Supreme Court refers to another bench pleas of RBI, others related to writing off AT-1 bonds of Yes Bank

New Delhi: The Supreme Court on Wednesday referred to another bench the pleas of the Reserve Bank of India and others challenging a Bombay High Court order that quashed a decision of the Yes Bank administrator to write off additional tier 1 bonds worth Rs 8,415 crore as part of a bailout.

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 Chief Justice Sanjiv Khanna and Justices Sanjay Kumar and KV Viswanathan said it will not hear the four pleas filed against the high court’s decision.

Without assigning any reason, the CJI said the pleas will now be heard by a bench headed by Justice A S Oka after a week.

A bench headed by the then CJI D Y Chandrachud (since retired), on March 3, 2023, had issued the notices to Axis Trustee Services Ltd on as many as four petitions filed by the RBI and others against the high court judgement.

The top court had also extended the stay on the operation of the high court order, quashing the decision of the Yes Bank administrator to write off AT-1 bond worth Rs 8,415 crore as part of the bailout in March 2020.

The cases were not listed for hearing before the bench after the first hearing on March 3, 2023.

The high court had on January 20, 2023 quashed the decision of the Yes Bank on March 14, 2020 to write off the bonds noting the administrator did not have the authority to take such a decision.

The top court, however, had assured the AT-1 bond investors that it would try to find out some kind of solution to the financial trouble being faced by them after senior advocate Mukul Rohatgi, appearing for Axis Trustee Services Ltd, said the invested money has become “zero” for no fault of theirs.

“It was the top officials of the bank who brought down the bank…Our money has become zero... we are not Tata-Birla. We are institutional investors. Some people invested their hard earned money. What wrong did we commit? Why should we suffer,” Rohatgi had said.

Solicitor General Tushar Mehta, appearing for the RBI, and senior advocate Kapil Sibal, representing the Yes Bank, had said the PSU banks agreed to bailout and infused money in Yes Bank after it was decided to write off AT-1 bonds.

The Yes Bank had said that these were non-convertible, perpetual bonds yielding high interest at the rate of 9.5 per cent and they can be written off to save the bank.

The top court had said it might use its extraordinary power under Article 142 of the Constitution to find some solution for the bond holders.

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/off 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.