The decision by Yes Bank to issue Additional Tier 1 bonds with a value of Rs. 8415 Crore was overturned on January 20 by a division bench of the Bombay High Court, which was comprised of acting Chief Justice SV Gangapurwala and Justice S. M. Modak. The court noted that the RBI appointed Administrator could not have made such a policy decision after the bank had already been reconstituted. 

When deciding a group of petitions submitted by the bond holders, a division bench found that:

“ Yes Bank stood reconstituted on March 13, 2020 upon the Notification of the final Yes Bank Ltd. Reconstruction Scheme, 2020. After the bank was reconstituted, the Administrator could not have taken such a policy decision of writing off the debentures…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. It appears that Administrator exceeded his powers and authority in writing off AT-1 bonds after the bank was reconstructed”.

The court observed that the information brochure's Clause 57 is the same as Clause 2.5 of the Master Circular for Guidelines on the Basel III Reforms, which was issued by RBI in accordance with its legal authority. For the rehabilitation of Yes Bank, RBI cited section 45 of the 1949 Act and issued the moratorium order. Additionally, it designated the administrator and made the reconstruction plan public. The court concluded that because the agreement has a legislative foundation and the information brochure has a "statutory flavour," it is enforceable.

The petitioner opposed to it and recommended that the bonds be converted into shares, therefore the section for writing of the bonds was removed from the final reconstruction design, the court noted. Thus, there was no provision for writing down AT-1 bonds in the final arrangement approved by the federal government. 

The court noted that article 57 implied that the AT-1 bonds may only be written down before the bank is rebuilt.

Under the final design, the moratorium period was three working days long and the Administrator's appointment was seven working days long. “Only 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), that in itself would not be sufficient to conclude that the reconstruction scheme has not come into effect on March 13, 2020”, the court held.

Informed by the Administrator on March 14, 2020 
The petitioners argued that the Yes Bank Administrator lacked authority to issue the bonds, but the Yes Bank responded that the administrator was within its rights under clause 57 of the contract because the issuance of the bonds to the petitioners was a contractual transaction. It also claimed that because it is a private bank, the writ petition cannot be maintained against it.

Case Title: Axis Trustee Services Limited v. Union of India and Ors
Case no.: Writ Petition No.785 of 2021