NCLT Directs Initiation Of Insolvency Proceedings Against Hero Electric, Suspends Board

The National Company Law Tribunal has initiated insolvency proceedings against Hero Electric following a plea filed by the company's operational creditor Metro Tyres, which has claimed a default of Rs 1.85 crore.

And, in keeping with the provisions of the Insolvency and Bankruptcy Code, the tribunal has suspended the Hero Electric board and in its place appointed Bhoopesh Gupta as interim resolution professional to oversee the company.

The NCLT bench rejected Hero Electric's contentions that there was a pre-existing dispute with the operational creditor and said 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.

According to the NCLT bench, “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.”

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

According to the case, the electric two-wheeler manufacturer had approached Metro Tyres to purchase tyres and tubes for cycles.

Following this, the tyre manufacturer had supplied goods to Hero Electric and in lieu of that had raised various invoices from Aug. 9, 2022, to Dec. 3, 2022.

However, against various invoices raised by Metro Tyres, Rs 1.85 crore is still unpaid.

Metro Tyres submitted that despite its several requests, the payment was denied by Hero Electric, taking a “moonshine defence,” stating that the 90/90x10 tire and 90/90x12 tire supplied by it had issues 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 noticed that Hero Electric didn't raise 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.

Additionally, in the user manual/warranty policy for its products, Hero Electric has declared that its warranty does not cover “tyres/tubes” and that the original manufacturer was liable for claims pertaining to them.

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

(With Inputs From PTI.)