The Supreme Court on Friday voiced serious concern over what it termed a deep-rooted nexus involving banks, asset reconstruction companies (ARCs), and borrowers, emphasizing that public funds cannot be lent and subsequently written off without genuine attempts at recovery.
Court Raises Concerns Over Misuse of Public Funds
A bench comprising Chief Justice Surya Kant and Justice V Mohana stated that its primary worry was the alleged misuse of public money, which could otherwise have been directed toward public welfare. The court issued notices to the Centre, the Reserve Bank of India (RBI), and other respondents in response to a plea alleging that loans worth Rs 1,537 crore owed to public sector banks were settled through two ARCs for a mere Rs 73.50 crore.
Questioning the Resolution of Stressed Assets
During the proceedings, the bench questioned the manner in which stressed assets were being resolved and raised concerns about the role of various stakeholders in such settlements. “This is a deep-rooted nexus between the borrowers, ARCs and banks,” the bench observed, as reported by news agency PTI.
The judges acknowledged that courts generally refrain from interfering in the commercial decisions of banks but indicated that concerns arise when substantial losses are borne by the public exchequer. “But if this is the commercial wisdom that you collect taxpayers' money, public money and you recklessly release it and give loans and then you don't make any effort or try to recover it, this kind of conduct is not acceptable,” the bench remarked.
Petitioners Argue for Investigation
Appearing for the petitioners, advocate Ashwini Kumar Upadhyay argued that large debts were routinely being transferred at steep discounts, causing significant losses to public finances. “This is not a single case. I am saying it is a tip of the iceberg,” Upadhyay said, while seeking an investigation into the alleged nexus among borrowers, banks, and ARCs.
The bench also noted that the functioning of ARCs requires closer scrutiny and scheduled the matter for further hearing after four weeks.
Details of the Petition
The petition, filed through advocate Ashwani Kumar Dubey, seeks an investigation into alleged banking irregularities involving public sector banks, ARCs, and a Noida-based infrastructure company. Among other reliefs, the plea has requested directions to the Centre “to constitute a judicial commission or an expert committee including officers of the RBI, SEBI, Serious Fraud Investigation Office (SFIO), ED and the CBI to investigate the corporate and banking fraud facilitated by the asset reconstruction companies (ARCs).”
According to the petition, the infrastructure firm secured loans amounting to nearly Rs 912 crore from a consortium of seven banks led by the State Bank of India between 2012 and 2015. It further alleged that a forensic audit conducted in 2018 uncovered evidence indicating that more than Rs 902 crore had been diverted through shell entities, fictitious vendors, undisclosed bank accounts, and other suspected fraudulent transactions.
The plea, filed by Muzaffarnagar resident Prateeksha and two others, seeks a detailed probe into the alleged banking fraud and the role of ARCs in facilitating it.
