Hero Electric Liquidation Process Triggered After Creditor Deadlock at NCLT

The Hero Electric liquidation process has formally commenced after India’s insolvency tribunal concluded that creditors could not reach the required voting threshold to approve a restructuring plan. The electric two-wheeler manufacturer had entered corporate insolvency proceedings on December 20, 2024, following an application filed by operational creditor Metro Tyres Limited. Despite early interest from multiple potential bidders, the restructuring effort eventually stalled due to disagreements among creditors regarding the future of the company and the viability of proposed resolution plans.

Creditor Deadlock Leads to Liquidation

The insolvency process initially generated strong participation from potential investors, with nine expressions of interest submitted during the early stages of the Corporate Insolvency Resolution Process (CIRP). However, the decision-making body representing lenders, known as the Committee of Creditors (CoC), remained divided on the preferred outcome. Under the Insolvency and Bankruptcy Code (IBC), a minimum voting share of 66 percent is required to approve a resolution plan that would allow a company to restructure and continue operations.

Failure to Reach Mandatory Voting Threshold

Despite multiple negotiations and rounds of electronic voting, the highest-supported resolution proposal secured only 47.66 percent of creditor votes. This result fell significantly short of the statutory requirement. By the time the matter reached final hearings before the tribunal, voting shares were split almost evenly. Roughly half of the creditors supported a restructuring plan, while the remaining lenders favored immediate liquidation as the more practical recovery path.

With the legally permitted CIRP period expiring on February 13, 2026, the adjudicating authority concluded that continuing the process would not produce any meaningful outcome. The tribunal noted that prolonging the proceedings would likely reduce the company’s remaining value and therefore ordered liquidation. As a result, the Hero Electric liquidation process was initiated to distribute recoverable assets among creditors according to insolvency regulations.

Breakdown of Creditor Claims

The liquidation proceedings involve both secured and unsecured creditors with substantial financial exposure to the company. Several banks and institutional lenders had extended financing during the company’s operational years, and their claims now form the basis of the recovery process. The admitted claims demonstrate the scale of financial obligations accumulated prior to the insolvency proceedings.

The appointed liquidator will now evaluate company assets and initiate recovery proceedings to maximize returns for both secured lenders and operational creditors. The distribution of proceeds will follow the priority structure defined under the Insolvency and Bankruptcy Code.

Fraud Investigation Complicates Insolvency Proceedings

The liquidation case also involves ongoing legal scrutiny regarding the company’s historical financial transactions. During the insolvency review process, the Resolution Professional relied on a transaction audit conducted by JTST & Co. LLP, which identified several transactions that may qualify as avoidable or fraudulent under Section 66(1) of the Insolvency and Bankruptcy Code. This provision specifically addresses situations where company management may have conducted business with the intent to defraud creditors.

Pending Tribunal Application

An application related to these suspected transactions, identified as I.A. No. 3950/2025, remains under adjudication before the tribunal. The liquidator appointed under the Hero Electric liquidation process has been instructed to pursue this matter as part of the broader recovery strategy. Any financial recoveries resulting from the case could be added to the liquidation estate and distributed among creditors according to insolvency rules.

The company has previously denied allegations of wrongdoing connected to its financial conduct. However, the tribunal noted that the investigation must proceed independently as part of the statutory liquidation responsibilities assigned to the liquidator.

Market Decline of an Early Electric Two-Wheeler Pioneer

Hero Electric entered India’s electric mobility sector in 2007 and became one of the earliest companies to establish a nationwide presence in the electric scooter market. The manufacturer built a large dealership network and recorded strong sales growth during the early expansion of the country’s electric two-wheeler segment. Its low-speed electric scooters were widely adopted in urban markets and benefited from government incentives promoting electric mobility.

However, the competitive landscape of the electric two-wheeler industry shifted significantly over time. Consumer demand gradually moved toward higher-performance vehicles capable of longer range and higher speeds. New market entrants such as Ola Electric, Ather Energy, and TVS introduced advanced electric scooters targeting urban commuters seeking stronger performance and improved technology features.

Hero Electric’s product portfolio remained concentrated in the low-speed segment, limiting its ability to compete with the emerging generation of electric scooters. At the same time, operational challenges including supply chain disruptions, delayed product launches, and growing working capital pressures further weakened the company’s financial stability.

FAME Subsidy Dispute and Compliance Investigation

The company’s regulatory challenges also contributed to its financial distress. Authorities accused several electric vehicle manufacturers, including the company, of violating localisation requirements under the FAME II scheme. The government program, which allocated approximately ₹10,000 crore to accelerate electric vehicle adoption, required manufacturers to source key components domestically under the Phased Manufacturing Programme.

Investigators alleged that certain manufacturers sourced components from outside India while continuing to claim subsidies intended for locally manufactured vehicles. The combined subsidy amount allegedly claimed in violation of localisation rules by multiple companies was estimated at roughly ₹297 crore. Authorities subsequently issued a demand notice seeking repayment of ₹133 crore in subsidies along with applicable interest.

The company disputed the claim and maintained that it had complied with localisation requirements. It also stated that the government owed it ₹556 crore in unpaid subsidies related to previously sold vehicles. A government-appointed committee initially reported in 2024 that no localisation violations were detected following inspections conducted by the Automotive Research Association of India. However, a separate investigation by the Serious Fraud Investigation Office continued independently.

Liquidation Administration and Next Steps

The tribunal has appointed Lekhraj Bajaj as the liquidator responsible for overseeing asset management and creditor recovery. Bajaj replaces the earlier Resolution Professional and has been instructed to take immediate control of the company’s records, documentation, and physical assets. The liquidator will also handle legal proceedings connected to the insolvency case, including the pending fraud-related application.

Under the liquidation order, the powers of the company’s Board of Directors have ceased and are now fully vested in the liquidator. Additionally, a fresh moratorium under Section 33(5) of the Insolvency and Bankruptcy Code has taken effect, preventing new lawsuits or legal proceedings against the company without prior approval from the tribunal as the liquidation process moves forward.