Hero Electric Headed for Liquidation as Creditors Reach Impasse

The insolvency journey for the pioneer electric two-wheeler manufacturer began on December 20, 2024, following an application by operational creditor Metro Tyres Limited.

While the process initially attracted significant interest drawing nine expressions of interest in its early stages, it ultimately collapsed under the weight of a deadlocked Committee of Creditors (CoC).

A House Divided: The 66% Hurdle

Liquidation was triggered not by a lack of bidders, but by the CoC’s inability to achieve the mandatory 66% majority required to approve a resolution plan under the Insolvency and Bankruptcy Code (IBC). Despite multiple rounds of negotiations and e-voting, the highest-voted plan managed to secure only 47.66% support.

By the time the case reached its final hearings, the CoC stood completely deadlocked. Approximately 50% of the voting share favored a resolution plan, while the remaining members pushed for immediate liquidation.  With the statutory CIRP period having expired on February 13, 2026, the Adjudicating Authority ruled that any further continuation of the process would "serve no useful purpose" and only lead to the further erosion of the company’s value.

The Debt Ledger: Creditors and Claims

The liquidation process will now attempt to recover dues for a diverse group of secured and unsecured financial creditors.The admitted claims highlight the significant financial exposure across several major banking institutions:

Bank of Baroda (Secured): Rs 55.36 Crore
South Indian Bank Ltd. (Secured): Rs 17.62 Crore
IDFC First Bank Ltd. (Secured): Rs 9.43 Crore
Karnation Fund/Mitcon (Secured): Rs 8.61 Crore
Kotak Mahindra Bank Ltd. (Secured): Rs 53.96 Lakhs
SLK Software Pvt. Ltd. (Unsecured): Rs 47.87 Crore

Allegations of Fraud Cloud Recovery

Adding a layer of legal complexity to the liquidation is a pending application regarding the company’s past financial conduct. Acting on a report from transaction auditor JTST & Co. LLP, the Resolution Professional identified certain  transactions as avoidable/fraudulent under Section 66(1) of the Code.

Section 66(1) of the Insolvency and Bankruptcy Code (IBC) is the legal provision used to address fraudulent transactions discovered during the insolvency process.

The NCLT noted that I.A. No. 3950/2025, which addresses these identified transactions, remains pending adjudication. The incoming liquidator will be required to pursue and prosecute this application, alongside other recovery proceedings, to maximize the liquidation estate for the benefit of all creditors.

Hero Electric had earlier denied any wrongdoings in its business. 

The rise and fall of Hero Electric

Hero Electric was among the earliest established manufacturers to enter India's electric two-wheeler segment, commencing operations in 2007. The company developed a significant commercial presence over the following decade, recording peak annual sales of tens of thousands of low-speed electric scooters and maintaining an extensive dealership network nationwide. It was an early beneficiary of government support under the FAME (Faster Adoption and Manufacturing of Electric Vehicles) scheme.

The company's market position deteriorated as consumer demand shifted toward higher-speed electric two-wheelers. The subsequent entry of manufacturers such as Ola Electric, Ather Energy, and TVS iQube, whose products targeted performance-oriented urban buyers, eroded Hero Electric's competitive standing. The company's portfolio, concentrated in the low-speed segment, did not keep pace with evolving product benchmarks. Operational challenges, including supply chain disruptions, working capital constraints, and delayed new product introductions  further weakened its financial position.

Hero Electric was subsequently named among a group of manufacturers accused of non-compliance with the Phased Manufacturing Programme (PMP) localisation norms under the FAME II scheme. The scheme, with a total government outlay of ₹10,000 crore, required vehicle manufacturers to source specified components domestically. Authorities alleged that Hero Electric, Okinawa Autotech, and Benling India had sourced components, directly or indirectly,  from outside India while availing subsidies. The aggregate subsidy amount allegedly claimed by the three manufacturers in violation of PMP norms was reported at approximately Rs 297 crore.

The Ministry of Heavy Industries reportedly  issued a demand notice requiring Hero Electric to refund Rs 133 crore in subsidies, along with applicable interest, citing PMP violations. The company disputed the demand and did not comply. It separately claimed that the government owed it Rs 556 crore in pending subsidies against vehicles already sold, a claim that remained unresolved.

A committee appointed by the government initially determined in 2024 that Hero Electric and Okinawa Autotech had not violated PMP norms, following an ARAI inspection  that found components to be locally sourced. However, the Serious Fraud Investigation Office (SFIO), which operates under the Ministry of Corporate Affairs, conducted a separate and independent investigation into the matter.

Next Steps:

The NCLT has appointed  Lekhraj Bajaj as the Liquidator, replacing the previous Resolution Professional,  Bhoopesh Gupta.

Bajaj has been directed to take immediate control of the company's records, documents, and assets.

Under the liquidation order, the powers of Hero Electric’s Board of Directors have ceased, vesting entirely in the liquidator. Furthermore, a fresh moratorium under Section 33(5) has commenced, prohibiting the institution of new suits or legal proceedings against the company without the Tribunal's prior approval.