BREAKING | Yes Bank AT-1 Bond Write-Off: Supreme Court Refuses To Interfere With Bombay High Court Order Quashing It

The Supreme Court on Thursday refused to interfere with the Bombay High Court's order quashing Yes Bank's decision to write off Additional Tier 1 (AT-1) bonds worth ₹8,415 crore in March 2020, leaving the High Court's ruling in favour of the bondholders undisturbed.

A Division Bench of Justices Dipankar Datta and A.G. Masih pronounced the judgment in appeals challenging the Bombay High Court's order quashing the write-off of the bonds and the communication issued by Yes Bank's Administrator on March 14, 2020.

“We have decided on merits, and our answers to both the questions are in the negative. Therefore, for the reasons assigned in our judgment, we have held that we see no reason to interfere with the impugned judgment. The appeals are dismissed.”

The Court identified three issues for consideration, including whether subsequent developments following the write-off made a decision on merits unwarranted, whether the Administrator could write off the AT-1 bonds in the absence of a specific provision in the reconstruction scheme, and whether the write-off complied with the applicable RBI Master Circular and the terms of the information memorandum governing the bonds.

The Court stated:

“The first [issue is], whether, in view of developments subsequent to the writing down of the AT-1 bonds, a decision on merits is unwarranted. Secondly, whether the Administrator could write down the AT-1 bonds, in the absence of a specific provision in the reconstruction scheme, and thirdly, whether the act of the Administrator in writing down the AT-1 bonds was in consonance with the Master Circular and the terms of the information memorandum of the AT-1 bonds.”

The Bench said it had decided the matter on merits instead of taking a shortcut and concluded that there was no reason to interfere with the High Court's judgment.

The case concerns the write off of Yes Bank's Additional Tier 1 (AT-1) bonds worth ₹8,415 crore in March 2020, which left bondholders facing the loss of their investments. Axis Trustee Services Limited, acting on behalf of debenture holders and other bondholders challenged the decision before the Bombay High Court, seeking to quash the write off and restore the corresponding entries in the depositories' records.

The dispute arose after the Reserve Bank of India initiated Yes Bank's reconstruction under Section 45 of the Banking Regulation Act, 1949. While the draft reconstruction scheme contained a provision for writing off AT-1 bonds, that provision was omitted from the final scheme notified on March 13, 2020. Nevertheless, Yes Bank's Administrator communicated the decision to write off the bonds to the stock exchanges on March 14, 2020.

Before the High Court, The petitioners argued that the Administrator lacked the authority to write off the bonds after the reconstruction scheme had come into effect. They contended that the decision violated the statutory framework and the applicable RBI Master Circular. Yes Bank and the RBI maintained that the bonds' contractual terms and the applicable loss-absorption provisions permitted the write-off following the bank's reconstruction.

The Bombay High Court quashed the March 14, 2020 communication and the decision to write off the AT-1 bonds. It held that the final reconstruction scheme had come into force on March 13, 2020, without providing for the write off and that the Administrator could not exercise the power after the bank's reconstruction. The Court clarified that its judgment would not prevent the respondents from taking any further action permissible under law.

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