Centre moves SC in Yes Bank AT-1 bonds case Apextalk

On 20 January, the Bombay High Court directed the lender to pay the bondholders but gave it six weeks to file an appeal. On 13 February, the Reserve Bank of India and Yes Bank had moved the apex court challenging the order.

The HC set aside an order by Yes Bank’s administrator to write down the bonds, saying that he had exceeded his powers in doing so, as the decision was taken after the final reconstitution scheme was notified on 13 March 2020.

The SC has extended the stay on the high court order and has sought response from the finance ministry, Securities and Exchange Board of India, RBI, stock exchanges and others on the appeals filed by RBI and Yes Bank against the high court order.

The apex court observed that small bondholders must not suffer and asked Yes Bank and RBI to explain which legal provisions empower them to issue a complete write-off.

“It is an admitted position that in terms of Para 2.15 of the RBI Master Circular, the AT-1 bonds have to be written down after the ‘decision to reconstitute’ is taken by the relevant authorities. This is ‘before the reconstruction’ of Yes Bank. Therefore, the decision to write down the AT1 bonds was taken after RBI and the government notified the reconstruction scheme,” said a legal expert seeking anonymity.

Senior counsel Kapil Sibal and solicitor general Tushar Mehta appearing for Yes Bank and RBI, respectively, argued that a write-off is essential for the reconstruction and, if not allowed, may lead to Yes Bank becoming unviable again.

They argued that State Bank of India and seven other banks invested public money in Yes Bank based on the write-offs, and the administrator had the power to fully write down AT-1 bonds. Further, RBI submitted the bonds were high-interest-bearing and high-risk instruments, and the subscribers were “rich people” who understood the risks. It also said the high court had erred in acknowledging the correct date of reconstruction of the bank.

“The SC bench seemed in favour of retail bondholders during the first hearing. It prompted the court to direct Yes Bank to break up different bondholder classes based on their exposure to the bonds. So the government’s plea will offer more teeth to the arguments raised by Yes Bank and RBI,” another legal expert said requesting anonymity.