Expressing serious concern over the manner in which public sector bank loans are assigned to Asset Reconstruction Companies (ARCs), the Supreme Court has said that there is a deep-rooted nexus between borrowers, banks and ARCs.
A Bench led by Chief Justice of India Surya Kant said it was not acceptable that taxpayers’ money was being given as loans and then no effective efforts were taken to recover the amount.
The Bench — which also included Justice V Mohana — said it was only concerned about the misutilisation of public money which should have been spent for the welfare of people.
“There is a dire need to look into the conduct and affairs of these ARCs also, frankly. And creation of this ARC is an issue probably that is required to be revisited, particularly in the context of public money. We are only concerned about public money. If they are private lenders, we don’t want to go into those transactions,” the CJI said on Friday.
“But where taxpayers’ money (is involved)… public money, which should have been spent for the welfare of the people, if that has gone into private hands, misutilised, siphoned off and ultimately they have the last laugh… that is what we are bothered (about). ARCs are also hand in glove with banks. There is a very deep-rooted nexus between borrowers, ARC, and banks”, the CJI said.
The Bench issued notices to the Centre, the Reserve Bank of India and others asking them to respond to a petition which alleged that debts of Rs 1,537 crore owed to public sector banks were settled through two ARCs for a mere Rs 73.50 crore.
It also issued notices to State Bank of India, Canara Bank, Union Bank of India, the Securities and Exchange Board of India, the Serious Fraud Investigation Office and some ARCs and posted the matter for hearing after four weeks.
Noting that it was aware of its limitation in venturing into commercial wisdom of banks, the Bench said, “But 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 Bench said, while hearing a petition filed by one Prateeksha and two others seeking a probe into the alleged banking fraud in collusion with ARCs.
“We know our limitations to go into commercial wisdom of the banks, but if this is the commercial wisdom that you collect taxpayers’ money, public money, and you recklessly release it and give them a loan and then you don’t make any effort to recover it, or the security which you take is far less value and then ultimately you say that there is nothing that we can recover, this kind of conduct is not acceptable,” the Bench said.
“This is the most over-clever device adopted by these banks to sell the loan liabilities to the ARCs or something for peanuts. You take only 10 per cent, 15 per cent and then allow them to file, because they know very well what the assets are. 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 per cent, 20 per cent, that’s all,” the CJI noted.
On behalf of the petitioners, advocate Ashwini Upadhyay alleged that huge loan amounts were being transferred at discount, causing loss to the exchequer. “This is not a single case… It’s just a tip of the iceberg,” Upadhyay said.
The petitioners have sought 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), the ED and the CBI to investigate the corporate and banking fraud facilitated by the ARCs.
They alleged that a Noida-based infrastructure firm obtained a Rs 912 crore loan from a consortium of seven banks led by the State Bank of India during 2012-15. A forensic audit conducted in 2018 found evidence suggesting that more than Rs 902 crore had been diverted through shell companies, non-existent vendors, undisclosed bank accounts and suspected fraudulent transactions, the petitioners alleged.
