The lack of a grommet, to protect the cord from abrasion, is certainly an issue.
Also, while some may debate whether the code would allow a cord to be the disconnecting means, the code certainly does not allow the cord to pass through a wall or partition- and I think the counter would qualify!
Finally, the receptacle would be part of a "small appliance" circuit. Considering the current draw of a water heater, I think you could challenge connecting the heater to it.
Oddly enough, overseas I often saw small water heaters mounted just above sinks- they gave just wnough water, just hot enough, for hand washing. I don't believe the NEC would have any problems with that arrangement.
