SC upholds Bombay HC ruling quashing Yes Bank’s Rs 8,415-crore AT1 bond write-down; says administrator had no power to act

The Supreme Court on 15^th October 2026 dismissed appeals by Yes Bank, the Reserve Bank of India (RBI) and the Union government against a 2023 Bombay High Court judgment that set aside the March 2020 write-down of ₹8,415 crore of the bank’s Additional Tier 1 (AT1) bonds. The ruling ends a six-year legal fight by investors whose holdings were reduced to zero during the government-led rescue of the lender.

A bench of Justices Dipankar Datta and Augustine George Masih held that Yes Bank’s administrator acted “ultra vires” when he wrote down the bonds on March 14, 2020. That was a day after the Centre had notified the Yes Bank Limited Reconstruction Scheme, 2020, and the final scheme no longer contained the write-down clause that had appeared in the draft.

The court also directed that annual coupon payments on the bonds “shall remain unaffected” and must be made in terms of the bonds’ information memoranda. Each side will bear its own costs. The judgment, reported as 2026 INSC 1132, is dated October 15.

Three grounds against the write-down

The bench ruled against the appellants on three separate grounds.

The scheme dropped the clause on purpose. Clause 6 of the draft scheme, published on March 6, 2020, said the bank’s Basel III AT1 instruments “shall stand written down permanently, in full.” That paragraph was missing from the scheme notified on March 13. The court relied on an internal RBI note to the Department of Financial Services, obtained under the RTI Act. The note recorded objections from bondholders and from Axis Trustee Services, the debenture trustee, which had proposed converting the bonds into equity instead. Its conclusion was that “it may not be appropriate to modify these through the proposed Reconstruction Scheme” and that the provision “may be dropped.”

The court reasoned that by leaving out any clause on the bonds, the Centre “gave its imprimatur to leaving it untouched.” It said the administrator’s write-down reversed that decision. It added that if the government had meant to let the administrator write down the bonds after deleting the clause, it would have been open to “the accusation of committing an act amounting to a fraud on public.” It also rejected Yes Bank’s argument that the general savings clause in the scheme preserved the administrator’s power. A power not specifically conferred, the bench said, cannot be implied from “a general, omnibus savings clause.”

The write-down came too late. Clause 2.15 of Annex 16 of the RBI’s Master Circular on Basel III Capital Regulations says that when a bank is reconstructed under Section 45 of the Banking Regulation Act, its AT1 instruments must be converted or written down “before amalgamation / reconstitution.” Senior advocate Shyam Divan, for Yes Bank, argued that reconstruction is a continuing process that could run for three years, and that the power to write down the bonds lasted for that whole period. The court rejected this. “Before” can only mean before the scheme takes effect, it held. Reading it any other way would leave investors “to wonder at what point the guillotine blade might fall.”

The bench compared this with the Lakshmi Vilas Bank case. There, the administrator wrote down ₹318.20 crore of Basel III Tier 2 bonds on November 26, 2020, one day before the amalgamation with DBS Bank India took effect. “Why the same course was not adopted remains unexplained,” the court said.

Wrong authority. Under the bonds’ terms, the bank itself could write them down at the pre-specified trigger, which is a CET1 ratio below 6.125%. It did not do so. Once the point of non-viability (PONV) is reached, the court held, the decision moves to the RBI. An administrator appointed under Section 36ACA only stands in for the board of directors, so he “could not have assumed the regulatory role of the RBI.” The RBI, for its part, had chosen not to exercise the power.

Sharp words for regulator and bank

The bench described the conduct of “the triumvirate of the RBI, the Administrator, and of course, Yes Bank” as “to put it mildly, questionable.” It called the RBI “a mere bystander” that allowed the bank’s CET1 ratio to fall to 0.6% as of December 31, 2019, against a requirement of 7.375%.

The court also said Yes Bank had sold AT1 bonds directly to individual investors, even though the instruments were high-risk and meant for institutional buyers. It referred to a December 2016 email from a Yes Bank Chennai relationship manager that pitched the bonds to individuals. It noted that SEBI had penalised a wealth management firm and the bank’s then managing director over such sales. However, bonds sold directly by the bank fell outside SEBI’s regulations.

The appellants had warned that upholding the High Court ruling would set off a “financial avalanche” and undo the rescue. The bench declined to look at events after March 2020, including the respondents’ argument that the bank has since recovered and that SBI exited at a profit. It held that the validity of an administrative action must be tested on the facts and law as they stood on the day it was taken.

Yes Bank had earlier said that any financial liability arising from the final verdict would be recognised in the relevant future reporting period.

Background

Yes Bank issued two tranches of Basel III-compliant AT1 bonds: ₹3,000 crore on December 23, 2016, at a 9.5% coupon, and ₹5,415 crore on October 18, 2017, at 9.0%. Axis Trustee was the trustee for both. An earlier ₹280-crore series from 2013 was not Basel III-compliant and was not part of the write-down.

As the bank’s finances deteriorated, the Centre imposed a moratorium on March 5, 2020. The RBI superseded the board and appointed Prashant Kumar, a former SBI deputy managing director, as administrator. A consortium led by SBI then invested fresh equity under the reconstruction scheme. Bondholders, including Axis Trustee, Indiabulls Housing Finance and several retail investors, challenged the write-down. On January 20, 2023, the Bombay High Court quashed it, which led to the present appeals.

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EXPLAINER: What is an AT1 bond?

Origins. AT1 bonds came out of the 2008 global financial crisis, when taxpayers had to rescue failing banks while bondholders were largely protected. To make investors share losses, the Basel Committee on Banking Supervision brought in the Basel III framework in 2010. The RBI applies it in India through its Master Circular on Basel III Capital Regulations.

Where they sit in a bank’s capital. Basel III splits regulatory capital into two parts:

• Tier 1 is “going-concern” capital, which absorbs losses while the bank keeps operating. It has two layers:
  • Common Equity Tier 1 (CET1): mostly shareholders’ equity and reserves.
  • Additional Tier 1 (AT1).
• Tier 2 is “gone-concern” capital, which absorbs losses in liquidation.

Under the RBI’s rules, banks must hold Tier 1 capital of at least 7% of risk-weighted assets (RWAs), and at least 5.5% must be CET1. The remaining 1.5% can come from AT1, though this is optional.

Key features.

• Perpetual. The bonds have no maturity date. The bank can call (redeem) them, usually after a minimum period and only with RBI approval.
• Discretionary, non-cumulative coupons. The bank can skip interest payments, and missed coupons do not build up as a liability.
• Loss absorption by design. The bonds can be written down (partly or fully) or converted into equity if one of two triggers is hit:
  • a pre-specified trigger: CET1 falling below 6.125% of RWAs (5.5% before March 31, 2019), at the bank’s option; or
  • the point of non-viability: when the RBI decides the bank cannot survive without a write-off or a public capital injection.
• Low in the repayment order. AT1 holders rank above equity shareholders but below depositors, general creditors and Tier 2 bondholders.
• Higher yield. Because of these risks, AT1 bonds pay more than ordinary bank bonds. Yes Bank’s paid 9–9.5%.

Why Yes Bank’s case mattered. The RBI’s position was that Basel III rules allow AT1 bonds to be written off before equity, so bondholders can lose everything while shareholders keep some value. That is what happened at Yes Bank in 2020 and at Credit Suisse in 2023. Thursday’s ruling does not dispute that AT1 bonds can be wiped out. Its point is that the write-down must follow the procedure, timing and authority set out in the Master Circular and the bond terms.

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