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In an interim relief to YES Bank, the Supreme Court on Friday extended the stay on the Bombay High Court’s January 2023 order ruling against the decision of the administrator of the private sector lender to write off the bank’s additional tier-I (AT-1) bonds in March 2020.
The apex court will next hear the case on March 28.
Observing that writing of the bonds entirely was an “extreme step”, the SC asked the Reserve Bank of India and YES Bank to explain the legal provisions that empower them to allow such a complete write-off of the AT-1 bonds.
It added that the petitioners must ensure that small bondholders don’t suffer and asked them to furnish a database of the investors, in term of the different classes of bondholders and their exposure to the bonds.
At the hearing, Chief Justice DY Chandrachud said the SC may choose to invoke its inherent power under a component of Article 142 to protect the individual bondholders that have been duped. This protection will be devised after going through the database of the bond holdings, said Srijan Sinha, Partner at Edictum Law & Co.
Sinha, who is representing ‘YES Bank AT1 Bondholders’ Association’ said the major argument by the petitioners was that the write-off had to be done before the Reconstruction Scheme and thus was done as per the provisions of the RBI master circular allowing for the same.
RBI and YES Bank had submitted that the bond write-off was essential to the YES Bank Reconstruction Scheme, 2020 under which a consortium of 10 institutions led by State Bank of India had invested ₹10,000 crore of public money into the bank.
They further argued that the bonds were high-interest-bearing, high-risk instruments, and the subscribers were the “creamy layer” of “rich people” or investors who understood the risks the bonds posed. Rolling back the write-off will make the bank unviable and put depositor money at risk, they said.
The SC issued notices to the the debenture trustee Axis Trustee Services against the appeals filed by RBI and YES Bank, extending the six-week stay on the Bombay HC court order which had called the action “illegal” given that the Final Reconstruction Scheme did not provide for any such write-off.
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