Yes Bank Bond Write-Off: SC Rules Bank Has to Pay ₹8,415 crore with Coupon To Bondholders, Shares Crash

In a significant setback for private lender Yes Bank and financial regulators, the Supreme Court on Thursday upheld a Bombay High Court judgment that invalidated the bank's decision to write off Additional Tier-1 (AT-1) bonds worth ₹8,415 crore. With the verdict, shares of Yes Bank Limited crashed by 10% to ₹19.09 on the BSE. 

A two-judge bench comprising Justices Dipankar Datta and Augustine George Masih delivered the ruling, confirming the 2023 decision that struck down the debt cancellation executed during the lender's 2020 bailout scheme.

The verdict follows an extensive hearing process where judgment was reserved on May 20. Before concluding proceedings, the apex court examined Cabinet records related to the bank's reconstruction process, including meeting minutes, quorum details, and resolutions to determine whether proper executive protocols were followed during the rescue plan.

As the chief law officer solicitor general Tiushar Mehta, appearing for the Union Ministry of Finance, the Reserve Bank of India (RBI), and Yes Bank, SG Mehta argued that wiping out the AT-1 bonds was an essential component of the 2020 bailout package. The Supreme Court's ruling invalidating the ₹8,415 crore write-off is a notable defeat. 

Regulators Warn of Systemic Impact Across Banks

Appearing for the Union Finance Ministry, the Reserve Bank of India (RBI), and Yes Bank, Solicitor General Tushar Mehta defended the write-off as an indispensable step to restore capital and prevent systemic failure. Mehta argued that AT-1 bonds are Basel III-compliant debt instruments specifically designed to absorb financial losses when a bank faces solvency threats.

Highlighting the broader ramifications for Indian high-yield debt markets, the Solicitor General informed the court that around ₹1.81 trillion in AT-1 bonds remain active across various domestic lenders. He cautioned that diluting the loss-absorption mechanism of these instruments risks inflicting severe, long-term damage on capital-raising capabilities throughout the Indian banking sector.

Bondholders Challenge Administrator’s Authority

Representing institutional and retail investors, counsel for Axis Trustee Services argued that the administrator appointed by the RBI had exceeded statutory powers by writing down ₹8,415 crore in bond capital without adhering to due process under the final reconstruction framework.

Legal teams representing the investors maintained that the administrator acted unilaterally, failing to provide statutory notices or give bondholders a fair hearing before wiping out their investments. The investors asserted that emergency restructuring plans do not grant administrators unchecked authority to bypass established legal procedure.

Four-Year Legal Dispute Ends in Favor of Investors

The crisis began in March 2020 when rising bad loans, governance issues, and severe liquidity shortfalls led the RBI to place Yes Bank under a temporary moratorium. Under an emergency rescue plan led by the State Bank of India (SBI) and other institutional backers, the administrator cancelled the bank's ₹8,415 crore AT-1 bond issue on March 14, 2020.

Affected investors subsequently moved the Bombay High Court, which quashed the write-off decision in January 2023 after finding procedural irregularities in how the cancellation was executed. The apex court's dismissal of appeals filed by Yes Bank and the central bank opens a clear pathway for bondholders to seek recovery of their capital.