Supreme Court upholds quashing of Yes Bank's ₹8,415 crore AT1 bond write-off

The Supreme Court on Thursday upheld the Bombay High Court's decision to quash Yes Bank's write-off of Additional Tier 1 (AT1) bonds worth ₹8,415 crore during the bank's restructuring in March 2020 [Yes Bank Vs Axis Trusteeship].

A Bench of Justices Dipankar Datta and Augustine George Masih dismissed appeals challenging the Bombay High Court's January 20, 2023 judgment, which had quashed the write-off.

"We see no reason to interfere with the impugned judgment," the Supreme Court said while pronouncing its verdict.

The Court identified three issues for consideration, including whether subsequent developments made a decision on merits unnecessary.

However, the Bench decided to examine the dispute on merits rather than dispose of the appeals on account of subsequent developments.

The remaining two questions concerned whether the administrator could write down the AT1 bonds without a specific provision in the reconstruction scheme and whether the decision complied with the Reserve Bank of India's Master Circular and the terms of the bonds' information memoranda.

The Supreme Court answered both questions in the negative.

The dispute arose after the Reserve Bank of India (RBI) placed Yes Bank under a moratorium on March 5, 2020, following deterioration in the bank's financial position.

The RBI subsequently formulated a reconstruction scheme under the Banking Regulation Act, 1949, providing for the restructuring of the bank and the induction of new investors.

On March 14, 2020, the bank's administrator informed stock exchanges that its outstanding AT1 bonds had been written down.

The decision was challenged by Axis Trustee Services Limited, which acted on behalf of debenture holders, along with individual bondholders and other investors.

The petitioners argued that the administrator had no authority to extinguish their investments after the reconstruction scheme came into force.

They pointed out that although the draft reconstruction scheme contained a provision for writing down AT1 bonds, this provision was deleted from the final scheme sanctioned by the Central government.

The Bombay High Court accepted this contention.

It held that Yes Bank stood reconstituted on March 13, 2020, when the final reconstruction scheme came into force.

Consequently, the administrator could not have taken a policy decision to write off the bonds on March 14.

The High Court also noted that neither the final reconstruction scheme nor the RBI had authorised the administrator to take such a decision.

It rejected objections to the maintainability of the writ petitions, holding that the terms governing the bonds had a statutory foundation because they were based on the RBI's Master Circular issued under its statutory powers.

Accordingly, the High Court quashed the March 14, 2020 decision, while clarifying that its judgment would not prevent the respondents from taking further action permissible under law.

Yes Bank and other parties subsequently approached the Supreme Court challenging the ruling.

The central question before the Supreme Court was whether the administrator had the legal authority to extinguish the AT1 bonds after Yes Bank's reconstruction, notwithstanding the omission of the write-off provision from the final scheme.

Yes Bank was represented by Senior Advocates Shyam Divan and Balbir Singh

RBI was represented by Solicitor General Tushar Mehta

Bond Holders were represented by Senior Advocates Senior Advocates Abhishek Manu Singhvi, Aryama Sundraram and Neeraj Kishan Kaul.