The National Company Law Tribunal (NCLT) have recently directed initiation of insolvency proceedings against Hero Electric after Metro Tyres filed a petition over unpaid dues
Hero Electric, one of the early big movers in the electric two-wheeler space, could be in a real spot of bother as they could be facing insolvency. This is courtesy the National Company Law Tribunal (NCLT) recently directing the initiation of insolvency proceedings against Hero Electric after a petition of unpaid dues amounting to Rs 1.85 crore was filed by Metro Tyres. This process, as per the provisions of the Insolvency and Bankruptcy Code (IBC) has led to the suspension of the Hero Electric board and Bhoopesh Gupta, an insolvency professional, has been appointed as Interim Resolution Professional.
To dive deeper into this case, it’s been said that Hero Electric had purchased tyres and tubes worth Rs 3.69 crore from Metro Tyres between August and December 2022, of which Rs 1.85 crore was yet to be paid. Metro Tyres alleged that despite repeated requests, Hero Electric denied the payment citing issues with the tyres such as tread separation, bubbles and air leakage as reasons for withholding the payment.
In the ruling, NCLT rejected Hero Electric’s contentions stating the company had not raised any dispute over the quality of goods until nine months after the supply. ‘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 NCLT also added, “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.”
To further strengthen Metro Tyres’ case, the tribunal also cited Hero Electric’s warranty policy that excludes tyres and tubes from its coverage, with the original manufacturer being liable for all claims regarding tyres and tubes. Thus, “no dispute in any manner whatsoever can be raised by the corporate debtor at such a later stage.”
As a result, the Tribunal declared a moratorium that will protect Hero Electric from the decree or order of any court, tribunal or arbitration panel. There’s also a ban on transferring, encumbering, alienating or disposing of its assets. What does it mean for Hero Electric’s future in the electric two-wheeler space? Only time will tell if they manage to resolve the debt and restructure their operations in order to bounce back.
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