Supreme Court Flags Alleged Bank-ARC Nexus, Seeks Replies from Centre and RBI

The Supreme Court on Friday expressed serious concern over an alleged nexus between banks, asset reconstruction companies (ARCs) and borrowers, observing that the misuse of taxpayers' money through questionable loan settlements could not be ignored.

A bench of Chief Justice Surya Kant and Justice V. Mohan issued notices to the Centre, the Reserve Bank of India (RBI) and others on a plea alleging that loans worth Rs 1,537 crore owed to public sector banks were settled through two ARCs for just Rs 73.50 crore .

During the hearing, the bench described the matter as a " deep-rooted nexus between the borrowers, ARCs and banks " and questioned whether public money was being adequately protected. The court said that while it generally does not interfere in the commercial decisions of banks, it could not overlook situations where taxpayers' funds were lent and insufficient efforts were allegedly made to recover them.

Appearing for the petitioners, advocate Ashwini Kumar Upadhyay argued that large debts were frequently transferred at steep discounts, causing significant losses to the exchequer. He urged the court to order a probe into the alleged nexus.

The court also observed that there was a need to examine the functioning of ARCs and scheduled the matter for further hearing after four weeks.

The plea seeks the formation of a judicial commission or expert panel comprising officials from the RBI, SEBI, SFIO, ED and CBI to investigate alleged banking fraud involving ARCs, public sector banks and a Noida-based infrastructure company.

According to the petition, the company secured loans of around Rs 912 crore from a consortium of seven banks led by SBI between 2012 and 2015. A 2018 forensic audit allegedly found evidence that over Rs 902 crore had been diverted through shell companies, fake vendors and undisclosed bank accounts.