raised disputes immediately after receiving the goods, continuing to procure supplies despite the alleged issues.

“It is amply clear from the records that the corporate debtor (Hero Electric), being the purchaser of goods, never raised any quality issue or any sort of dispute in any manner whatsoever as per their own inspection/quality control policies immediately after the receipt of the goods and continued to purchase goods,” the order stated.

Adding to Metro Tyres’ case, the tribunal cited Hero Electric’s warranty policy, which explicitly excludes tyres and tubes from its coverage, placing responsibility for such claims on the original manufacturer. “Therefore, no dispute in any manner whatsoever can be raised by the corporate debtor at such a later stage,” the NCLT concluded.

Implications for the auto industry

The proceedings cast a spotlight on the financial vulnerabilities of India’s burgeoning electric vehicle sector. Hero Electric, which has positioned itself as a front-runner in the market, now faces significant operational and reputational challenges as it navigates the insolvency process.

Hero Electric is currently under government scrutiny for allegedly misappropriating subsidies under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME-II) scheme. The Ministry of Heavy Industries (MHI) has accused the company of violating localization norms, which require a certain percentage of components to be sourced domestically to qualify for subsidies. The Serious Fraud Investigation Office (SFIO) had in the first week of December, conducted search operations at Hero Electric's premises, along with those of other EV manufacturers, over fraudulent subsidy claims totalling Rs 297 crores.

The FAME II scheme was launched in the year 2019 to promote electric and hybrid vehicles in India. The Government alleges that the accused companies including Hero Electric directly and indirectly imported such key parts from China, thereby flouting the guidelines. Earlier reports suggest that Hero Electric has approached the Ministry of Heavy Industries (MHI), showing its inclination to settle the dispute.

While Hero Electric’s future now hinges on its ability to resolve the debt and restructure its operations, the broader industry will be watching closely for lessons on governance, financial discipline, and the management of supply chain disputes.

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