Supreme Court: Yes Bank’s AT-1 bond write-off case with separate bench
New Delhi| The Supreme Court referred petitions by the Reserve Bank of India and others on AT-1 bonds (additional tier-1 bonds) to a second bench. The petition challenged the Bombay High Court order quashing the decision by the administrator of Yes Bank to put Rs 8,415 crore of bonds in the discount account under the bailout.
Additional Tier 1 (AT-1) are permanent bonds issued by banks to increase their capital base. These are more risky than traditional bonds with higher interest rates. If the bank is in trouble then RBI can ask the bank to cancel them. A bench of Chief Justice Sanjiv Khanna, Justice Sanjay Kumar and Justice KV Vishwanathan said it would not hear the four petitions filed against the High Court judgment. Without giving any reason, the Chief Justice said that these petitions will now be heard by a bench headed by Justice AS Oka after a week. A bench headed by then CJI DY Chandrachud (now retired) had on March 3, 2023, issued notice to Axis Trustee Services Limited on four petitions filed by RBI and others against the High Court’s decision with Aarey.
The top court had also extended the stay on the entry into force of the High Court order that quashed the Yes Bank administrator’s decision to write off AT-1 bonds worth Rs 8,415 crore as part of the bailout in March 2020. The cases were not listed for hearing before the bench after the first hearing on March 3, 2023. The decision to write off Yes Bank’s March 14, 2020 bonds was set aside by the High Court on January 20, 2023, stating that the administrator did not have the authority to make such a decision.
However, the top court had assured AT-1 bond investors that it would try to find some solution to the financial trouble they were facing. Earlier, senior advocate Mukul Rohatgi, appearing for Axis Trustee Services Limited, had said that the amount invested has become “zero” through no fault of his.
Rohatgi had said, “It was the top officials of the bank who drowned the bank…Our money went to zero…We are not Tata-Birla. We are institutional investors. Some people invested their hard-earned money. What did we do wrong? Why we should suffer.”
Solicitor General Tushar Mehta, appearing for RBI, and senior advocate Kapil Sibal, appearing for Yes Bank, had said that PSU banks agreed to the bailout and poured money into Yes Bank after the decision to write off AT-1 bonds was made. Yes Bank had said that these were non-convertible, perpetual bonds that were receiving high interest at 9.5 percent and could be written off to save the bank. The top court had said that it could use its extraordinary power under Article 142 of the Constitution to find some solution for bond holders.
However, the High Court, while setting aside the decision of the Yes Bank administrator, had said that its decision will remain postponed, hence the central bank and Yes Bank can appeal against it in the apex court. The High Court had said in its judgment that Yes Bank’s final reconstruction plan issued by the Reserve Bank of India does not include the closure of AT-1 bonds. “The final plan approved by the central government did not contain any clause or provision for writing off AT-1 bonds”, the ruling said.
The High Court had further held that when the RBI had prepared the draft plan for restructuring the bank, it had invited suggestions and objections and it appeared that the petitioners had objected to the write-off of AT-1 bonds and even suggested converting them into shares However, the High Court had stayed its order for a period of six weeks.
The petitions filed before the High Court sought directions against National Securities Depositories Limited and Central Depository Services to take steps to reverse the effect of any accounting, entries, noting, writing off, revocation or any such steps taken in pursuance of the contested decision to write off the bonds.
