Supreme Court upholds Bombay HC order quashing Yes Bank’s ₹8,415 cr AT-1 bond write-off
In a setback to private lender Yes Bank, the Supreme Court on Thursday upheld the Bombay High Court’s judgment quashing the bank’s ₹8,415 crore AT-1 bond write-off.
A bench of Justices Dipankar Datta and Augustine George Masih said there was no reason to interfere with the Bombay High Court’s judgment, which had ruled in favour of bondholders.
“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 bench said.
The court said it examined whether Yes Bank’s administrator could write off the bonds without a specific provision in the reconstruction scheme and whether the decision complied with the Reserve Bank of India’s (RBI) master circular and the terms of the bonds.
The bench also clarified that annual coupon payments on the bonds would remain unaffected by the outcome of the appeals and must be made in accordance with the information memorandum.
“Payment of annual coupon rate shall remain unaffected by the outcome of these appeals and must be made in terms of the Information Memorandum,” the bench said.
The full written judgment was awaited till press time to assess the ruling’s wider implications for banks and the use of AT-1 bonds in future bank rescue plans.
Queries emailed to Yes Bank remained unanswered till press time.
The court had reserved judgment on 20 May, following submissions from the Centre, the Reserve Bank of India (RBI), Yes Bank, bondholders represented by Axis Trustee Services and other investors.
Before reserving judgment, the bench had sought Cabinet records connected with the reconstruction process, including resolutions, meeting minutes and related documents. It had also sought details of the rules governing the relevant Cabinet meeting, quorum requirements and the names of members present when the decision was taken.
On Thursday, Yes Bank shares hit the day’s low, falling 10% to ₹19.08 even as the broader market was up 1.5%.
The dispute centres on whether Yes Bank’s administrator had the legal authority to cancel the bonds as part of the bank’s reconstruction plan, leaving investors with losses on their investments.
Additional Tier-1 (AT-1) bonds are financial instruments banks use to raise capital and strengthen their balance sheets. Introduced under global banking reforms following the 2008 financial crisis, they have no fixed maturity date. Investors generally receive interest, but the bonds carry higher risks than ordinary debt instruments. Under specified conditions, they can be written off or converted into shares to absorb losses when a bank faces financial distress.
Solicitor General Tushar Mehta, representing the Centre, the finance ministry, the RBI and Yes Bank, had earlier argued that the write-off was necessary to rebuild the bank’s capital and support its rescue. He said around ₹1.81 trillion worth of AT-1 bonds remained outstanding across Indian banks and warned that weakening their loss-absorption feature could have “serious, cascading and irreparable” consequences for the banking system.
Mehta also argued that AT-1 bonds, introduced under Basel III banking norms, are designed to absorb losses during financial stress.
In response, the legal team representing Axis Trustee Services and other bondholders argued that Yes Bank’s administrator acted unilaterally and exceeded his authority by writing off ₹8,415 crore worth of AT-1 bonds. The team contended that the administrator had to follow due process and the applicable reconstruction scheme, accusing the authorities of acting “as monarchs”.
Yes Bank’s crisis intensified between 2018 and early 2020 amid rising bad loans, governance concerns and severe liquidity pressures. In March 2020, the RBI imposed a moratorium on the bank and initiated a rescue plan led by State Bank of India and other lenders.
As part of the reconstruction exercise, ₹8,415 crore worth of AT-1 bonds were written off on 14 March 2020. Bondholders challenged the decision before the Bombay High Court, which quashed the write-off in January 2023. Yes Bank and the RBI subsequently appealed to the Supreme Court.
Krishna Yadav is a Senior Correspondent at Mint, based in New Delhi, and part of the corporate bureau. He joined the newsroom as a trainee in 2023 and quickly grew into his current role. He writes on legal and regulatory developments in corporate India, with a focus on insolvency, taxation, company law, and policy. His reporting includes tracking and breaking key legal stories from the Supreme Court, Delhi High Court, NCLT, and NCLAT.<br><br>With a background in law, Krishna is known for simplifying complex legal developments into clear, accessible stories for readers. His work focuses on trends in corporate law and policy that affect businesses. This ranges from explaining tax disputes—like whether coconut hair oil is edible—to writing on why celebrities are seeking personal rights protection. He closely tracks India’s insolvency system, covering issues such as creditor losses, gaps in the process, and challenges in how the framework works in practice.<br><br>Krishna also tracks developments within law firms—covering hiring trends, how firms help companies navigate global challenges, and how the legal industry is adapting to artificial intelligence. Beyond legal reporting, he has written long-form pieces, including on-ground coverage of the 2024 general elections, capturing the scale and logistics of polling across India.<br><br>Outside work, he enjoys travelling, exploring new places, and reading about geopolitics and history.
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