A bench comprising Justice Dipankar Datta and Justice Augustine George Masih said there was no reason to interfere with the Bombay High Court's judgment. "We are of the opinion that there is no ground to interfere with the judgment. All appeals are dismissed," the bench said.
The case concerns investors whose Additional Tier-1 (AT-1) bonds were completely written off during Yes Bank's restructuring in March 2020. The bondholders challenged the decision in court, arguing that the write-off was unlawful. In January 2023, the Bombay High Court quashed the bank's decision, providing relief to the bondholders. Yes Bank subsequently joined the Reserve Bank of India (RBI) and the central government in challenging the ruling before the Supreme Court.
The dispute centres on whether the complete write-off of the bonds was legally justified under the bank's restructuring framework and the applicable procedures.
Arguments Presented by Both Sides
Solicitor General Tushar Mehta, appearing on behalf of the central government, the Finance Ministry, the RBI and Yes Bank, argued that writing off the bonds was necessary to rebuild the bank's capital and save the institution. He told the court that approximately Rs 1.81 lakh crore worth of AT-1 bonds remained outstanding across Indian banks. He also argued that weakening the loss-absorbing capacity of such instruments could have wider implications for the banking system.
On the other side, Axis Trustee Services and other bondholders contended that the bank's administrator had acted unilaterally and exceeded his authority. The bondholders maintained that the write-off had not been carried out in accordance with the restructuring scheme or the prescribed legal procedure.
What Are AT-1 Bonds?
Additional Tier-1 (AT-1) bonds are a means through which banks raise capital. Their use is linked to banking reforms introduced after the global financial crisis and the Basel III regulatory framework, which aims to strengthen banks' capital positions.
These bonds do not have a fixed maturity period. Investors generally receive interest on them, but they carry higher risks than conventional bonds. If a bank faces severe financial distress or specified regulatory conditions are triggered, AT-1 bonds can be written off partially or completely or converted into equity shares.
In Yes Bank's case, the bonds were written off as part of the bank's restructuring process in 2020, triggering the legal dispute that has continued through the courts.
How the Yes Bank Crisis Led to the Bond Write-Off
Yes Bank's financial crisis deepened amid rising bad loans, governance-related concerns and severe liquidity pressure. In March 2020, the RBI imposed several restrictions on the bank. A restructuring process was subsequently initiated under the leadership of the State Bank of India (SBI).
As part of the restructuring, AT-1 bonds worth Rs 8,415 crore were written off on March 14, 2020. The decision prompted affected investors to approach the courts, challenging the legality of the move.
The Bombay High Court's January 2023 ruling overturned the write-off, after which Yes Bank, the RBI and the central government appealed to the Supreme Court. With the Supreme Court now dismissing all appeals and refusing to interfere with the High Court's judgment, the dispute over the Rs 8,415-crore AT-1 bond write-off has reached a significant legal turning point, while the ruling has also triggered a sharp reaction in Yes Bank's shares.
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