In relief for investors, Bombay HC quashes write-off of Yes Bank AT1 bonds worth Rs 8,400 cr

Yes Bank, which was on the verge of collapse, was placed under moratorium by the RBI in 2020, with a new management and board appointed as part of the rescue plan.

A division bench of Acting Chief Justice Sanjay V Gangapurwala and Justice Shriram M Modak passed the order while hearing a batch of pleas by Axis Trustee Services and retail individual investors challenging the write-down order issued by an RBI-appointed administrator.

Axis Trustee Services Ltd, a debenture trustee, had approached the High Court on behalf of bondholders in March 2020 over the move to entirely write down the AT1 bonds. A debenture trustee serves as a liaison between a company that issues debentures and debenture holders.

Additional Tier-1 bonds are lower in priority to all other debt including secured creditors but are rated higher than common equity.

The bondholders in this case comprise asset managers, finance companies, pension funds and retail investors.

Senior advocate Janak Dwarkadas, appearing for the trustee, had submitted that writing down of bonds would lead to the reduction of the bank’s liability. He had argued that the complete writing down of AT1 bonds would only be possible when Yes Bank goes into liquidation.

After putting Yes Bank under moratorium, the RBI had asked depositors and creditors to share their views on the draft reconstruction scheme. The petitioner said that the three-day period given for this was short for bondholders to be represented.

“Yes Bank stood reconstituted on March 13, 2020 upon the Notification of the final Yes Bank Ltd. Reconstruction Scheme, 2020. After the bank was reconstituted, the Administrator could not have taken such a policy decision of writing off the debentures,” the bench observed.

It noted that even the final scheme sanctioned by the Central government did not contain the provision for writing down AT-1 bonds. “The impugned letter dated March 14, 2020 and decision to write off Additional Tier 1 (AT 1) bonds deserve to be set aside and is hereby quashed and set aside.”