The Supreme Court on Friday expressed serious concern over an alleged nexus between asset reconstruction companies (ARCs), borrowers, and banks that led to the siphoning of thousands of crores of public money. The court sought responses from the Union home and finance ministries, the Reserve Bank of India (RBI), and the Serious Fraud Investigation Office (SFIO) regarding a scam involving JKM Infra Projects.
PIL Alleges Massive Loss
Appearing for a PIL petitioner, advocate Ashwini Upadhyay told a bench comprising Chief Justice Surya Kant and Justice V. Mohana that a debt of Rs 1,537 crore owed to public sector banks was settled through two ARCs—Prudent and Phoenix—for a mere Rs 73.5 crore, resulting in a huge loss of public money.
Details of the Alleged Scam
The petitioner alleged that JKM Infra, a Noida-based infrastructure company controlled by the Jalan family, took a loan of Rs 912 crore from a consortium of seven banks led by State Bank of India (SBI) between 2012 and 2015 against a meagre collateral of Rs 72 crore. The firm soon defaulted, and a forensic audit by Ernst & Young (E&Y) in May 2018 found that more than Rs 902 crore were siphoned to shell companies, non-existent vendors, forged work orders, and undisclosed bank accounts.
Despite this finding, the petitioner claimed that SBI did not classify the account as fraud and auctioned the loan to the sole bidder Prudent ARC at a 75% discount for Rs 120 crore against a debt of Rs 596 crore. During proceedings before the debt recovery tribunal, the debt was transferred to Phoenix ARC in 2025 at Rs 73.5 crore against a total outstanding of Rs 1,537 crore, it was alleged.
Lack of Action by Authorities
The petitioner further claimed that the police attempted to close the first FIR as a mere family dispute, but the trial court rejected the closure report in January 2026 and directed an investigation into the E&Y forensic findings. The directorate of enforcement, the income tax criminal investigation wing, RBI, and the ministry of corporate affairs have all received detailed representations, but none have taken any appropriate and meaningful action to date.
Court's Observations
The bench asked the respondents, including SBI, Canara Bank, Union Bank of India, JKM Infra and its promoters, SEBI, the two ARCs, and E&Y, to file their responses to the PIL within four weeks. The court remarked, "We will not spare anyone. Bankers indulging in such activities is unfortunate."
On the sale of debt to ARCs, the bench said, "This is the cleverest device adopted by the banks. Sell the outstanding debt at 10% of the dues and allow the borrower to wriggle out of the liabilities. We do not want to go into the commercial wisdom of the banks. But if this is the commercial wisdom—give taxpayers money and make no attempt to recover it—then it would require investigation."
The bench also doubted the credentials of the PIL petitioners but said, "There is a dire need to look into the conduct of ARCs who give a complete go-by to the recovery process. There appears to be a deep-rooted nexus between ARCs, borrowers and banks for misutilisation and siphoning of public money."
