Yes Bank Administrator Exceeded Authority In Writing Off AT1 Bonds, Says Bombay High Court

Bombay High Court finds procedural lapses in Yes Bank's AT1 bond write-off.

<div class="paragraphs"><p>(Source: Yes Bank Facebook Page)</p></div>
(Source: Yes Bank Facebook Page)

The Bombay High Court held that the Reserve Bank of India-appointed administrator for Yes Bank Ltd. exceeded his authority in writing off additional tier-1 bonds worth Rs 8,415 crore.

"It appears that administrator exceeded his powers and authority in writing off AT-1 bonds after the bank was reconstructed on March 13, 2020," Acting Chief Justice SM Modak said in his detailed order on Friday. BQ Prime has reviewed a copy of the order.

The matter follows a March 14, 2020 letter by the Yes Bank administrator, which stated that owing to Yes Bank's deteriorating financial position and the need for the regulator to introduce a reconstruction scheme, the necessary triggers for writing down of AT-1 bonds had been reached. Thus, the administrator informed exchanges about the writing off of the bonds.

After this, certain bondholders had approached the Bombay High Court with a petition to reverse such a write-off.

What Are AT1 Bonds And Why They Could Land Yes Bank In Trouble? BQ Explains

The court noted that a draft scheme of reconstruction was issued by the RBI on March 6, 2020, where the write-off of the AT1 bonds was originally proposed. Stakeholders were then invited to provide comments on the scheme. In the final scheme notified on March 13, 2020, the clause referring to the write-off of the bonds had been removed.

According to the court's assessment, Yes Bank was reconstituted on March 13, 2020, after the final reconstruction scheme had been notified. The board of directors for the reconstructed bank was also notified in the final scheme. However, the board was to take a few days before it would convene, during which time the administrator's tenure was extended beyond March 13, 2020.

"During this period, the administrator could not have taken such a policy decision of writing down the AT-1 bonds. Nor the RBI had authorized him to do so. The final reconstruction scheme also did not authorize administrator to write off the AT-1 bonds," the court noted in its order.

In its order, the court notes that it is not taking this decision on the merits of whether the AT1 bonds should have been written down. Instead, the court has relied on procedural lapses by the administrator for the order.

The high court said this order will not be an impediment for Yes Bank to take further course of action, as permissible under law. The court also provided a six-week stay on the order.

"Needless to state that on lapse of six weeks, the protection granted shall come to an end," the court said in its order.