New Delhi, June 19: The Supreme Court on Friday expressed concern over what it described as a deep-rooted nexus between corporate borrowers, Asset Reconstruction Companies (ARCs) and public sector banks in the settlement of defaulted loans, resulting in substantial losses to public money deposited in banks by taxpayers.
Questioning the manner in which public money is lent and subsequently termed as stressed and written off through settlements routed via ARCs, a Bench comprising Chief Justice Surya Kant and Justice V. Mohana observed that banks cannot lend public money and then make little effort to recover it before agreeing to steeply discounted settlements.
In a strong indictment of such practices, Chief Justice Kant remarked that public money collected from taxpayers cannot be recklessly disbursed as loans and thereafter recovered at a fraction of the amount due. He observed that such conduct was not a matter of “commercial wisdom” and could not be accepted when it involved public funds.
The observations came while the Court issued notice to the Reserve Bank of India (RBI), the Serious Fraud Investigation Office (SFIO), the Securities and Exchange Board of India (SEBI), the Directorate of Enforcement (ED) and the Central Bureau of Investigation (CBI) on a public interest litigation seeking an investigation into the affairs of JKM Infra.
According to the petition, JKM Infra had borrowed ₹1,537 crore from a consortium of seven banks led by the State Bank of India, defaulted on repayment, and the account was eventually settled through the ARC route for ₹73.50 crore.
The PIL seeks a direction to the Central Government to constitute a judicial commission or an expert committee comprising officers from the RBI, SEBI, SFIO, ED and CBI to investigate the alleged corporate and banking fraud involving JKM Infra.
Terming the alleged fraud a “tip of the iceberg”, advocate Ashwini Kumar Upadhyay, appearing for the petitioners, submitted that the JKM transaction was not an isolated instance but part of a broader pattern involving banks, ARCs and corporate borrowers. He argued that large loans running into thousands of crores of rupees were routinely being transferred to ARCs at steep discounts, causing substantial losses to public money held by public sector banks.
Senior advocate Meenakshi Arora, appearing for JKM Infra Projects Ltd. and its promoters, questioned the maintainability of a PIL directed against a single corporate entity. She submitted that similar allegations had already been raised before various forums, including the National Company Law Tribunal (NCLT), the Delhi High Court and the Economic Offences Wing, and had either been dismissed or withdrawn.
Arora further argued that transfer of stressed assets to ARCs was an established mechanism and that borrowers had no role in such transactions. According to her, the same process had been followed in the case of numerous companies and JKM Infra was not an exception.
Observing that it could not remain oblivious to allegations involving large sums of public money, the Bench said, “But if fraud has been brought to the notice of the court, and if we shut our eyes, this will be perpetuating dangers again.” The Court added that it would be willing to examine other similar cases if brought before it.
Pramod kumar is a Senior Journalist, Covering Supreem Court of India
