The Supreme Court expressed serious concerns over alleged deep-discount settlements of stressed loans, flagging what it termed a 'deep-rooted nexus' between banks, asset reconstruction companies and borrowers. According to reports from Business Standard, a bench of Chief Justice Surya Kant and Justice V Mohana said that taxpayers' money being given as loans and then no effective efforts were taken to recover the amount was not acceptable. The court observed that it was aware of the limitation in entering into the arena of commercial wisdom of the banks, but stated that if this was the commercial wisdom that collects taxpayers' money and recklessly releases it without making recovery efforts, such conduct is not acceptable. CJI Kant 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. The Chief Justice observed that this was the most over-clever device adopted by these banks to sell the loan liabilities to the ARCs or something for peanuts, allowing 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 Supreme Court issued notice to the Centre, the Reserve Bank of India (RBI) and others seeking their responses on a plea which alleged that a debt of ₹1,537 crore owed to public sector banks was settled through two asset reconstruction companies (ARCs) for a mere ₹73.50 crore. As reported by Business Standard, Advocate Ashwini Kumar Upadhyay, who appeared for the petitioners, said huge loan amounts were being transferred at discount which causes significant loss to the exchequer. He emphasized that this was not a single case, stating it was the tip of the iceberg and that petitioners were seeking a probe into this nexus between the banks, ARCs and borrowers. The petition alleges that JKM Infra Projects Ltd., a Noida-based infrastructure company, obtained loans from a consortium of seven banks led by State Bank of India between 2012 and 2015. According to the petition, SBI assigned the debt to Prudent ARC in 2020 for about ₹120 crore against an outstanding debt of around ₹480 crore. The petition further states that in September 2025, Prudent ARC assigned the debt portfolio of approximately ₹1,537 crore to Phoenix ARC and Phoenix ARC entered into a settlement for ₹73.50 crore on 31 October 2025, causing a loss of more than 95% of public money. During the hearing, Chief Justice Kant expressed concern over the manner in which stressed loans were being assigned and settled, stating this was a deep-rooted nexus between the ARC, the bank, and the borrower.
The plea filed through advocate Ashwani Kumar Dubey has sought a probe into the alleged banking frauds involving ARCs, public sector banks and a Noida-based infrastructure firm. According to the petition, the infrastructure firm obtained loans worth approximately ₹912 crore from a consortium of seven banks led by the State Bank of India (SBI) between 2012 and 2015. The petition alleges that a forensic audit conducted in 2018 found evidence suggesting that more than ₹902 crore had been diverted through shell companies, struck-off entities, non-existent vendors and other red-flagged entities. The petition claims that despite these findings, the account was not classified as fraud and the loan was subsequently assigned to Prudent ARC. The plea, filed by Muzaffarnagar-based Prateeksha and two others, seeks a probe into the alleged banking fraud facilitated by the ARCs and alleges that companies obtain loans, subsequently become insolvent and then secure settlements through ARC mechanisms at heavily discounted values. Senior Advocate Meenakshi Arora, appearing for JKM Infra Projects Ltd and its promoter, opposed the plea, submitting that substantially similar allegations had already been raised before various forums including the Economic Offences Wing, Delhi High Court and the National Company Law Tribunal (NCLT), with several proceedings either being dismissed or withdrawn.
The bench also observed that there was a dire need to look into the functioning of the ARCs and posted the matter for hearing after four weeks. As reported by Business Standard, the plea seeks a direction 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. The court's concerns reflect broader questions about the effectiveness of loan recovery mechanisms and the role of ARCs in the banking sector. CJI Kant remarked 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 also refers to an FIR registered by the Economic Offences Wing, New Delhi, and one in Gautam Budh Nagar, alleging that despite complaints and representations to the ED, RBI and the Ministry of Corporate Affairs, no coordinated action has been taken. Taking note of the rival submissions and the larger concerns, the court issued notice and sought responses from the Union government, RBI, ED, SFIO, CBI and SEBI within four weeks.
