Supreme Court affirms Bombay High Court order voiding Yes Bank's ₹8,415-crore AT1 bond write-off

Key facts

• The Supreme Court upheld the Bombay High Court's January 20, 2023 judgment setting aside Yes Bank's ₹8,415-crore Additional Tier 1 (AT1) bond write-off announced on March 14, 2020, dismissing appeals by Yes Bank, the Reserve Bank of India (RBI) and the Union government.
• A Bench of Justices Dipankar Datta and Augustine George Masih ruled that the bank's administrator lacked legal authority to write down the AT1 bonds after the final reconstruction scheme took effect on March 13, 2020, as the write-down provision had been removed from the approved scheme.
• The court held that AT1 bonds had to be written down or converted before the reconstruction scheme commenced, not after, and that annual coupon payments must continue per the relevant information memoranda.
• The dispute began after the RBI placed Yes Bank under a moratorium on March 5, 2020, and framed a reconstruction scheme under the Banking Regulation Act, 1949; the write-off was challenged by Axis Trustee Services Limited and other bondholders.
• The Supreme Court observed that Yes Bank had sold high-risk AT1 bonds to individual investors despite RBI rules restricting their distribution to specified investor categories.
• AT1 bonds are perpetual debt instruments issued by banks to strengthen core capital and absorb losses during financial distress.