Former State Bank of India (SBI) chairman Pratip Chaudhuri  was arrested from his home in Delhi on allegations that Garh Rajwada, a hotel project of the Godawan Group in Jaisalmer which was financed by the bank in 2007, was sold to Alchemist ARC below the market price. 

This is the first time that a chairman of India’s largest bank has been arrested in an alleged loan scam, prompting some senior bankers to come to the defense of Chaudhuri and SBI to say that no processes were violated in the asset sale.

SBI on Monday said that all due processes were followed by the bank in the sale of the asset to the ARC (asset reconstruction company). It also clarified that the asset was sold in 2014, while Chaudhuri retired from the bank in 2013.

Allegations against the former SBI chief include properties worth Rs 200 crore being undervalued and sold for Rs 25 crore after the bank seized them for defaulting on the loan. The Godawan group had taken a loan of Rs 24 crore from SBI in 2008 to construct a hotel. 

The borrowers alleged that Chaudhuri joined Alchemist ARC,   which took over the property after undervaluing it, as one of its directors. This led to the Godawan Group approaching the court. During the assessment of the sold properties in 2017 after Alchemist ARC took them over, it was revealed that the market price was Rs 160 crore and currently the properties are valued at Rs 200  crore, the Godawan Group alleged.

However, SBI said in clarification that the approvals for sale of the properties to the ARC were taken in January 2014 as recovery efforts failed. The assignment to the ARC was completed in March 2014. 

“It transpires now that the borrower had initially filed an FIR with the state police against the sale of asset to the ARC. Aggrieved against the negative closure report filed by police authorities, the borrower had filed a Protest petition before the Hon’ble CJM Court. Incidentally, SBI was not made a party to this case. All the directors of that ARC including Mr. Chaudhuri, who joined their board in October 2014, have been named in the said case. Incidentally, Mr. Chaudhuri retired from the bank’s service in September 2013.”

In a long statement, SBI further said that Garh Rajwada was a hotel project in Jaisalmer which was financed by the bank in 2007. The project remained incomplete for over three years and the key promoter passed away in April 2010. The account slipped into a non-performing asset (NPA) in June 2010 and various steps taken by the bank to complete the project did not yield results. Subsequently as part of the bank’s recovery efforts, the account dues were assigned to an ARC in March 2014. This sale to the ARC was done through a laid down process of the bank’s policy.

“We further understand that the borrower was subjected to IBC (Insolvency and Bankruptcy Code) process by the said ARC and the asset has been acquired by an NBFC (non-banking financial company) in December 2017, again through due process under the orders of NCLT, Delhi,” SBI added. 

SBI clarified that as it was not a party to this case, there was no occasion for its views being heard as part of these proceedings. “SBI would like to reiterate that all due process were followed while making the said sale to ARC. The bank has already offered its cooperation to the law enforcement and judicial authorities and will provide further information, if any that may be called for from their side”. 

Reacting to the news, former SBI chairman Rajnish Kumar said the arrest seems to be a motivated and high-handed action”. “This seems to be an error of judgment. There is a due process and set of rules laid out by the RBI for the sale of assets to ARCs. Where is the corruption here?”. 

Former SBI deputy managing director Sunil Srivastava said in a tweet: "Absolutely pathetic, is the system being gamed again by defaulters despite all efforts by Modi govt, time for overhaul of judicial processes to improve transparency and introduce accountability @PMOIndia."

He further questioned Chaudhuri's arrest stating "without notice and without summons, how can police from another state arrest someone in Delhi, where is the due process of law."