The software giant Microsoft is suing Comet, the embattled UK electricals chain, over its alleged creation and sale of counterfeit Windows and Vista recovery CDs.

But Comet, which is being sold by its parent Kesa Electricals for £2 to the investment firm Opcapita, rejected the accusations and said it has "a good defence to the claim and will defend its position vigorously".

Microsoft's lawsuit relates to Comet selling more than 94,000 of the recovery discs, which enable users to reinstall software they had purchased with computers, for £14.99 each between March 2008 and December 2009.

The retailer, which has more than 240 stores, used a third-party manufacturer to produce the discs at a factory in Hampshire. However, it is thought that Comet generated revenues of less than £1m from the discs during this period. This suggests the scale of Microsoft's legal claim will be relatively modest.

David Finn, the associate general counsel for worldwide anti-piracy and anti-counterfeiting at Microsoft, said: "Comet produced and sold thousands of counterfeit Windows CDs to unsuspecting customers in the UK. Comet's actions were unfair to customers."

It is understood that Opcapita, which is expected to complete its acquisition of Comet early next month, was aware of the lawsuit during its due diligence.

Comet said it had "sought and received legal advice from leading counsel to support its view that the production of recovery discs did not infringe Microsoft's intellectual property".