A public interest litigation (PIL) has been filed before the Supreme Court of India seeking an urgent, court-monitored multi-agency investigation into an alleged ₹1,537-crore banking fraud. The petition accuses a State Bank of India (SBI)-led consortium of public sector banks and two prominent Asset Reconstruction Companies (ARCs) of manipulating distress-debt resolution frameworks to absolve a Noida-based infrastructure firm, resulting in a staggering 95% capital loss to the public exchequer.
The case has triggered intense scrutiny over how toxic corporate loans are audited, declared fraudulent, and liquidated within India’s financial system.
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The Disproportionate Consortium Lending Cycle
The petition, filed by three advocates through Advocate-on-Record Ashwani Kumar Dubey, traces the roots of the financial compromise back to a seven-bank public sector consortium led by the State Bank of India. Between 2012 and 2015, the consortium—which included Canara Bank, Union Bank of India, Bank of India, State Bank of Hyderabad, State Bank of Patiala, and Standard Chartered Bank—sanctioned extensive credit lines totaling approximately ₹912 crore to JKM Infra Projects Limited.
According to court documents, these massive corporate loans were cleared against primary and collateral security valued at a mere ₹60 crore to ₹72 crore. This severe asset-to-liability mismatch has led petitioners to allege deliberate banking negligence and systemic collusion during the initial risk-assessment and onboarding loops. Within less than a year of receiving the capital, JKM Infra systematically defaulted on its repayment schedules.
The Buried Ernst & Young Forensic Audit
As the loan accounts deteriorated into Non-Performing Assets (NPAs), a formal forensic audit was commissioned and executed by global financial consultancy Ernst & Young (EY) in 2018. The subsequent audit report documented structural corporate manipulation, establishing that JKM Infra had illegally diverted over ₹902 crore of public funds. The siphoning matrix involved generating fake invoices, recording revenue discrepancies, routing transactions through undisclosed bank accounts, and transferring capital to non-existent vendors, shell companies, and commercially “struck-off” entities.
The PIL highlights a critical regulatory lapse following the audit:
“The EY report itself stated that the audit findings met every single criterion for the classification of the corporate account as ‘fraud’ under the Reserve Bank of India (RBI) Master Directions. Despite this definitive trigger, the State Bank of India, acting as the lead consortium bank, failed to classify the account as a fraud. Instead, the lenders buried the forensic report and appointed a secondary auditor to dilute the severe investigative findings.”
The Double-ARC Distressed Asset Pipeline
Rather than initiating immediate criminal prosecution or referring the matter to federal anti-fraud cells, the SBI-led consortium moved to offload the bad debt. The loan profile was auctioned under the SARFAESI Act, 2002 framework to a sole bidder, Prudent ARC Ltd, at a steep 75% discount. Once Prudent ARC assumed control of the toxic debt ledger, it accepted a highly discounted settlement proposal directly from the defaulting borrower.
The debt was subsequently transferred to a second asset management entity, Phoenix ARC Ltd, in 2025. The transaction loop concluded with Phoenix ARC finalizing a definitive debt settlement resolution. The PIL reveals that the entire ₹1,537-crore accumulated public debt (comprising the principal loan and accrued interest penalties) was legally extinguished in exchange for a mere ₹73.50 crore cash payment. The petitioners argue that this structural laundering under the guise of an “asset cleanup” forced public sector banks to absorb a net financial loss exceeding 95% of the total public money.
Demands for a Joint Commission Injunction
The Supreme Court petition raises fundamental questions regarding whether the ARC framework under the SARFAESI Act is being systematically exploited by large corporate defaulters to buy back their own distressed debt at a fraction of its value through complicit intermediaries. While independent First Information Reports (FIRs) tied to aspects of the dispute have already been registered by the Economic Offences Wing (EOW) in Delhi and Gautam Budh Nagar, the PIL contends that central agencies have failed to launch a unified counter-offensive.
The petitioners have asked the apex court to direct the central government to immediately constitute a high-level Judicial Commission or an Expert Committee. This proposed body would include senior officers from the RBI, the Securities and Exchange Board of India (SEBI), the Serious Fraud Investigation Office (SFIO), the Enforcement Directorate (ED), and the Central Bureau of Investigation (CBI) to investigate the full scope of the banking fraud. Alternatively, the plea seeks the immediate cancellation of corporate operating licenses and the attachment of all personal estates belonging to the promoters and directors of the implicated entities.
