Case at a glance: The Supreme Court has upheld the Bombay High Court's quashing of the March 2020 write-down of Yes Bank's Additional Tier-1 bonds. It held that the Administrator had no power to write down the bonds when the final reconstruction scheme had dropped that clause, that the trigger under the RBI's Basel III Master Circular belonged to the RBI, and that investors should not bear the cost of administrative lapses.
Yes Bank issued AT-1 bonds of Rs 3,000 crore in 2016 and Rs 5,415 crore in 2017. In March 2020 it was placed under moratorium and the RBI appointed an Administrator. The draft reconstruction scheme provided for permanent write-down of the AT-1 bonds, but the final scheme of 13 March 2020 omitted that clause. On 14 March 2020, the Administrator wrote the bonds down anyway.
The Bombay High Court quashed the write-down, and Yes Bank, the RBI and the Union appealed.
The Key Question Before the Court
Did the Administrator have the power to write down AT-1 bonds when the final reconstruction scheme did not provide for it?
No Implied Power Through a Savings Clause
The Court held that the action must be tested as it stood on 14 March 2020, so later events did not make the case moot. The Administrator could not act against the scheme: “A power not specifically conferred cannot be implicitly vested through a general, omnibus savings clause.” Under the Basel III Master Circular, the trigger for a pre-reconstitution write-down belonged to the RBI, not the Administrator.
The Court called the RBI a “mere bystander” while Yes Bank carried on business clandestinely, said investors should not bear the cost of administrative lapses, and observed that selling AT-1 bonds to individual investors breached the Master Circular. It relied on Yash Deep Trexim and Nawabkhan Abbaskhan.
What the Court Actually Held
- Appeals dismissed; interim orders vacated.
- Annual coupon payments unaffected and governed by the Information Memoranda.
- No costs; observations do not affect pending proceedings.
Why This Judgment Matters
- It is a major ruling for bondholders and the bank-resolution framework.
- It limits implied powers of administrators.
- It scrutinises the regulator's oversight role.
What Should Advocates Take Away From the Judgment?
For Investors' Counsel
- Rely on the scheme's actual terms and the Master Circular's allocation of powers.
For Banks and Regulators
- Ensure write-down triggers are exercised by the competent authority and reflected in the final scheme.
Key Takeaways
- The write-down was invalid.
- Powers cannot be implied from savings clauses.
- The trigger belonged to the RBI.
- Investors protected from administrative lapses.
Frequently Asked Questions
Additional Tier-1 bonds are perpetual bonds that count as bank capital and can be written down in defined circumstances.
The final scheme dropped the write-down clause, and the Administrator had no independent power.
It described the RBI as a “mere bystander” while Yes Bank operated clandestinely.
Conclusion
The judgment is a landmark for investor protection in bank resolutions.
Practical takeaway: In resolution disputes, test every action against the final scheme and the specific statutory or regulatory power relied on.