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. 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,”the CJI observed.
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 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 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.
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