SC Upholds Verdict Against Yes Bank’s ₹8,415-Crore Bond Write-Off, Flags Serious Lapses

The Supreme Court on Thursday upheld a judgment quashing Yes Bank’s ₹8,415-crore write-off of AT-1 bonds, a controversial decision taken during the bank’s 2020 financial crisis that wiped out investors’ holdings. The court questioned how the bank and its regulators handled the matter, ruling that the administrator lacked the legal authority to cancel the bonds under the approved rescue scheme.

The dispute arose in March 2020, when Yes Bank faced a severe financial crisis. The Centre imposed a moratorium on March 5, restricting the bank’s operations as authorities moved to address its deteriorating financial position. On March 14, the bank’s administrator wrote off its Additional Tier 1 (AT-1) bonds worth ₹8,415 crore, effectively wiping out the investments held by bondholders.

AT-1 bonds are special financial instruments banks issue to raise capital. They typically offer higher returns than conventional bonds but carry greater risks, including the possibility of losing the entire investment when a bank runs into serious trouble.

However, investors challenged the write-off, arguing that the approved reconstruction scheme did not authorise the administrator to cancel their holdings. The Bombay High Court agreed, quashing the decision on January 20, 2023, after finding that the final scheme approved by the Centre contained no provision permitting the write-off.

On Thursday, a Supreme Court bench comprising Justices Dipankar Datta and Augustine George Masih dismissed appeals against that judgment.

The apex court also questioned the roles of the Reserve Bank of India (RBI), Yes Bank and its administrator, noting that the bank’s capital ratio had fallen to just 0.6 per cent. It said investors should not be made to bear the consequences of administrative lapses when the authorities could have acted within the prescribed rules.

The ruling upholds the decision to quash the write-off; it does not automatically mean investors have received their money back.