Supreme Court Limits Administrator Power to Write Down AT-1 Bonds in YES BANK Reconstruction

Supreme Court Holds YES BANK Administrator Had No Power to Write Off AT-1 Bonds

The Supreme Court in YES BANK Limited & Anr. v. Axis Trustee Services Limited & Ors., 2026 INSC 1132, held that the Administrator of YES BANK could not write down Additional Tier-1 bonds to zero during the bank's 2020 reconstruction. The Court upheld the Bombay High Court's finding that the write-down was unauthorised because it was contrary to the final reconstruction scheme.

YES BANK had issued AT-1 bonds worth Rs 3,000 crore in December 2016 and a further Rs 5,415 crore in October 2017, with Axis Trustee Services Limited acting as trustee for the bondholders. The instruments were issued to strengthen the bank's capital and carried specific conditions under which investors could bear losses if the bank faced financial difficulty.

After a deterioration in the bank's financial position, the Central Government imposed a moratorium on 5 March 2020 under Section 45 of the Banking Regulation Act, 1949. An Administrator was appointed in place of the Board of Directors and a draft reconstruction scheme was published for comments. That draft contained a provision for writing down the AT-1 bonds in full.

When the Central Government notified the YES BANK Limited Reconstruction Scheme, 2020 on 13 March 2020, the write-down provision was omitted. The question was about the powers of an administrator after that final version was notified. On 14 March 2020 the Administrator still wrote down the bonds to zero, wiping out the investments. The action was set aside by the Bombay High Court, and YES BANK, the Reserve Bank of India and the Union of India appealed to the Supreme Court.

Draft allowed write-down, final scheme did not

The Court said the omission was material. It found the provision had appeared in the draft but was left out of the final reconstruction scheme of Yes Bank after objections and representations. The final scheme recorded the Government's decision on how the bank was to be reconstructed, and the Administrator could not act contrary to it.

YES BANK and the Administrator had relied on a general provision in the scheme that preserved certain existing powers. The Court rejected that argument. It held that a general clause could not by itself confer the specific power to write down the AT-1 bonds where authority was required under the applicable regulatory framework.

For that framework the Court looked at the RBI Master Circular on Basel III Capital Regulations and the Information Memoranda governing the bonds. It said those documents set the terms on which the bonds could absorb losses. The Administrator's action had to be tested against them and against the Yes Bank reconstruction plan as finally notified, and not treated as an open power flowing from the financial crisis.

The appeals were therefore dismissed and the bondholders' challenge succeeded, leaving the 14 March 2020 write-down without legal effect.