NCLT Initiates Insolvency Proceedings Against Hero Electric Over Pending Vendor Dues

The National Company Law Tribunal (NCLT) has initiated insolvency proceedings against Hero Electric after its vendor Metro Tyres filed a petition claiming that Hero Electric has defaulted on payments amounting to INR 1.85 Cr.

This decision was made after the tribunal found no merit in Hero Electric’s argument that there was a pre existing dispute regarding the quality of the supplied goods by Metro Tyres.

It is pertinent to note that Metro Tyres supplied tyres and tubes to Hero Electric between August and December 2022, charging a total of INR 3.69 Cr. Of this, Hero paid only INR 4.27 lakh, while a payment worth INR 1.85 Cr remained pending despite repeated requests for payment. 

Although Hero contended that it withheld payments due to tyre defects, including tread separation and air leakage. 

But the tribunal undermined Hero’s plea saying that it did not raise any quality concerns until nine months after the last delivery and continued to purchase goods from Metro Tyres without raising any issues. 

The tribunal described Hero Electric’s arguments as “not just a moonshine or feeble legal argument.”

The NCLT’s decision included declaring a moratorium on Hero Electric’s assets to prevent any transfers or encumbrances during the insolvency process.

Moreover, as per the Insolvency and Bankruptcy Code, the tribunal has suspended the Hero Electric board and replaced it with the appointment of interim resolution professional Bhoopesh Gupta to oversee the company.

The development comes a week after Delhi High Court asked the Serious Fraud Investigation Office (SFIO) to continue its investigation against Hero Electric Vehicle. This investigation is regarding alleged FAME II scheme violation charges against Hero Electric. 

Just before that, there were reports of failed settlement talks between Hero Electric and the Union Ministry of Heavy Industries. 

Earlier in October,  Hero Electric agreed to pay penalties for any violation or lack of compliance related to the EV subsidy scheme. Additionally, the EV manufacturer approached the Ministry of Heavy Industries (MHI) to settle the dispute.

The scrutiny of Hero Electric is part of a larger crackdown on 13 EV manufacturers accused of similar violations under the FAME II scheme. 

The FAME II scheme was a subsidy scheme launched by the Indian government in 2019. It mandated Indian manufacturers to use 50% of domestic components. 

Purportedly, Hero Electric, Okinawa Autotech and Benling India, among others violated the mandate but claimed the subsidies.