The Supreme Court on Friday agreed to examine a public interest litigation (PIL) seeking a court-monitored investigation into an alleged banking fraud involving more than ₹1,500 crore of public-sector bank funds, and the role of asset reconstruction companies (ARCs) in settling the debt at a fraction of the outstanding amount.
A bench comprising Chief Justice of India Surya Kant and Justice N Kotiswar Singh issued notice on the petition and directed that the matter be listed after four weeks.
The PIL, filed through advocate-on-record Ashwani Kumar Dubey, raises questions about loans extended to JKM Infra Projects Ltd and the subsequent assignment and settlement of those debts, which allegedly resulted in substantial losses for public-sector banks.
According to the petition, liabilities owed by the company, including accrued dues, had risen to ₹1,537.59 crore but were ultimately settled for only ₹73.50 crore through transactions involving Prudent ARC Ltd and Phoenix ARC Pvt Ltd. The petitioner contends that the settlement effectively resulted in the loss of more than 95% of public funds involved in the exposure.
Allegations of Large-Scale Loan Diversion
The plea states that JKM Infra Projects, a Noida-based infrastructure company controlled by the Jalan family, obtained loans aggregating approximately ₹912 crore from a consortium of public-sector banks led by State Bank of India (SBI) between 2012 and 2015.
According to the petition, the loans were sanctioned against collateral valued at only ₹60 crore to ₹72 crore, and the company allegedly began defaulting soon after receiving the funds.
The petitioner has relied on a forensic audit conducted by Ernst & Young (EY), submitted on 23 May 2018, which allegedly found that more than ₹902 crore had been diverted through shell companies, struck-off entities, non-existent vendors and other entities involved in suspicious transactions.
The plea further alleges that forged documents, fabricated invoices and undisclosed bank accounts were used to facilitate the diversion of funds.
Citing the forensic audit findings, the petition argues that the account met the criteria for classification as fraud under Reserve Bank of India (RBI) master directions. Despite this, the account was allegedly never classified as fraudulent, nor were effective recovery measures initiated.
Questions over Banks' Response
The PIL contends that despite the forensic audit findings, the lending consortium failed to initiate criminal proceedings, refer the matter to enforcement agencies or classify the account as fraud in accordance with RBI norms.
According to the petition, SBI subsequently assigned the debt to Prudent ARC in 2020 at a substantial discount. The debt was later transferred to Phoenix ARC in 2025.
The petitioner alleges that Phoenix ARC entered into a settlement agreement on 31 October 2025, accepting ₹73.50 crore against total outstanding dues exceeding ₹1,537 crore.
The plea further claims that throughout the process, no assets were attached, no bank accounts were frozen and no coordinated investigation was undertaken by the relevant authorities.
FIRs and Court Proceedings
The petition refers to two criminal cases registered in connection with the matter—FIR No. 53/2021 lodged by the Economic Offences Wing (EOW), Delhi, and FIR No. 43/2026 registered at Phase-1 Police Station in Gautam Budh Nagar, Uttar Pradesh.
According to the petitioner, a closure report submitted in the EOW case was rejected by a competent court in January 2026. The court reportedly directed investigators to conduct a further inquiry into the findings of the forensic audit.
The PIL also states that representations highlighting the alleged fraud were submitted to the Directorate of Enforcement (ED), RBI, the income-tax department and the Union ministry of corporate affairs (MCA), but no effective action has yet been taken.
Concerns Over Asset Reconstruction Company Transactions
The petition argues that the JKM Infra matter reflects broader concerns highlighted in a Central Board of Direct Taxes (CBDT) press release issued in December 2021.
According to the plea, certain ARCs have allegedly acquired non-performing assets (NPAs) using funds linked to borrower groups and subsequently settled debts at steep discounts, resulting in significant losses for lending institutions.
The petitioner has sought:
• A comprehensive investigation by the ED under the Prevention of Money Laundering Act (PMLA).
• A probe by the Serious Fraud Investigation Office (SFIO) into the affairs of JKM Infra and related entities.
• Regulatory scrutiny by RBI into the conduct of banks and ARCs involved in the transactions.
• Measures to prevent defaulting promoters from regaining control of stressed assets through indirect settlement mechanisms.
• Accountability for the alleged diversion and erosion of public funds.
Supreme Court To Examine Allegations
While issuing notice, the Supreme Court has not expressed any opinion on the merits of the allegations. However, its decision to hear the matter places renewed focus on the functioning of the banking system, the effectiveness of fraud-detection mechanisms and the role of ARCs in resolving distressed assets.
The case is likely to be closely watched by banking regulators, lenders and market participants, particularly given the allegations of large-scale loan diversion, steep debt write-downs and potential losses to public-sector banks.
The matter is scheduled to come up for further hearing after four weeks.
