'Banks Sell Loans To ARCs For Peanuts': Supreme Court Flags Nexus Between Banks, Borrowers & Asset Reconstruction Companies

The Supreme Court today expressed serious concern over the manner in which public sector bank loans are assigned to Asset Reconstruction Companies (ARCs), observing that there is a need to examine the conduct of ARCs and the larger mechanism through which large loan liabilities are settled for a fraction of their value.

A bench of Chief Justice of India Surya Kant and Justice V Mohana was hearing a plea alleging irregularities in the settlement of loans extended to a company by a consortium led by State Bank of India. The petitioner has sought directions to the Centre to constitute a Judicial Commission or an Expert Committee including the Officers of RBI, SEBI, SFIO, ED and CBI to investigate alleged corporate and banking fraud facilitated by the ARCs.

“There is a dire need to look into the conduct and affairs of these ARCs also, frankly. And creation of this ARC is an issue probably that is required to be revisited, particularly in the context of public money. We are only concerned about public money. If they are private lender, we don't want to go into those transactions. But where taxpayers' money, public money, which should have been spent for the welfare of the people, if that has gone into private hands, mis-utilised, siphoned and ultimately they have the last laugh, that is what we are bothered. ARC are also hands in glove with banks. There is a very deep-rooted nexus between borrowers, ARC, and banks”, CJI Kant said.

The Chief Justice remarked that banks were adopting an “over-clever device” by selling loan liabilities to ARCs at steep discounts and allowing borrowers to ultimately settle the dues by paying only a small percentage of the outstanding amount.

“This is the most over-clever device adopted by these banks to sell the loan liabilities to the ARCs or something for peanuts. You take only 10%, 15% and then allow them to file, because they know very well what are the assets. Ultimately the ARC people are also making money out of it. But the net beneficiary is the borrower who ultimately wriggles out of it by paying 15%, 20%, that's all,” the CJI observed.

The Court further stated that while it was conscious of its limitations in examining the commercial wisdom of banks, it could not ignore allegations involving public money.

“We know our limitations to go into commercial wisdom of the banks, but if this is the commercial wisdom that you collect taxpayers' money, public money, and you recklessly release it and give them a loan and then you don't make any effort to recover it, or the security which you take is far less value and then ultimately you say that there is nothing that we can recover, this kind of conduct is not acceptable,” the CJI said.

The Court also observed that there appeared to be a "deep-rooted nexus between borrowers, ARC and banker" and that there was a dire need to examine the conduct and affairs of ARCs. The Court noted that issues relating to the statutory framework governing ARCs may require reconsideration, particularly where public money is involved.

The petition, filed through Advocate Ashwani Kumar Dubey, seeks investigation by agencies including the Enforcement Directorate (ED), Serious Fraud Investigation Office (SFIO) and the Reserve Bank of India (RBI) into an alleged large-scale banking fraud involving JKM Infra Projects Ltd.

According to the petition, JKM Infra Projects Ltd., a Noida-based infrastructure company, availed loans from a consortium of seven banks led by State Bank of India. The petition alleges that loans aggregating over Rs. 1,537 crore were ultimately settled through ARC transactions for Rs. 73.50 crore, causing a loss of more than 95% of public money. It relies on a forensic audit conducted by Ernst & Young in 2018, which allegedly found diversion of over Rs. 902 crore through shell companies, struck-off entities, fake invoices and undisclosed bank accounts.

Advocate Ashwini Upadhyaya, Counsel for the petitioner, argued before the Court that the JKM matter was only the “tip of the iceberg” and alleged that there was a wider nexus involving banks, ARCs and borrowers. He claimed that companies obtain loans, subsequently become insolvent and then secure settlements through ARC mechanisms at heavily discounted values.

Senior Advocate Meenakshi Arora, appearing on caveat for a respondent, opposed the petition and argued that the case arose out of a dispute between her client and his brother. She informed the Court that multiple proceedings had already been pursued before different forums, including criminal proceedings, writ petitions and proceedings before the National Company Law Tribunal.

When the Court asked about the outstanding loan and the assignment process, she maintained that the assignment was a transaction between the bank and the ARC, and the borrower JKM Infrastructure had no role in it.

The CJI, clarified that the Court's concern was not with the family dispute but with allegations regarding public money.

“Our only concern is, Madam, the family dispute is there. Out of personal vendetta. One brother must have been filing, harassing the other and the other must also be doing against the same. Vice versa continue. We are not concerned about that. Our only concern is that a loan of 1537 Crore. You file an affidavit”, he said.

CJI Kant remarked that the litigation may have been triggered by the dispute between family members. Nevertheless, he said, if a fraud involving public money had been brought to the notice of the Court, it could not simply ignore it.

“To be very frank, it seems we are also having some suspicion that these petitioners have been planted by your brother. We can't say more than that. But a fraud having been brought to the notice of the Court and if we shut our eyes, this will be again perpetuating,” he said.

After hearing the parties, the Court issued notice to private parties connected with the dispute, and granted four weeks' time for filing responses.

Background

The petition alleges that JKM Infra Projects Ltd. obtained loans from a consortium of seven banks led by SBI between 2012 and 2015. It claims that an Ernst & Young forensic audit submitted on 23 May 2018 found diversion of more than Rs. 902 crore through shell companies, struck-off companies, non-existent vendors and other red-flagged entities. The petition alleges that despite these findings, the account was not classified as fraud and the loan was subsequently assigned to Prudent ARC.

According to the petition, SBI assigned the debt to Prudent ARC in 2020 for about Rs. 120 crore against an outstanding debt of around Rs. 480 crore. The petition further states that in September 2025, Prudent ARC assigned the debt portfolio of approximately Rs. 1,537 crore to Phoenix ARC and Phoenix ARC entered into a settlement for Rs. 73.50 crore on 31 October 2025.

The petition also refers to an FIR registered by the Economic Offences Wing, New Delhi, and one in Gautam Budh Nagar. It alleges that despite complaints and representations to the ED, RBI and the Ministry of Corporate Affairs, no coordinated action has been taken.

Case no. – W.P.(Crl.) No. 230/2026

Case Title – Prateeksha & Ors. v. Union of India & Ors.