MUMBAI: Bombay High Court on Friday set aside the decision of Yes Bank Administrator writing off of the Additional Tier 1 Bonds worth Rs 8500 crores. This order was passed in a batch of petitions filed by financial institutions led by AxisTrustee Services Ltd as well as retail individual investors.
A bench of Acting Chief Justice S V Gangapurwala and S M Modak said “substratum of the challenge is the communication dated March 14, 2020 under which the Administrator of the Yes Bank Ltd., informed the (Bombay Stock Exchange) BSE Limited and National Stock exchange the decision of the writing off of the Additional Tier 1 Debenture bonds. The Trustee services, Yes Bank AT-1 Bondholders, other investors including Indiabulls Housing Finance sought quashing of the Administrator’s decision.
Petitioners also sought directions against the National Securities Depositories Limited and Central Depository Services to take such steps to reverse the effect of any accounting, entries, noting, write-offs, cancellations etc.
The HC held that Yes Bank in contravention to the master circular on Basel-III capital regulations issued 84,150 perpetual subordinated unsecured non-convertible AT1 bonds to the ineligible investors. This amounts to an untenable sale of AT1 Bonds.
Yes Bank’s letter writing off AT1 bonds was dated 14.03.2020, which was after the Central Government had already allowed the bondholding to continue. Court held that to be illegal saying the Yes Bank stood reconstituted on March 13, 2020 said the HC adding that “after the Bank was reconstituted, the Administrator could not have taken such a policy decision of writing off the debentures’’.
The HC said the “March 14, 2020 letter and decision to write of AT-1 bonds deserves to be set aside.’’
On a plea by the Bank to stay its order by 8 weeks, which was opposed by petitioners’ counsel, the HC stayed the order for six weeks. The HC said at the end of six weeks “the protection granted shall come to an end.’’
Due to a catena of reasons, the financial position of the Yes bank was increasingly precarious. Yes Bank witnessed a steady deterioration in its capital adequacy and asset quality. The RBI then said in absence of a credible revival plan, in the public interest of Bank’s depositors, sought a moratorium on Yes Bank and on March 5, 2020 the Centre imposed such a moratorium.
The HC in its Judgment said “The question would be whether the Administrator would be competent to write off the AT-1 bonds on March 14, 2020 i.e. the day after the final Yes Bank Reconstruction Scheme 2020 was notified on March 13, 2020.’’
The bench had reserved the matter for order on October 20, 2022, after hearing a host of senior counsel for petitioners including Zal Andhyarujina, Vikram Nankani, Sharan Jagtiani, Srijan Sinha, Janak Dwarkadas, Aspi Chinoy (for Yes Bank) and Ravi Kadam for Reserve Bank of India.
The write down of AT-1 bonds has affected the legal rights of a class of citizens and thus is amenable to writ jurisdiction, argued a party in person.
The Administrator and the Yes Bank contended it was fully entitled to write down the AT-1 bonds and “decision to write down was a commercial decision taken in exercise of and pursuant to contractual agreements and rights and powers contained therein.”
The HC said, “Yes Bank Ltd., is a banking company’’ and in 2016 to augment its Additional Tier 1 Capital, Yes Bank decided to issue certain Basel III Compliant Additional Tier 1 Capital Bonds in the form of nonconvertible debentures on a private placement basis via Debenture Trustee Agreement of December 22, 2016. Axis Bank was appointed as the Debenture Trustee, said its lawyer Vikram Trivedi of MKA and Co.
The same day Yes Bank floated an Information memorandum for the private placement of Basel III Compliant AT 1 Capital Bonds in the form of non-convertible debentures for an aggregate value of Rs. 2100 crore with a greenshoe option of an additional Rs. 1500 Crore in case of over subscription. In October 2017, the bank floated additional AT-1 capital bonds worth Rs 3000 crore.
Pursuant to the moratorium on Yes Bank, RBI issued Draft reconstruction scheme dated 06.03.2020 wherein it specifically proposed writing down of those AT1 bonds. However, the final scheme passed by Central Govt deleted that clause reinstating the bond holding. The High court held that the Final Scheme shall prevail and therefore the write off is not sustainable.
“Individual bond holders, most of whom were senior citizens, can finally find some justice through this judgment of the Bombay High Court,’’ said Sinha who represented individual bond holders, later.
A bench of Acting Chief Justice S V Gangapurwala and S M Modak said “substratum of the challenge is the communication dated March 14, 2020 under which the Administrator of the Yes Bank Ltd., informed the (Bombay Stock Exchange) BSE Limited and National Stock exchange the decision of the writing off of the Additional Tier 1 Debenture bonds. The Trustee services, Yes Bank AT-1 Bondholders, other investors including Indiabulls Housing Finance sought quashing of the Administrator’s decision.
Petitioners also sought directions against the National Securities Depositories Limited and Central Depository Services to take such steps to reverse the effect of any accounting, entries, noting, write-offs, cancellations etc.
The HC held that Yes Bank in contravention to the master circular on Basel-III capital regulations issued 84,150 perpetual subordinated unsecured non-convertible AT1 bonds to the ineligible investors. This amounts to an untenable sale of AT1 Bonds.
Yes Bank’s letter writing off AT1 bonds was dated 14.03.2020, which was after the Central Government had already allowed the bondholding to continue. Court held that to be illegal saying the Yes Bank stood reconstituted on March 13, 2020 said the HC adding that “after the Bank was reconstituted, the Administrator could not have taken such a policy decision of writing off the debentures’’.
The HC said the “March 14, 2020 letter and decision to write of AT-1 bonds deserves to be set aside.’’
On a plea by the Bank to stay its order by 8 weeks, which was opposed by petitioners’ counsel, the HC stayed the order for six weeks. The HC said at the end of six weeks “the protection granted shall come to an end.’’
Due to a catena of reasons, the financial position of the Yes bank was increasingly precarious. Yes Bank witnessed a steady deterioration in its capital adequacy and asset quality. The RBI then said in absence of a credible revival plan, in the public interest of Bank’s depositors, sought a moratorium on Yes Bank and on March 5, 2020 the Centre imposed such a moratorium.
The HC in its Judgment said “The question would be whether the Administrator would be competent to write off the AT-1 bonds on March 14, 2020 i.e. the day after the final Yes Bank Reconstruction Scheme 2020 was notified on March 13, 2020.’’
The bench had reserved the matter for order on October 20, 2022, after hearing a host of senior counsel for petitioners including Zal Andhyarujina, Vikram Nankani, Sharan Jagtiani, Srijan Sinha, Janak Dwarkadas, Aspi Chinoy (for Yes Bank) and Ravi Kadam for Reserve Bank of India.
The write down of AT-1 bonds has affected the legal rights of a class of citizens and thus is amenable to writ jurisdiction, argued a party in person.
The Administrator and the Yes Bank contended it was fully entitled to write down the AT-1 bonds and “decision to write down was a commercial decision taken in exercise of and pursuant to contractual agreements and rights and powers contained therein.”
The HC said, “Yes Bank Ltd., is a banking company’’ and in 2016 to augment its Additional Tier 1 Capital, Yes Bank decided to issue certain Basel III Compliant Additional Tier 1 Capital Bonds in the form of nonconvertible debentures on a private placement basis via Debenture Trustee Agreement of December 22, 2016. Axis Bank was appointed as the Debenture Trustee, said its lawyer Vikram Trivedi of MKA and Co.
The same day Yes Bank floated an Information memorandum for the private placement of Basel III Compliant AT 1 Capital Bonds in the form of non-convertible debentures for an aggregate value of Rs. 2100 crore with a greenshoe option of an additional Rs. 1500 Crore in case of over subscription. In October 2017, the bank floated additional AT-1 capital bonds worth Rs 3000 crore.
Pursuant to the moratorium on Yes Bank, RBI issued Draft reconstruction scheme dated 06.03.2020 wherein it specifically proposed writing down of those AT1 bonds. However, the final scheme passed by Central Govt deleted that clause reinstating the bond holding. The High court held that the Final Scheme shall prevail and therefore the write off is not sustainable.
“Individual bond holders, most of whom were senior citizens, can finally find some justice through this judgment of the Bombay High Court,’’ said Sinha who represented individual bond holders, later.
