New Delhi, Oct 15 The Supreme Court on Thursday upheld an order of the Bombay High Court order which quashed a decision of the Yes Bank administrator to write off Additional Tier 1 bonds worth Rs 8,415 crore in March 2020.
Additional Tier 1 (AT-1) are perpetual bonds issued by banks to increase their capital base and they are riskier than traditional bonds having higher interest rates. The RBI can ask a bank to cancel them if the bank is in trouble.
A bench comprising Justices Dipankar Datta and Augustine George Masih dismissed appeals challenging the Bombay High Court’s January 20, 2023 judgment, which had quashed the write-off.
“We see no reason to interfere with the impugned judgment. The appeals are dismissed,” the bench said.
The top court said the triumvirate of the RBI, the Yes Bank administrator and the Yes Bank in conducting the entire affair of dealing with the bonds worth more than Rs 8,514 crore was questionable.
“Putting the investors to such uncalled-for risk could have well been avoided. The purpose of the AT-1 bonds is imperative: it acts as a safety barrier to the Bank from collapsing altogether. That purpose could have been served had the RBI and Yes Bank acted in accordance with the terms of the Master Circular.
“The RBI was a mere bystander, allowing the CET1 ratio of Yes Bank to drop to an astonishing low of 0.6 per cent while the business of Yes Bank was being carried out in a clandestine manner. It cannot be denied that material irregularities in functioning of Yes Bank were noticed much prior; criminal prosecution has also been initiated against the personnel of Yes Bank. However, to have the investors at the receiving end of the administrative lapses would be highly unfair,” the bench said.
The top court said the administrator had no authority to write off the bonds in the absence of a specific provision in the reconstruction scheme.
The high court had on January 20, 2023 quashed the decision of the Yes Bank taken on March 14, 2020 to write off the bonds, noting that the administrator did not have the authority to take such a decision.
The high court, while quashing the decision of the Yes Bank administrator had, however, said its decision will be in abeyance so the central bank and Yes Bank may appeal against it in the apex court.
The high court had in its judgment said the final reconstruction scheme of the Yes Bank issued by the Reserve Bank of India did not engulf within its fold writing down the AT-1 bonds.
“The final scheme sanctioned by the Central government did not contain the clause or provision for writing down AT-1 bonds,” it had said.
The high court had further held when the RBI prepared the draft scheme for reconstitution of the bank, it had invited suggestions and objections and it appears the petitioners had raised objection to the writing down of AT-1 bonds and even suggested their conversion into shares.
The high court had, however, stayed its order for a period of six weeks.
The petitions before the high court had also sought directions against National Securities Depositories Limited and Central Depository Services to take steps to reverse the effect of any accounting, entries, noting, write-offs, cancellations, or any such steps that may have been undertaken pursuant to the impugned decision to write off the bonds.
After the financial position of Yes Bank underwent a steep decline, on March 5, 2020, the Centre imposed a moratorium on it under section 45 of the Banking Regulation Act, 1949 till April, 3 2020.
On March 14, 2020, the administrator wrote down the AT-1 Bonds which was also communicated to the Bombay Stock Exchange and the National Stock Exchange.
This act of writing down of the AT-1 Bonds by the administrator was challenged in several writ petitions before the high court. While allowing the challenge, the high court set aside the administrator’s action.
(PTI News)
