Supreme Court Raises Alarm Over Alleged ARC-Bank-Borrower Nexus in Rs. 1537 Crore Public Sector Banking Fraud
Background and Overview
A constitutional bench comprising Chief Justice of India Surya Kant and Justice N Kotiswar Singh has raised serious concerns regarding an alleged tripartite nexus involving Asset Reconstruction Companies (ARCs), public sector banks, and borrowers. The matter came before the Supreme Court in the form of a Public Interest Litigation (PIL) centered on a staggering debt of Rs. 1537 crore owed to a consortium of public sector banks, which was ultimately settled through two ARCs — Prudent ARC and Phoenix ARC — for a nominal sum of just Rs. 73.5 crore, resulting in an enormous erosion of public funds.
The Supreme Court formally issued notices to the Union Ministry of Home Affairs, the Union Ministry of Finance, the Reserve Bank of India (RBI), and the Serious Fraud Investigation Office (SFIO) in connection with allegations implicating JKM Infra Projects, the two aforementioned ARCs, and a consortium of seven banks — namely, State Bank of India (Lead Bank), Canara Bank, Union Bank of India, Bank of India, State Bank of Hyderabad, State Bank of Patiala, and Standard Chartered Bank.
Factual Matrix of the Alleged Fraud
Loan Sanctioned and Security Offered
JKM Infra Projects, a Noida-based infrastructure company under the control of the Verma family, was granted credit facilities aggregating to Rs. 912 crore by the seven-bank consortium led by SBI during the period 2012 to 2015. Strikingly, the collateral security offered against this substantial loan amounted to a mere Rs. 72 crore — a gross mismatch that raises immediate red flags about the diligence exercised at the time of loan sanction.
Forensic Audit Revelations
Following default by JKM Infra, Ernst & Young was commissioned to carry out a forensic audit in May 2018. The audit's findings were alarming — it revealed that upwards of Rs. 902 crore had been diverted to shell companies, fictitious vendors, forged work orders, and unidentifiable bank accounts. Despite the gravity of these findings, the lending consortium demonstrated an inexplicable reluctance to act decisively.
Auction of Debt at a Massive Discount
State Bank of India, in disregard of applicable RBI notifications, proceeded to auction the outstanding loan — valued at Rs. 596 crore — to a sole bidder, Prudent ARC, at a discount of 75%, for just Rs. 120 crore. Critically:
- SBI did not classify the account as a fraud account
- No effective recovery proceedings were initiated
- Despite the forensic audit's damning findings, the consortium failed to refer the matter to enforcement agencies
- No criminal proceedings were launched as mandated under RBI norms
Transfer to Phoenix ARC
In 2025, during the pendency of proceedings before the Debt Recovery Tribunal (DRT), the outstanding debt — by then aggregating to Rs. 1537 crore against the same collateral security of Rs. 72 crore — was transferred to Phoenix ARC for a paltry Rs. 73.5 crore. This transaction further deepened suspicions of a deliberate and systemic misuse of the ARC framework.
Critical Observation: Throughout this entire process, no assets were attached, no bank accounts were frozen, and no coordinated investigation was undertaken by any of the concerned regulatory or enforcement authorities.
FIRs and Criminal Proceedings
Two criminal cases have been registered in connection with this matter:
- FIR No. 53/2021 — lodged by the Economic Offences Wing (EOW), Delhi
- FIR No. 43/2026 — registered at Phase-1 Police Station, Gautam Budh Nagar, Uttar Pradesh
Closure Report Rejected
The EOW attempted to close FIR No. 53/2021 by characterizing the dispute as a family matter. However, the Trial Court rejected the closure report in January 2026 and directed that the investigation be conducted in light of the forensic audit report — a significant judicial intervention affirming the seriousness of the alleged fraud.
Representations to Enforcement Agencies
The PIL petition further discloses that representations highlighting the alleged fraud were submitted to the Enforcement Directorate (ED), the Income Tax Department, and the Union Ministry of Corporate Affairs (MCA). However, no substantive follow-up action appears to have been taken by any of these bodies.
Broader Concerns Regarding ARC Transactions
CBDT Press Release of December 2021
The PIL petition draws attention to concerns raised in a Central Board of Direct Taxes (CBDT) press release issued in December 2021, suggesting that the JKM Infra situation is not an isolated incident but reflective of a systemic problem within the ARC ecosystem.