Supreme Court Flags "Deep-Rooted Nexus" Between Banks, Asset Reconstruction Companies and Borrowers

New Delhi, June 19: The Supreme Court on Friday voiced sharp concern over what it described as a "deep-rooted nexus" between banks, asset reconstruction companies (ARCs) and borrowers, observing that taxpayers' money disbursed as loans cannot simply go unrecovered without consequence.

A bench of Chief Justice Surya Kant and Justice V. Mohana said the Court's concern was squarely with the misuse of public funds — money that should otherwise have gone toward public welfare.

The bench issued notice to the Centre, the Reserve Bank of India and other respondents on a petition alleging that a debt of Rs 1,537 crore owed to public sector banks was settled through two ARCs for just Rs 73.50 crore.

"Commercial Wisdom" Cannot Excuse Recklessness

While hearing the matter, the bench acknowledged the limits of judicial interference in the commercial decisions of banks, but drew a clear line: "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 Court called the case before it emblematic of a wider pattern: "This is a deep-rooted nexus between the borrowers, ARCs and banks."

"Tip of the Iceberg," Says Petitioners' Counsel

Advocate Ashwini Kumar Upadhyay, appearing for the petitioners, told the bench that large loan amounts were routinely being transferred at steep discounts, causing significant loss to the public exchequer. "This is not a single case," he said. "It is a tip of the iceberg." The petitioners have sought a formal probe into the nexus among banks, ARCs and borrowers.

The bench also flagged the need for closer scrutiny of how ARCs function generally, and posted the matter for further hearing after four weeks.

Background: Rs 912-Crore Loan, Rs 902-Crore Alleged Diversion

The petition, filed by advocate Ashwani Kumar Dubey on behalf of Muzaffarnagar resident Prateeksha and two others, seeks a probe into alleged banking fraud involving ARCs, public sector banks and a Noida-based infrastructure company.

It calls for the Centre to constitute a judicial commission or expert committee — comprising officials from the RBI, SEBI, the Serious Fraud Investigation Office (SFIO), the Enforcement Directorate and the CBI — to investigate corporate and banking fraud allegedly facilitated through ARCs.

According to the plea, the infrastructure firm in question borrowed approximately Rs 912 crore between 2012 and 2015 from a seven-bank consortium led by the State Bank of India. A forensic audit conducted in 2018 reportedly found evidence that more than Rs 902 crore had been siphoned off through shell companies, non-existent vendors, undisclosed bank accounts and suspected fraudulent transactions.