NCLT directs initiation of insolvency proceedings against Hero Electric

Sohinder Gill, CEO of Hero Electric India poses with the Dash and ER series electric two-wheelers, in Kolkata.
| Photo Credit: PTI

The National Company Law Tribunal (NCLT) has directed initiation of insolvency proceedings against Hero Electric after admitting a plea filed by Metro Tyres, an operational creditor claiming a default of ₹1.85 crore.

As per provisions of the Insolvency & Bankruptcy Code (IBC), NCLT has appointed Bhoopesh Gupta as Interim Resolution Professional to run the company after suspending the board of Hero Electric.

The Delhi-based bench of NCLT rejected the contentions of Hero Electric of a pre-existing dispute with the operational creditor saying that it was “not just a moonshine or feeble legal argument”.

The objections raised by Hero Electric are not found “tenable in law” and have been duly negated by Metro Tyres, which had supplied tyres and tubes to the company.

“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,” it said.

Besides, a two-member bench in its 16-page order passed on December 20, declared a moratorium, protecting the company from decree or order of any court, tribunal or arbitration panel and ban on transferring, encumbering, alienating or disposing of its assets.

Hero Electric had approached Metro Tyres, for the purchase of cycle tyres and tubes. Pursuant to that it supplied goods to Hero Electric and in lieu of that various invoices were raised from August 9, 2022 to December 3, 2022 amounting to ₹3.69 crore out of which ₹4.27 lakh was paid.

However, ₹1.85 crore was due on Hero Electric, and Metro Tyres submitted that despite its several requests, the payment was denied by Hero Electric taking a ‘moonshine defence’ stating that in 90/90×10 tyre and 90/90×12 tyre supplied by it, there was issue of ‘tread separation’, ‘bubbles’ and ‘air leakage’.

It further contended that Hero Electric had never raised any quality issue or any sort of dispute in any manner and this was evident from the Balance Confirmation Letters by the corporate debtor.

The insolvency tribunal also observed that Hero Electric had not raised any dispute over the quality of goods until nine months after the supply.

“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,” said NCLT.

Moreover, Hero Electric itself has declared in the user manual/warranty policy for its products that “tyres/tubes” are not covered under its warranty and the original manufacturer is liable for all or any claim for tyres and tubes.

“Therefore, no dispute in any manner whatsoever can be raised by the corporate debtor at such a later stage,” said NCLT.