High Court quashes write-off of Yes Bank’s AT1 bonds; purely on technical grounds

Bombay High Court has quashed the write off of Rs 8,500 crore additional Tier-1 (AT1) bonds issued by Yes Bank (YBL); write off was part of a restructuring plan to rescue the Bank in March 2020.

“It appears that administrator exceeded his powers and authority in writing off AT-1 bonds after the bank was reconstructed on March 13, 2020,” according to the court order.

The court has not based its judgment on the rationality of the write off, or whether such bonds can be written off even as equity holders are not impacted, or whether the bonds were mis-sold to the retail.

The order is purely on the technical grounds –

  • The final order issued by the Government on the reconstruction of YBL on March 13, 2020 did not include clause on write-off of the bonds.
  • The administrator Prashant Kumar, however based on the draft scheme that RBI had issued earlier on March 6, 2020, announced that the bonds are being fully written off.
  • And this discrepancy between the draft scheme from the RBI and the final scheme that the government announced is the reason why the Court has quashed the write off.

Given the above, I would not personally read too much into the order as of now. YBL is surely going to appeal to the Supreme Court against the High Court’s order.

As regards mis-selling to retail, SEBI had already separately fined the bank, its personal wealth management team and its founder Rana Kapoor. Adequacy of the same can obviously be questioned but that’s a different matter and not covered by the subject order.

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