Bombay HC While Quashing Write Off Of Bonds Worth Over 8000 Crores: Administrator Could Not Have Taken Policy Decision After Yes Bank Reconstruction

The Bombay High Court in the case Axis Trustee Services Limited v. Union of India and Ors observed and has set aside the decision of Yes Bank to write of Additional Tier 1 bonds Rs. 8415 Crore value observing that the RBI has appointed the Administrator which could not have taken such a policy decision after the bank already stood reconstituted. The division bench comprising of acting Chief Justice SV Gangapurwala and Justice S. M. Modak in the case observed while deciding a batch of petitions filed by the bond holders. The court in its order held that on March 13,2020, Yes Bank stood reconstituted upon the Notification of the final Yes Bank Ltd. Reconstruction Scheme, 2020. Therefore, after the bank was being reconstituted, the Administrator could not have taken such a policy decision of writing off the debentures and nor he has been authorised by the RBI for doing so. Thus, the Final Reconstruction Scheme also did not authorize Administrator to write off the AT-1 bonds and it is being appeared that Administrator exceeded his powers and authority in writing off AT-1 bonds after the reconstruction of the bank. Therefore, the Tier 1 bonds are unsecured debentures with no maturity date. The bondholder being a creditor to the company who issues the bond. After the said decision, the Yes Bank will have to pay the dues i.e., principal amount and interest to the bondholders. Further, it has been issued by the yes bank in the year 2016 and 2017 Basel III complaint AT-1 capital bonds in the form of non-convertible debentures on a private placement basis. Thus, Axis, one of the petitioner being the debenture trustee to act on behalf of the debenture holders. The court observed that the financial position of Yes Bank deteriorated and the RBI, under section 45 of the Banking Regulation Act, 1949 applied to the central government for imposition of moratorium on the Yes Bank. The court imposed a moratorium on 05.03.2020. Therefore, the RBI appointed an Administrator under section 36ACA of the Act. The Administrator can exercised all the powers of board of directors until the board of directors is reconstituted. The court noted that on March 13, 2020, the final Yes Bank Reconstruction Scheme was notified. It has been informed by the Administrator that the Bombay Stock Exchange and the National Stock Exchange the decision to write of the AT-1 bonds on 14.03.2020. This being under challenge in the said case. It has been stated by the court that it will not decide whether writing of the bonds was necessary as it doesn’t possess the necessary expertise. The court only considered whether decision making the process was followed and whether the Administrator had the power to write down the bonds. It has been contended by the petitioner that the Administrator of the Yes Bank had no power to write of the bonds while Yes Bank contended that the issuance of the bonds to the petitioners is a contractual transaction and administrator was within its right as per clause 57 of the contract. Further, it has been stated by the court that if a private bank and the writ petition is not maintainable against it. It has also been noted by the court that the draft reconstruction scheme had a clause for writing of the bonds but in the final scheme the clause was deleted after the petitioner objected to it and suggested conversion of bonds into shares. Therefore, the final scheme which is being sanctioned by the central government did not contain any provision for writing down AT-1 bonds. Accordingly, the court held that the moratorium period was for three working days under the final scheme and the Administrator appointment was for 7 working days. It being because the moratorium period was extended and or the administrator was continued for further period of 7 days (time for the new Board of Directors to take over) and that in itself would not be sufficient to conclude that the reconstruction scheme has not come into effect on 13.03.2020. 

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