Supreme Court Flags ARC‑Bank Loan Settlements as Public‑Money Concern – Calls for Probe

Supreme Court Flags ARC‑Bank Loan Settlements as Public‑Money Concern – Calls for Probe The Supreme Court expressed alarm over the way public‑sector banks transfer large loan liabilities to ARCs . The bench, led by Chief Justice Surya Kant and Justice V Mohana , heard a petition alleging that a consortium led by SBI settled a Rs 1,537 crore loan for just Rs 73.50 crore, causing a loss of more than 95% of taxpayer money. Key Developments The Court described the loan‑sale mechanism as an “over‑clever device” that lets borrowers pay only 10‑20% of the outstanding amount. It highlighted a “deep‑rooted nexus” among borrowers, ARCs and banks, and urged a review of the statutory framework governing ARCs. The petition seeks a Judicial Commission or Expert Committee comprising officials from the RBI , ED , SFIO , and the CBI to probe alleged corporate and banking fraud. The Court issued notice to private parties involved in the dispute and gave them four weeks to respond. Important Facts According to the petition, the Noida‑based firm JKM Infra Projects Ltd. obtained loans from a seven‑bank consortium led by SBI between 2012 and 2015. A forensic audit by Ernst & Young in 2018 alleged diversion of over Rs 902 crore through shell companies and fake invoices. Despite these red flags, the loan was not classified as fraudulent. In 2020, SBI assigned the debt to Prudent ARC for about Rs 120 crore, against an outstanding amount of roughly Rs 480 crore. Later, in September 2025, Prudent ARC transferred the portfolio (≈ Rs 1,537 crore) to Phoenix ARC , which settled it for Rs 73.50 crore on 31 October 2025. UPSC Relevance This case touches upon several topics in the UPSC syllabus: the role of the Supreme Court in safeguarding public finance; the functioning and regulation of ARCs ; the oversight responsibilities of the RBI and other enforcement agencies; and the broader issue of corporate fraud and misuse of taxpayer money, which is a recurring theme in GS 3 (Economy) and GS 2 (Polity). Way Forward Legal experts suggest that a comprehensive review of ARC‑bank transactions is needed to prevent misuse of public funds. Possible steps include: Amending the ARC framework to mandate stricter due‑diligence and transparent pricing. Strengthening the role of the RBI in monitoring distressed‑loan sales. Creating an inter‑agency task force (including ED , SFIO , and CBI ) to investigate similar cases. Ensuring that any loss of public money is promptly classified as fraud, enabling faster recovery actions. Until such reforms are enacted, the Court’s observation serves as a warning that the judiciary will intervene when public money is at risk, reinforcing the principle of accountability in the banking sector.